Global COE Hi-Stat Discussion Paper Series 309

Research Unit for Statisticaland Empirical Analysis in Social Sciences (Hi-Stat)

Catch-up, Sustainable Economic Growth and Education
Stock in East Asia

Hi-Stat Discussion Paper

Yoshihisa Godo

October 2023

Preliminary; not for quotation
This discussion paper is prepared for “A Study Workshop on the Quantitative Macro Economic History of thePhilippines, 1900-2010”. This international workshop is supported by the 2022 research grant from the Japan
Center for Economic Research (JCER).

Hi-Stat

Institute of Economic Research
Hitotsubashi University
2-1 Naka, Kunitatchi Tokyo, 186-8603 Japan
https://gcoe.ier.hit-u.ac.jp

Catch-up, Sustainable Economic Growth and Education
Stock in East Asia
Yoshihisa Godo
Meiji Gakuin University
godo@eco.meijigakuin.ac.jp
SummaryThis paper provides nearly 100 years of detailed estimates of education stock in Japan,
Taiwan, Korea, the Philippines, and the United States. Examining this, the paper
studies the role of education in terms of catch-up economic development and shows thatJapan, Korea, and Taiwan achieved economic growth with a smaller education stock
than the United States during their miraculously high economic growth periods. In thatsense, these three countries enjoyed the latecomer advantage. Simultaneously, thispaper argues that Japan’s poor economic performance, since around 1990, is
attributable to its insufficient investment in tertiary education. It also points out thatthe primary school education completed in the Philippines may be suitable for thosewishing to be hired as unskilled laborers by English-speaking foreigners but unsuitablefor promoting the development of domestic industries.
Acknowledgement
As a part of the PRIMCED Database Project, organized by Professor Takashi Kurosaki
of Hitotsubashi University, I have engaged in constructing a more accurate, detailed,and longer-term dataset of education stock (Godo, 2011, 2012, 2014).
1 Introduction
Many intuitive arguments hint that the pursuit of, and changes in, educationin East Asia have been critical for its miraculous economic success.

Empirical studies

on the macroeconomic role of education in East Asian countries have been so limited,
however, that researchers in economics are still uncertain about even basic questions
such as whether and how education has contributed to the East Asian Economic Miracle.
This paucity of empirical analyses can be attributed to a lack of detailed datasets foreducation.
Among the rare available datasets of education stock, many researchers use theexhaustive work by Barro and Lee (2010).
Lee’s dataset has limitations.

However, despite its usefulness, Barro andOne of the most serious problems is that theirtime-frame is limited—their estimates include only a couple of decades in the postwar
period.

This limitation makes it difficult to analyze the economic role of educationfrom a long-term perspective.

In addition to this, the accuracy of their estimates has

been questioned.
This paper proceeds as follows. Section 2 discusses the theoretical link between educationand economic catch-up. Section 3 outlines my methodology of estimating education stock.
Section 4 briefly reviews the economic performance of five countries—Japan, Korea,
Taiwan, the Philippines, and the United States.

Based on my dataset on education

stock, Section 5 studies the economic role of education in the catch-up process. The lastsection concludes the paper.
2 The theoretical link between education and economic catch-up
The world today is characterized by an extremely large income gap between
low-income developing countries and high-income developed countries. In order to catch
up with the developed countries, developing countries need to absorb advanced
technologies and production systems from the developed countries.
There is a wide literature that attempt to connect education with economic
growth. Though the evidence is mixed, it is generally argued that the relationship is
positive and significant. Hanushek and Kimko (2000) and Hanushek and Wößmann
(2007) for example conclude that “cognitive skills - rather than mere school attainment - arepowerfully related to individual earnings, to the distribution of income, and to economic
growth”. The microeconomic studies show that there is a significant return of investment ineducation in terms of personal income; at the national level when appropritae adjustments
are made similar returns to education in terms of growth can be concluded (Lindahl andKrueger, 2001). Pioneered by Romer (1986) and Lucas (1988), the new endogenous
growth theory also argues for the relationship between economic growth and humancapital accumulation.
Ohkawa and Rostovsky (1973), who were the first to emphasize the importanceof absorptive capacity with reference to Japan’s industrialization, proposed the term“social capability,” which included not only the technical competence of workers, butalso commercial, industrial, and financial institutions. Later, the concept of socialcapability was extended to include the political and social structures that prevented
vested interests from impeding innovations.
In order to improve social capability, two types of human capital are required.
One is a relatively small cadre of high-level scientists and engineers who can translateforeign technology for domestic use. The other is a mass of disciplined and industrial
laborers who understand the basics of the translated technology and master its use inaccordance with the instructions obtained at each level of management hierarchy
within a large-scale factory system.
In the early stage of economic development, people are agriculture-oriented. At
this stage, traditional farmers are not familiar with scientific knowledge. In addition,
they are not accustomed with the working style of the industrialized society, where thedivision of labor develops and people work with the inorganic rhythm of the clock. In
such a situation, the modern school system provides precious opportunities for ordinary
families to access scientific knowledge and involve in group activities. Thus, school
education can be regarded as a social system to create human capital that is requiredfor developing countries to catch up with developed countries.
Theoretical background for the necessity of human capital accumulation forsustainable economic growth has been strengthened by development of the so-called
endogenous growth model since the late 1980s. i The legitimacy of the endogenous
growth model has been increasingly proved by various empirical studies.

