 Chapter 7
Development and Implications of the Asian NIEs
—A trap for high-income countries as well;
a diverse verification is necessary
Shigesaburo Kabe
Principal Economist, Japan Center for Economic Research
Key Points


For ASEAN to achieve economic growth, the basic factors for economic growth(high savings rate, strong human capital, high trade freedom, superior institutions
such as low corruption, and careful financial/monetary policy) are necessary. In
particular, it is important to expand human capital through education and the like.



There is the possibility that the middle-income trap is hidden in a number ofdevelopmental levels, and so avoiding only one trap does not constitute a final policy
objective. On the contrary, it is more important to take heed of the likelihood of
falling into a number of traps, and to develop policies that envision methods for
dealing with them.



Even if the transition is made from a middle-income country to a high-income
country due to high growth in a short period of time like in the NIEs, there is thepossibility that after the middle-income trap, there is another waiting trap of a sort
faced by high-income countries. Even in the case that some time is needed for
growth and the middle-income trap is experienced, it is possible during that period todevelop social institutions and the like to provide against a high-income trap. In
such a case, there is the possibility of leading to mid-/long-term growth strategies.

Per capita GDP (1960-2012)$1,00050

Indonesia

Malaysia

40

Singapore
30
Thailand
20

Korea, Rep.
Hong Kong SAR

10

Taiwan01960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: World Bank, World Development Indicators (2013)

Japan Center for Economic Research, 2013 ―Asia Research‖ Report90Introduction

South Korea, Taiwan, Hong Kong, and Singapore are referred as the Newly Industrialized
Economies (NIEs), and are frequently noted for being examples of successful economic
development by achieving eye-popping economic growth in the latter half of the 20th century.
It is often heard that in order to avoid the middle-income trap, ASEAN should learn from theNIEs1 such as South Korea.

However, the following three points should be kept in mind:

First is whether the development process experienced by the NIEs is due to factors that canbe applied in other countries.

The second point is whether the NIEs were merely ―star pupils‖

who avoided the middle-income trap.

If the NIEs were able to transform into star pupils of

economic development despite having experienced the middle-income trap, this would signifythat a beneficial lesson could be learned by the ASEAN countries that are facing the risk of the
middle-income trap.

Then, third is whether the perspective from ASEAN of observing the

NIEs such as South Korea and Taiwan as a future objective is the same as the perspective
when looking back at history from those NIEs.

If the landscape seen by the NIEs looking

back differs from the landscape seen by ASEAN when gazing at the future, the amount that
could be learned from the NIEs just by following in their footsteps could be limited.

Indeed,even if the NIEs were able to avoid the middle-income trap, there is the possibility that they
have faced different, new problems when reaching a higher development level due to impropercountermeasures during the middle-income period.

The question is how is ASEAN toappropriately respond to the middle-income trap while incorporating a viewpoint going past
the transition to being high-income countries.

1

91

Hong Kong and Singapore have characteristics of city economies, and so taking into account the comparisons with ASEAN, theanalysis here will use South Korea and Taiwan as representative NIEs.

Japan Center for Economic Research ―Asia Research‖ ReportFigure 1: Per capita GDP (1960-2012)$1,00050

Indonesia

Malaysia

40

Singapore
30
Thailand
20

Korea, Rep.
Hong Kong SAR

10

Taiwan01960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: World Bank, World Development Indicators (2013)

1. The success factors of South Korea and Taiwan

1.1

The developmental path of South Korea and Taiwan

First, the kind of developmental path South Korea and Taiwan traveled along to achieve
economic growth will be reflected upon, and whether that experience results from factors
unique to South Korea and Taiwan or from factors that can be generalized will be discussed.
Regarding the reasons why South Korea was able to grow rapidly, Lee (2012) notes that it
was due to having ―‗good fundamentals‘ such as a high saving rate, strong human capital, ahigh degree of trade openness, the maintenance of good institutions (less corruption), andprudent fiscal and monetary management,‖ and argues that countries satisfying these basic
requirements would also be able to grow in a similar manner to South Korea. According to
Lee (2005), South Korea ―started with a level of per capita output far below its own long-run
potential levels‖, but during the process of chasing after the advanced countries, rapidly
achieved capital accumulation and increased productivity, thus closing the income gap to thoseadvanced countries.

