The East AsianExperience of
Economic Developmentand Cooperation
Kenichi Ohno
National Graduate Institute for Policy Studies

Background
Polarization of the developing world
into high and low performers
 East Asia as a high performing region
--Diversity in size, income, culture, etc.
--Failures and bad periods also existed--But high growth was sustained in mostcountries and over the long run

1

Per Capita GDP(In 1990 international
dollars)
Graph:
GDP inGeary-Khamis
EA vs Africa
4000
3500

East Asia

3000
2500
2000

Africa1500
1000
50001950

1960

1970

1980

1990

1998

Source: Angus Maddison, The World Economy: A Millennial Perspective, OECD Development Centre, 2001

Real Growth 1960-2001%

Taiwan[Newly Industrializing Economies]

Graph: growth over timeKorea

20

Hong KongSingapore

15105-102000

1995

1990

1985

1980

1975

1970

1965

-519600

Source: Economic Planning Agency, Asian Economic 1997.
For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database, April 2002.

2

Real Growth 1960-2001%Malaysia
ThailandIndonesia
Philippines[ASEAN4]151052000

1995

1990

1985

1980

1975

1970

1965

-519600-10
Source: Economic Planning Agency, Asian Economic 1997.
For the data of 1997-2001, IMF, The World Economic Outlook (WEO) Database, April 2002.

-15

SIZE (2000)

Korea & Taiwan
4%Graph: size comparison

East AsianPopulation

China[Total 1,935 million]

65%

7%

ASEAN
24%

(32% of World Total)

East Asian GNP
China[Total $7,013 billion]at Actual Exchange Rate

15%

Japan
65%

Korea &Taiwan
10%10%(22% of World Total)
Sources: World Bank, World Development Indicators 2002; For Taiwan, ADB, Key Indicators 2001.

3

Wars, Crisis and Internal Troubles
1950

1955

1960

1965

1970

1975

1980

1949 Independence

China1985

19901995

2000 -1979 Policy of Reform and Opening Up begins

Graph: wars and conflicts
1958-60 Great Leap Forward

1997 Hong Kong Handover
Death of Deng Xiao-ping

1976 Death of Mao Tse-tung

1966-76 Cultural Revolution

1989 Tiananmen Square Incident

China-Taiwan Problem

1973-74

1979-80

1950-53 Korean War

1997-98
Asian Crisis

1961 Coup d'etat [Korea]

North-EastAsia

Oil Shock1979 Assassination of President Park [Korea]

Oil Shock1947 Riots against Government [Taiwan]

South-East
Asia:
Indochina

End of World War II

Korean Peninsula Problem

1946-54 Indochina War [Vietnam]

1986 Doi Moi (Renovation) Policy begins [Vietnam]

1954 Division of Vietnam into South & North
1979-89 Vietnam invades Cambodia
1965-75 Vietnam War [Vietnam]
1976 Reunification of Vietnam
1958 Coup d'etat by Sarit [Thailand]
1971 Military coup d'etat [Thailand]
1960-61 Coup d'etat [Laos]
1975-78 Khmer Rouge - Pol Pot Regime [Cambodia]
1962 Coup d'etat by Revolutionary Council [Myanmar]

South-East
Asia:
MaritimeCountries

1963 Federation of Malaysia [Malaysia/Singapore]
1965 Coup d'etat - End of Sukarno years[Indonesia]
1965 Independence from Malaysia[Singapore]
1969 Riots [Malaysia, Singapore]

1988 Military coup d'etat by SLORC [Myanmar]
1985-86
Oil Price Decline

1957 Independence as Malaya [Malaysia]

1965-86 Marcos Dictatorship [Philippines]

East Asian Development
Growth driven by trade and investment
 Collective growth, not isolated orrandom Staggered participation in regional
production network
 Region as an enabling environment for
catching up (model and pressure)4

“Asian Dynamism”
Geographic diffusion of industrialization
 Within each country, industrialization
proceeds from low-tech to high-tech Also known as the Flying Geese Pattern Clear order and structure (with apossibility of re-formation)
Flying Geese 1

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)

5Flying Geese 2

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)

Flying Geese 3

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)

6Per Capita Income (2000)

US$

40,000Graph:
percapita
incomeat Actual
ExchangeRate
30,00020,000at PPP

10,000

Cambodia

Lao PDR

VietnamIndonesia

China

Philippines

T hailand

M alaysia

Korea

SingaporeJapan

Hong Kong

0

Source: World Bank, World Development Indicators 2002 .