For example,

Burja and Burjia (2013) proved that educational factors played a crucial role in theeconomic performance in the EU’s new member states.
I agree that school education has various important uneconomic functions. For
example, teaching and learning of social justice could be regarded as one of the mostessential parts of school education, while it does not guarantee economic development.
Nevertheless, as Spring (2015) points out, a review of the history of theeducation policy in the post WWII period reveals that increasing emphasis is placed on
the economic effects of school education. This trend is called “economization of
education.” Thus, it would be legitimate to focus on how school education in East Asia
contributed to their economic catch-up.

3. Methodology for measuring education stock
To measure education stock, I use the average number of years of schooling perperson (henceforth average schooling).

Average schooling can be calculated by adding

the total enrollment for the corresponding years and the ages after adjusting forchanges in the population due to immigration and mortality.

For simplicity, it isassumed that there are no differences in education level between immigrants anddomestic citizens and no correlation between school career and mortality.

Averageschooling is thus calculated using the following equation:

 Gu,t 
Nw,t wuu  x w0  w,t wu ,y u 11

ASx y, t G

y

G
ux

u ,t

where,
ASx–y,t = Average schooling for persons aged x–y in year t;
Nw,t = Total enrollment of persons aged w years in year t; andGw,t = Total number of persons aged w years in year t.
Equation (1) shows that in order to estimate the current education stock for theworking-age (i.e., ages 15 to 64) population, enrollment and population data must be
available over many years.

For example, in order to estimate education stock in theyear 2000 for persons aged 60, the enrollment and population data must be available
from 1940 onward. Despite the limited availability of data for such early years, I havebeen able to capture sufficient historical data.
Equation (1) regards all enrollment equally, regardless of education quality(such as qualification of teachers, student-teacher ratio, and the number of schoolingdays per year), levels, and types.

Even a repeated year is counted as one.

Another assumption underlying equation (1) is that there is no depreciation in
the knowledge provided in school. This may be too strong an assumption, considering
the fading memory of the aged and the possible obsolescence of the knowledge acquiredin earlier schooling years.
Despite these limitations, I believe that such a basic approach as expressed inequation (1) is adequate for a first attempt to construct a long-term dataset ii.
Total educational enrollment can be decomposed into three levels: primary,secondary, and tertiary. However, classification of levels of education differs according
to researchers.

This paper follows the format of school statistics from the UnitedStates Department of Education, in which grades 1–8 represent primary education;
grades 9-12, secondary education; and beyond grade 12, tertiary education.

Table 1 presents the summary of my estimates. Further details are given by
Godo (2011, 2012, 2014).