Investment in education also progressed rapidly, and the number ofpeople who had received tertiary education at a university or the like rose sharply from 4.6% in
1970 to 26% in 2000.
In Taiwan as well, there was a virtuous cycle of high savings and high investment, whichfurther led to an increase in exports, and an autonomous sustainable growth pathway led tohigh growth (Sakai and Noda 1988). Taiwan was also diligent in human investment, and in
1968, ―carried out institutional reforms causing the required years of education to be 9 years,

Chapter 7 | Development and Implications of the Asian NIEs

92

and pursued improvement of the quality of the labor force as a policy issue‖ (Sumiya et al.
1992).

The middle school enrollment rate went from 32% in 1950 to 79% in 1970 and 96%

in 1980.

The high school and related enrollment rates also exhibited an increasing trend from

51% in 1950 to 83% in 1970 and 85% in 1990 (Ministry of Education 2006). The above
points are common to South Korea as well.
Looking at economic policy, many developing countries adopted import substituting policies
in the 1960s, but South Korea had the driver of economic growth being a shift towards anexport-oriented industrialization (Fukagawa 1999).

Taiwan also promoted an export-oriented

industrialization during the economic growth period starting in 1964 (Sumiya et al. 1992).
Taiwan, which had a small domestic market similar to South Korea, was forced to orient
towards export markets, and leveraged exports in a strategy aiming for economic growth.
Next, let us consider rapid growth from the perspective of international competition.
matters is ―backwardness.‖

What

Japan traversed the Lewis Turning Point in around 1960,

followed by Taiwan in the late 1960s and South Korea in the beginning of the 1970s (Minami
and Ma 2009).

Asian countries, as latecomers, aimed for economic development throughindustrialization, but what is seen in common between South Korean and Taiwan is the rapid
economic growth taking ―advantage of backwardness‖ that turns backwardness on its head,
although it looks disadvantageous at first glance. Watanabe (1982, 2001) pays attention to
the fact that the speed of South Korean and Taiwanese economic growth and the change ofindustrial structure supporting it was greater than that of Japan and the other advanced
countries, and notes that economic development was achieved by compressing the experienceof Japan and the like.2
Up to here, the argument was that the growth factors applied to South Korea and Taiwan arecommon, basic factors.

Although it can be said that they are required conditions for

economic growth, there are different opinions over whether they are sufficient conditions.
One of them is that incomes are relatively equal. Compared to the Latin American countries
that stagnated while growth was expected in the latter half of the 20th century, Taiwan and
South

Korea

were

characterizedbyhavingalow

incomedisparity

betweenlandowners/capitalists and the unskilled workers, tenant farmers, and agricultural workers.
While having various political problems, Taiwan maintained a significant stability as income
disparities were low from the beginning stage of development.
2

93

In the backdrop to this,The advantage backwardness is: 1) being able to reduce time and cost by introducing capital and technology from countries thatare ahead, 2) the latecomer country having the advantage in catching up by introducing technology all at once from the heavy andchemical industrial sector involving a large amount of fixed equipment capital, 3) as a result, during the initial industrializing
period, the country that is behind needing a large business operation scale, and 4) rather than resource mobilization and industrialorganization being self-starting, being formed from above (Gerschenkron 1962, Watanabe 1982).

Japan Center for Economic Research ―Asia Research‖ ReportSumiya et al. (1992) argues that the implementation of agricultural reforms after WWII and theindustrialization focused on small and medium enterprises progressing in the form of a ruralindustry drew agricultural workers into the employment market, thus causing a reduction inincome disparities.
Figure 2: International comparison of income distributions
Income disparity
between top 20%
and bottom 20%

Gini
coefficientCountryYear

Taiwan

1970

4.58

0.294

1976

4.18

0.280

1980

4.17

0.277

1985

4.50

0.290

1987

4.69

0.299

1976

7.95

0.362

1980

7.95

0.39*

Mexico

1977

19.90

0.492

Brazil

1972

33.30

0.565

S. Korea

1976

0.59*

Japan

1979

4.31

0.270

US

1980

5.00

0.329

Source: R.O.C., The Survey of Personal Income Distribution, 1987.
Numbers with asterisks are from ILO, Bridging The Gap, 1987.