Manufactured Exports(% of total exports)
100%Japan

Graph: manufactured exports

TaiwanKorea

80%

Singapore
Malaysia

60%

ThailandPhilippines
40%

Indonesia
China

20%

Vietnam
Myanmar
1998
1999
2000

1996
1997

1993
1994
1995

1990
1991
1992

1988
1989

1987

1984
1985
1986

1981
1982
1983

1980

1978
1979

1975
1976
1977

0%

Source: ADB, Key Indicators of Developing Asian and Pacific Countries , 2001/1993; IMF, International Financial Statistics Yearbook 1990. For
Japan, Japan Statistical Yearbook 2002/1999, Statistics Bureau/Statistical Research and Training Institute, Ministry of Public Management,
Home Affairs, Posts and Telecommunications, Japan.
Sources: ADB, Key Indicators of Developing Asian and Pacific Countries , 2001/1993; IMF, International Financial Statistics Yearbook 1990. For Japan, Japan

7

Structural Transformation in East Asia
Country32

Latestcomers

Latecomers

ASEAN4NIEs

1JapanGarment

Steel

Popular TV

VideoHDTV

Garment

Japan

Steel

PopularTV
Video HDTV

Competitiveness

12Garment

NIEs
Japan

Latecomers
ASEAN4Time
Competitiveness

Competitiveness

Time

3

LatestcomersTime

International Division of Labor

Garment

Steel

Latest comers

PopularVideo HDTVTV

ASEAN4

Latecomers

Japan
NIEs

8

East Asia's Trading Partners
100%Others
Europe80%

N. America
60%

Japan
40%

East Asia

20%0%

1980

1985

1990

1995

1996

Foreign Direct Investment Flows(Billions of USD / year)[1st Half of 1990s][2nd Half of 1990s]

JapanJapan
2.4

2.4
2.6

NIEs

NIEs
8.7

4.8
2.2

7.8

8.5

ASEAN4ASEAN4
1.3

9.8

China

4.3
1.3

11.5

China

Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2002, p12.
Note: Flows less than $1 billion are not shown. The “NIEs to China” flow excludes Hong Kong.

9

Trade in Machine Parts(Billions of USD / year)[1990][1998]

Japan

Japan
8.5

18.6

NIEs
5.0

NIEs
21.7

7.2

ASEAN4

29.9

15.3

19.2

ASEAN4

7.6

6.9
5.5
6.8

China

China

Source: Ministry of Economy, Trade and Industry, White Paper on International Trade 2001, p12.
Note: Flows less than $5 billion are not shown.

The Role of Government
In low-income or transition economies with
undeveloped markets, privatization andfree trade alone may not lead to prosperity
 Unregulated markets may be unstable andpolarize income (domestically and globally)
 Escape from the vicious circle of low
income, low saving and low productivity10Factors often cited: not true causesHigh level of education
 Export promotion
 High savings and investment
 Income equality and shared growth Good government-business relationship “Selective intervention”
These are tools needed to join the regional
production network, which each country must
prepareBasic Roles of East Asian States

Political stability and social integration(precondition for development)

Task 1: Create a competitive market
economy Task 2: Initiate and manage globalintegration
 Task 3: Cope with negative aspects ofgrowth(emerging income gaps, congestion, pollution, corruption, etc.)11Authoritarian Developmentalism
What if the government is weak?
 East Asian answer: install a strong statewith economic capability--National obsession with industrializationand export competitiveness--Powerful and economically literate leader--Elite team to support the leader--Top down: not necessarily “democratic” byWestern standards

Authoritarian Developmentalism in East Asia
1945

50

55

60

65

70

75

80

60 61

Rhee Syngman

Korea

Park Chung-hee
75

Nationalist Party
46

Philippines

48

53

61

55

46 48

Thailand76

UMNO / Rahman

Razak

63

73

Goh Chok-tong

77

Mahathir
80

88

97

Chuan

Kriangsak

ChatichaiVietnamese Communist Party

62

U Nu

91

PremThanomLabor Party

Habibie

81

Hussein
75

76

48

EstradaWahid

Lee Kuan-yew
7051
Indochina
Communist Party

98

Ramos

90

People'sAction Party

Sarit

ChenShuibian

99

65

57 58

Phibun92

AquinoSuharto57

Malaysia

Kim Dae-jung

Macapagal

59

LaborParty

Singapore

Myanmar86

Marcos

2000

97

Lee Teng-hui

Chiang Ching-kuo

SkarnoIndonesia

95

Kim Young-sam

88

65

GarciaMagsaysay

Vietnam

78

Chiang Kai-shek

57

Quirino

90

87 88
92
Noh TaeChun Doo-hwan
woo49

Taiwan85

79

88

Burma Socialist Programme Party / Ne Win

SLORC

Source: Akira Suehiro, Catch-up Type Industrialization , Nagoya University Press, 2000, p115.