Average years of schoolinga by levels of education: Philippines, Koreab, Taiwan, Japan, and the United States

Table 1

Tertiarye
0.028f( 1.2 )

Primaryc
2.5( 96.6 )TaiwanSecondaryd
0.066( 2.6 )

Tertiarye
0.020( 0.8 )

Primaryc
6.3)

KoreabPrimaryc Secondaryd
2.1f
0.16f
( 91.8 )( 7.0 )
2.8
( 87.3 )0.34( 10.5 )3.3( 92.0 )

0.20
( 5.6

0.24

8.5

2.2

0.61

)

0.086
( 2.4 )

1.6

(

0.071
2.2 )

6.9

)

3.9
( 83.4 )0.64( 13.6 )0.51( 10.0

8.4

2.7

0.89

)

0.24
( 4.7 )

0.37

)

4.3
( 85.3 )

2.1

(

0.14
3.0

7.3

)

5.4
( 79.6 )1.2( 17.5 )1.1( 15.3

8.3

3.1

1.4

)

0.56
( 7.7 )

0.58

)

5.6
( 77.0 )

2.6

(

0.20
2.9

7.6

)

6.5
( 72.8 )1.9( 21.9 )1.7( 18.4

8.2

3.4

1.8

)

0.94
( 10.3 )

0.75

)

6.5
( 71.3 )

3.0

(

0.47
5.3

7.8

)

7.1
( 67.8 )2.5( 24.0 )2.3( 20.9

8.1

3.6

2.2

)

1.46
( 13.4 )

1.0

)

7.1
( 65.7 )

3.3

(

0.86
8.2

8.0

)

Philippines
1950
1960
1970
1980
1990
2000

Primaryc
4.3( 90.6 )Secondaryd
0.43( 9.0 )

Tertiarye

5.6( 90.6)

0.54( 8.8 )(

6.1
( 88.6)0.68( 9.7 )(

6.9
( 85.2)0.96( 12.0 )(7.4( 82.4)

1.3( 14.3 )(7.9( 80.2)

1.6( 16.0 )(Primaryc
6.3( 83.1 )Secondaryd
1.1( 14.7 )Tertiarye
0.17( 2.2 )

6.9
( 79.0)1.6( 18.2 )()

2.1( 21.6 )

0.37
( 3.8

)

2.6
( 24.0 )

0.58
( 5.4

)

3.0
( 25.8 )

0.75
( 6.5

)

3.3
( 27.0 )

1.0
8.3

0.017

(

0.4
0.033

0.5
0.12

1.7
0.23

2.8
0.30

3.3
0.38

3.8

Japan
1950
1960
1970

7.3
( 74.71980

7.6( 70.61990

7.8( 67.72000

8.0( 64.7

United States

(

0.24
2.8

Primaryc Secondaryd
1.7
8.4( 79.9 )( 15.8 )Tertiarye
0.45( 4.2 ))

8.5
( 75.3 )()

8.4( 70.0 ))8.3( 65.0 ))8.2( 60.9 ))8.1( 58.2 )

0.61
5.4

)

0.89
( 7.4

)

1.4
( 10.6)

1.8( 13.8)2.2( 16.0)2.2( 19.2 )2.7( 22.5 )3.1( 24.4 )3.4( 25.3 )3.6( 25.8 )a. Average number of years of schooling per person in the working-age population (persons aged 15-64 years).
b. Korea before 1945 means the entire Korean Peninsula. Korea thereafter means the Repiblic of Korea (South Korea).
c. Schooling of 1st to 8th grades.
d. Schooling of 9th to 12th grades.
e. Schooling of beyond 12th grade.
f. 1955 value.
Within parenthes are percentages in the total (all the levels inclusive)
Sources see the maintext

Japan

United States

Secondaryd Tertiarye
1.1
0.17

Primaryc
8.4

Secondaryd Tertiarye
1.7
0.45

4 Review of economic growth in East Asia and the United States and the process of
economic catch-up
Before examining the estimation results of average schooling, it is useful toreview economic growth in East Asia and the United States (Figure 1).

The UnitedStates has been the leader in the world economy since the late 19th century.

Thus, itwould be reasonable to assume that the United States has been the world leader that
East Asian countries have attempted to catch.

Japan can be considered part of the first wave of East Asia catch-up
industrialization.

Japan is the first non-Western country that ascended from aless-developed stage to “the club of wealthy nations.”

In contrast with its economic risethrough the 1980s, Japan plunged into a prolonged economic stagnation at the
beginning of the 1990s.

Thus, the Japanese economy has experienced both successful

and unsuccessful economic periods after World War II.
Korea and Taiwan, which also achieved miraculous economic success just
15–20 years after Japan, can be considered part of the second wave of the East Asia
catch-up industrialization.

Currently, Thailand, India, China, and Indonesia areentering the third wave of the East Asia catch-up industrialization.

The Philippines is seen as an example of economic failure and thus was unable
to become one of “the East Asian Tigers.”