South Korea achieved similar reforms, but Noland (2012) notes that in the 1950s, whenSouth Korea was at an early stage of economic development, disparities in assets and income
were resolved through land reforms, which ―is probably irreproducible.‖South Korea

accelerated growth by means of economic development while traversing the process of
reducing income disparities by means of land reforms, and it is argued that by satisfying thecondition of reduced income disparities at the initial period of the developmental stages, thisled to the high growth called the miracle on the Han River.
Meanwhile, Cho (2005) indicates the view that without the international environment
surrounding post-WWII South Korea—where there was economic aid from the US in the
1950s, a global free trade system, and large demand from the advanced countries with respect
to labor-intensive goods—economic development of the later countries would have been
impossible, and so the era context surrounding the country in question affects whether or not

Chapter 7 | Development and Implications of the Asian NIEs

94

high growth is possible.

Ariff (2012) also argues that between the era in which South Korea

grew and today, there furthermore has been a change in appearance in environment, and so―times have changed: what had worked for Korea in the past may not work in the future.‖
To summarize the above, the development of South Korea and Taiwan fundamentally were
driven by factors that could be applied by other countries as well, but with respect to whether
or not it is possible to reproduce the rapid development like those two countries, there is thepossibility that other factors such as the international environment and the like at the time
contributed to the realization of unusually high growth, and even if the ASEAN countries
achieve economic growth, they will not necessarily realize the high growth of those twocountries.

1.2

Shifts in industrial structure

Both Taiwan and South Korea shifted their industrial structures from light industry tohigher-added-value heavy and chemical industries, and achieved economic development whilestrengthening their export orientation.
The Park Chung-hee Administration (1961-1979), which laid the rails for South Korean
economic development, aimed for efficient capital accumulation and effected industrial
vitalization by leveraging policy financing including the introduction of foreign capital.

Also,based on the promotion of an export-driven industrialization focused on the assembly industry,
considering both aspects of international politics keeping North Korea at the forefront, anddomestic politics which face criticism against the administration, energy was put into theheavy and chemical industry starting from the 1970s (Ishizaki 1996, Kasai 1996, Nozoe 2009).
South Korea took a strategy of quickly pursuing a ―full set‖ nurturing of industry based on
the Japanese model.

When doing so, the complicated relationship with North Korea, that is,of opposition with the possibility of unification in the future, drove industrial nurturing, andSouth Korea moved towards targets of nurturing assembly industries and raw materials
industries. As a result, the important industries of assembly and raw materials were nurtured,
but the component industry and the machine tool industry, which take time to form, were notnurtured as expected (Hattori and Sato 1996). South Korea promoted economic development
in a government-led manner, and the government also looked after fundraising, and so theeconomic risks for industrialists during the economic development were low.

Consequently,

conglomerates and the like from an early stage had the extra strength to foray into the heavy
and chemical industry which required a high risk and an accumulation of capital (Hattori and
Sato 1996).

95

Japan Center for Economic Research ―Asia Research‖ ReportMeanwhile, under a policy of export-oriented industrialization, Taiwan grew in labor
intensive manufacturing around 1960. Exports to the US, imports from Japan, and direct
investment and technological transfers from Japan and the US, these all drove Taiwaneseindustrialization.

Centered on small and medium enterprises, networked division of labor

increased export competiveness, and steadily grew exports (Sumiya et al. 1992).
From the 1970s, in addition to the shift towards the heavy and chemical industry (steel andpetrochemical) by public enterprises and the major private corporations, the spotlight wasshined on technology-intensive industrial nurturing. Then from the 1980s onwards, thehigh-tech industries such as personal computers and semiconductors centered on contract
manufacturing came to drive the economy (Sato 1996, 2009).