12

Rise & Fall of Auth. Developmentalism
Established under severe threat tonational security or unity Often by military coup
 Replaces a previous weak government
 Economic growth legitimizes the regime
 Over time, its own success undermines
legitimacy and leads to democratictransition (Korea, Taiwan)
Redefining “Good Governance”
To initiate trade-driven growth, different
and narrower conditions are needed--Strong leadership with ownership--Administrative mechanisms for policy consistency
and effective implementation

High-performing East Asia did not have--Transparency, accountability, participatory process,clean government, privatization, free trade(maybe not necessary for initiating growth?)13

Role of Regional Cooperation
To maintain Asian dynamism, regional
efforts are essential
 Avoid or remove difficulties and crises
 Support the private sector fromsidelines
 Present visions to reduce uncertainty

From Market-led to Institution-ledPreviously,--Integration by private sector (trade, FDI)--Open regionalism--Informal and voluntaryNow, institutionalization has begun--“ASEAN+3” is the main framework--AFTA, ARF, ASEM, AIA, IAI, Chiang Mai Initiative...
--Bilateral and regional FTAs are proposed (someconcluded)--Initiative for Development in East Asia (IDEA)

14

Remaining Issues for East Asia
Maintaining regional peace and security
 Narrowing the gap between early
developers and latecomers
 Promoting globalization while mitigating
its negative impacts
 HRD, institution building, governancefor strengthening competitivenessEast Asia Should Also:Project its views to the world--Markets must be managed properly--Diversity, not uniformity, in development
strategies--IMF’s wrong response to the Asian crisisStudy the new modality of industrial
promotion in the age of globalization--Neither laissez-faire nor protectionism

15

Japan’s Role in East Asia
1. By far the largest ODA donor
2. Large trading partner (together with US, EU)
3. Japanese firms are chief architects ofregional production network through
FDI (especially in electronics)
4. Regional leadership?
5. Economic vitality?

Japanese ODA

Two-track principle(1) For the prosperity of Japan and East Asia
(2) For solving global issues (poverty, health,education, environment, refugees...)Helping the “self-help” effort of LDCs--To grow and become equal trading partners

Supplementing private dynamism--Infrastructure, HRD, policy/institutional support--Coping with growth-induced problems

16

Poverty Reduction in East Asia
Extreme poverty in East Asia already halved

(1990: 27.6%  1999: 14.2%)

National strategy for equitable growth in place(even before PRSP)

Aid coordination centered on pro-poor
measures unlikely to work in East Asia
 Vietnam: strong ownership, growth and equity,
PRSP under existing national strategy
(Does Vietnam really need an externally imposed PRSP?)

Implications for Africa


Simple replication will not work--Different situations, no regional network--However, methodology for policy formulation
can be transferredAfrica must balance:--Fight against poverty (humanitarian)--Growth generation (for long-term self support)Concrete growth strategy needed, inaddition to PRSP

17

Japan’s Approach Emphasizes:
Respect for each country’s uniqueness Long-term and holistic perspective Real-sector concern (trade, investment,key industries, technology...) Help in good times as well as badThis can complement the current approach basedon short-term conditionality, frequent monitoring
and globally common framework

Steps to Japanese Involvement
First, build domestic support for more
aid to Africa (but ODA is being cut) Select a few countries and study deeply--New selectivity criteria for growth--Create a permanent policy research team--Work with government, IFIs, other donors--Support “growth” component of PRSP

Propose a concrete and realistic
strategy, with additional ODA18Last Words

Japan already extends such policy
support to Vietnam, Laos, Myanmar,Mongolia...
(but it must be further improved)Ad hoc, short-term involvements areunlikely to produce lasting results

THE END

Photo by Saizou Uchida (location: Sakai-gun, Fukui Prefecture, Japan)

19