Until the beginning of the 1960s, per-capita

GDP in the Philippines was higher than that in Taiwan and Korea, making it arelatively wealthy country in East Asia.

Indeed, in the early post-war period, thePhilippines was often described internationally as the hope of East Asia.
later in the 1960s, there was a slowdown in its economic growth.

However,Currently, theper-capita GDP in the Philippines is lower than that of not only Taiwan and Korea but
also Thailand and Indonesia.
5 The results: Education, catch-up and sustainable economic growth
It is important to recognize that the school education system is a rather
significant institution for underdeveloped economies as they catch-up with advanced
economies. Specifically, a supply of the following two types of human capital is needed
for the effective imitation of advanced industrial technologies (Hayami and Godo, 2010):(1) high-level scientists and engineers who can decode the scientific principles
underpinning machines and equipment that are part of advanced industrial
technologies; and, who can identify appropriate designs and manuals for the use offoreign technologies in local conditions, meaning, human capital completing tertiary
educations; (2) laborers with the aptitude for working under the factory system in termsof conformity with the disciplines of collective work as well as compliance with
instructions from employers conveyed through a hierarchy of management, meaning,
human capital completing primary and secondary education.

The scatter diagram in Figure 2 shows the change in the per-capita GDP andaverage schooling (inclusive of all levels of education) for the six countries. Except for
the years of the Great Depression and the postwar high-growth era, the United Statestraces a clear locus along a straight line.

The result of the OLS regression between

per-capita GDP (Y) and average schooling (AS) for the United States can be expressed in
the following manner:
lnY ＝ 6.31+0.275AS

R2 ＝0.970(59.1)
Broadly, Japan, Korea, and Taiwan followed the path of the United States.
More precisely, the paths of these four countries are slightly lower than the UnitedStates: the later the economic catching-up begins, the lower the path in Figure 2.

Thisimplies that these four countries achieved economic growth with a smaller education
stock than the United States.

In this sense, these four East Asian countries “saved” oneducational investments. This situation can be compared to keirin, a bicycle racing
sport where followers easily trace the path of the top runners by using their windbreak.
How do followers “save” on educational investments? To provide a clear answer
to this question, comprehensive analyses are necessary beyond the scope of this paper.
However, it may be plausible to assume that followers have two advantages.

First,

instead of creating new technologies independently, followers can simply imitate theadvanced technologies of foreign countries that are the outcomes of the heavy
educational investments made by the frontrunner countries.

Second, a country thatbegan to catch-up later can imitate advanced foreign technologies more effectively bystudying the experience of other countries that began their catch-up earlier.

Another question is at what educational level did these four East Asian
countries save on investments? To answer to this, I prepared another scatter diagrampresented in Figure 3 that traces the movement of the combination of per-capita GDP
and average schooling at the education level.
Interestingly, in Figure 3, the paths of Taiwan and Korea are clearly higher
than that of the United States.

This implies that Taiwan and Korea “saved” oninvestments in primary and secondary education (recall that Taiwan and Korea traced
lower paths than the United States in Figure 2). In contrast to Taiwan and Korea,
Japan’s path in Figure 3 is clearly lower than that of the United States. This implies
that Japan “saved” on investments in tertiary education.
It is known that in the miraculous economic growth period, Japanese leaders
did not focus on strengthening tertiary education. Instead, they vociferously demanded
an increase in the number of middle schools orientated toward vocational education.
The allocation of a large budget for middle-level education at the expense of higher-level
education was probably efficient for maximizing the economic growth of Japan in the
postwar catch-up process.

However, the high-growth performance of the Japanese

economy at that time depended on the availability of advanced technology from abroadthat could be readily imitated by a relatively small cadre of high-level scientists andengineers.