1.3

Technological development

One reason behind having the key to competitiveness in overseas markets was thetechnological strength from development to production. With respect to South Korean
technological development, Park (1989) notes that until 1980, the adoption of overseas
technologies was mainly performed by the government, which differed from theprivate-sector-led Japan.

Thereafter, technological development was carried out by the major

corporations centered on the conglomerates.

Overall, the R&D orientation was stronger, andhigh-level technology could be efficiently absorbed in a short period of time.

On the other

hand, the state continued in which ―the extent of having technology for application and serious
improvements has not reached‖ (Park 1989).
According to Hattori (2005), Japan and South Korea traveled different development
pathways as follows:
Japan: Mature/assembly technology  Mature/processing technology
Processing/cutting-edge technology
South Korea: Mature/assembly technology  Assembly/cutting-edge technology
This difference shows that South Korea had weak experience with processing because due tobeing behind Japan and the like, therefore South Korea was pressed with the need to growquickly, and so did not have the spare time to produce components and machine tools
themselves.

An increase in exports inevitably causes the import of main parts to beunavoidable, and so the trade deficit with Japan ballooned.

The task for technologicaldevelopment remained that, ―the Korean economy will need to foster efficient small andmedium sized enterprises‖ (Lee 2005).

The low technological ability of the small and

Chapter 7 | Development and Implications of the Asian NIEs

96

medium sized enterprises was continually noted following the 1980s which saw high-levelgrowth.
Meanwhile, in Taiwan, local small and medium enterprise groups with international
competitiveness contributed to improving the acquisition of foreign capital, and contrasted
with South Korea which consists of a few large businesses forming an oligopoly and an
overwhelmingly large number of micro-businesses (Sakai and Noda 1988). In the exportindustries, labor-dividing networks had formed focused on the small and medium enterprises,
but Sato (2009) notes that the fact that connections with overseas markets were as OEM(original equipment manufacturer) suppliers contributed to technological advancement. Within
this, a specialty of Taiwan‘s major companies was the ―foundry‖ method (as contract
production).

Foundry companies receive design data from semiconductor manufacturers who

are making orders, and produce semiconductor chips.3

Semiconductors, which are used in

final goods such as household appliances, become more and more minute every year, and socontract producers must have high-level production technology to be able to meet the requests
for increased minuteness from the ordering companies.4

There are cases where there is

involvement from the design stages for the final product, and as the final product increases insophistication, the technological ability of the contracting manufacturer for the semiconductors
also rises. This increases their voice and influence.

2. South Korea, Taiwan and the middle-income trap

Having overviewed the technological development pathway of the NIEs, in this section,
whether or not the NIEs were the ―star pupils‖ that were not caught in the trap will be
confirmed.

According to Eichengreen et al. (2013) also touched on in Chapter 2, the percapita GDP stagnation occurs in the two locations of the vicinity of a $15,000-$16,000 PPP(Purchasing Power Parity) and the vicinity of a $10,000-$11,000 PPP.5

3

In other words, there

Semiconductor chip production facilities require enormous costs, and moreover have a short development cycle. Thus, foundrycompanies produce semiconductor chips for various semiconductor manufacturers, and so it is possible for semiconductor
manufacturer to concentrate product development. In terms of costs, since the manufacturing is all done by one foundry company,
it is more efficient than if the semiconductor manufacturers each manufactured independently. The largest foundry is the
Taiwan Semiconductor Manufacturing Company (TSMC), and the United Microelectronics Corporation (UMC) is also a major
player.
4
For example, TSMC increased its production ability for cutting edge products used in smartphones by a factor of three
year-over-year in 2013, and expanded its yearly capital investment to a new record high of $10 billion. High performancesystem LSI used in the communication and image processing of smartphones are required to be more compact and to have lower
power consumption, and so the circuits need to be made more minutely. The production capacity for cutting-edge 28 nanometerline width products was tripled in 2013 (Nikkei Shimbun, April 23, 2013).
5
Eichengreen et al. (2013) studied countries with a per capita GDP of over $10,000 (2005 $US PPP basis), and considered the trap
to be when the average growth rate for a 7 year period was at least 3.5%, while in the next 7 year period the annual average
growth rate fell by at least 2 percentage points.