This backlog was certain to be exhausted as advanced foreign technology

was successfully imitated. When Japan closed its technology gap vis-à-vis advanced
industrial economies at the end of its successful economic catch-up in the 1980s, it
required new and original technologies to compete with other industrial economies in
the world market. In contrast to imitating ideas from abroad, a larger amount ofhigher-quality human capital is necessary to produce innovative ideas and designs
domestically. However, Japan failed to prepare such a human capital base during themiraculous economic growth period. The very success of the miracle growth caused
Japanese entrepreneurs and policymakers to become blind to the need for high-quality
human capital at the end of the catch-up process.
For Japan’s business society in the early postwar period, primary andsecondary education was probably more important than tertiary education in creating
demand for the domestic products, by affecting consumption behavior of Japaneseyouths. School education at the primary and secondary levels is a highly effective meansfor embedding a Japan-specific preference among youths belonging to middle-classfamilies. School-wide activities such as morning assemblies, school lunches, school
excursions, school festivals, extracurricular activities, and sports days provide
opportunities for Japanese youths to become inculcated into Japanese society andculture. Foreign companies often complain that the tastes of Japanese consumers are so
singular that foreign companies find themselves at a disadvantage against domestic

companies when selling their products to Japanese consumers. This singularity may
have helped the rapid business expansion of domestic companies in the early postwar
period. However, once the Japanese market became saturated after the end of its
high-growth era, such effects ceased to be successful. This may be one of the reasons
why Japan has suffered through such a prolonged recession beginning in the 1990siii.
In contrast to Japan, Taiwan and Korea made relatively heavy investments in
tertiary education and saved on investments in primary and secondary education.
While there are many possible reasons for this contrast, it should be noted that the
populations of Taiwan and Korea are much smaller than Japan. This means that even if
a Taiwan-specific or Korea-specific consumption preference is created, the demand fordomestic products is not as large as in Japan’s case. In addition, apart from primary andsecondary education, Taiwan and Korea require compulsory military training of their
youths, which also contributes to their development. Thus, it is reasonable to assume
that the business societies in Korea and Taiwan did not demand an increase in thenumber of schools providing middle-level education as strongly as the Japanesebusiness society did. In addition, Taiwanese and Korean youths are more motivated toseek education abroad than Japanese youths. Tertiary education leads to the seeking of
job opportunities in foreign countries. This may be among the major reasons for heavy
investments in tertiary education in Taiwan and Korea.
The history of the Philippines in this context is unique; compared with its
education stock the per-capita GDP in the Philippines is low. Why did the Philippines
veer from the path of the United States and the other four East Asian countries?
There are various possible reasons for this. However, it may be important toacknowledge that primary school education in the Philippines has been mostly
completed in English. Thus, it may be reasonable to argue that education in thePhilippines has been suitable for those wishing to be hired as unskilled laborers byEnglish-speaking foreigners.
Hayami and Godo (2011) assert that the economic successes of Japan, Korea,
and Taiwan can be characterized by “military-style heavy industrialization.” These
countries had a large number of laborers who were middle-level educated, homogeneous
laborers during the miraculous economic growth period. Since school education wasusually not completed in English in these countries, those who received a middle-level
education were not at a clear advantage to work abroad. Thus, domestic factories weremore favorable workplaces. This situation is in sharp contrast to the case of thePhilippines.

6. Conclusion
The miraculous economic growth in East Asia is often described as the catch-up
through industrialization, that is, underdeveloped countries achieved high economic
growth by imitating advanced technologies in Western countries. In Section 4, I findthat among Japan, Taiwan, and Korea, the countries that began catch-up
industrialization later “saved” more on educational investment compared with theirprecursors. I call this “the keirin hypothesis.”
Japan’s savings on educational investment differed from Korea’s and Taiwan’s.
While Japan saved on investment in tertiary level of education, Korea and Taiwan
saved on primary and secondary levels of education. Japan's strategy worked very
efficiently in supporting the catch-up growth in the miracle era but turned out to be amajor constraint on sustaining economic growth when this process was completed in the
1980s.
School education in the Philippines was suitable for those wishing to be hired
as unskilled laborers by English-speaking foreigners. This is in sharp contrast withJapan, Korea, and Taiwan, where school education created a mass of homogeneous
laborers suitable for heavy domestic industries. This may be one of the reasons for thePhilippines failure to join “the East Asian Tigers” in the postwar period.

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Lucas (1988) is the pioneer of development of the endogenous growth model. For moredetails, see Hayami and Godo (2005).
ii In future analyses, equation (1) can be revised by putting weight on enrollments
according to quality, levels, and types of education. Further, the possibility ofdepreciating knowledge can be considered by multiplying (1 - δ)u-ｗ- with Nw,t+ｗ-u
in equation (1), where δ denotes the rate of depreciation. This could be a subject for
future research.
iii Hayami and Godo (2010) provide more discussion on this.
i