97

Japan Center for Economic Research ―Asia Research‖ Reportare multiple stages for getting trapped in the middle-income trap and growth stagnating.
South Korea fit this condition in 1989-1997 (with a per capita GDP in 1989 of $10,570) andTaiwan from 1993-1997 ($18,542 in 1995).
If the trap exists at multiple development stages, avoiding it becomes much more difficult,and even countries with a high income level like South Korea and Taiwan experience it.

Inthat case, it is more important not to avoid the trap, but to take heed of the possibility of thetrap and consider countermeasures on that basis.
Figure 3: South Korea‘s growth rate and foreign exchange rate

20

％

KRW

1600

15

1400

10

1200
1000

5

800

0

600
400

-5
Growth rate

-10

1800

200

Exchange rate against the U.S. dollar

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

0

Source: Bank of Korea
South Korea achieved high growth known as the ―miracle on the Han river,‖ but thereafter
experienced the Asian currency crisis of 1997, and its economy tumbled.

Although slightly

different from the period cited by Eichengreen et al. (2013) for the trap (1989-1997), South
Korea was thereafter pressed into structural reforms under the International Monetary Fund(IMF). Nozoe (2009) pointed out the structural reforms under the IMF signified the destructionof the government-led high-level growth strategy of direct government financing.

In

subsequent reforms, there was a conversion of business operation to the market economy
through business structural reforms and financial reforms.6 Then, South Korea returned to a
growth track traveling along such a path.

6

In order to leverage policy financing to promote economic development, the South Korean government had placed banks under
government influence through holding stock and the like. As a result, the South Korean banks were merely the organizations
carrying out policy financing, and this situation was derogatorily referred to as direct government financing (Nozoe 2009).

Chapter 7 | Development and Implications of the Asian NIEs

98

Cho (2005) notes that in the process of South Korea attempting to catch up to the advanced
countries, it came to have the characteristics of a lopsided relationship between the major
corporations and the SMEs, capital/labor relations, and unbalanced structure in financial
industry.

This suggests that the compressive growth process during the period of economic

growth caused structural problems in South Korea, bringing the distant cause of economiccrisis.

However, at the same time, the fact that the structural improvements accompanying

the pain to Korean economy led to a foothold for further growth.
Meanwhile, Taiwan had achieved high growth by means of developing labor-intensive
export industries until the mid-1980s.

By developing the labor-division networks ofsmall-scale businesses, which were Taiwan‘s specialty, flexibility was increased whileabsorbing costs (Sato 2009).

However, in addition to rising wages in the mid-1980s, thesudden appreciation of the yen due to the Plaza Accords in 1985 also affected the New
Taiwanese dollar (N.T. dollar), increasing the exchange rate against the U.S. dollar.

From the1960s onward, what had been 36-40 N.T. dollars to 1 U.S. dollar rose to 31 in 1987.

In thefirst half of the 1990s, the rate shifted to 25-26 as the highest appreciation of the N.T. dollar.
The small and medium businesses that had dealt with the labor-intensive exports moved
production bases to Southeast Asia and China.

As a result, the average growth rate in N.T.

dollar which had maintained an upward trend from 8.2% in the 1950s to 9.0% in the 1960s, to10.1% in the 1970s dropped to 7.7% in the 1980s with the experience of a rising exchange rate,
and then to 6.3% in the 1990s. The trap period (1993-1997) as noted by Eichengreen et al.
(2013) matches this period exactly.
Although maintaining a level of 6.4% in the 1990s and 3.4% in the 2000s, as new industries
in the place of the labor-intensive industries, there came to the scene computers,
semiconductors, liquid crystal panels, and the like.

99

Japan Center for Economic Research ―Asia Research‖ ReportFigure 4: Taiwan‘s growth rate and foreign exchange rate

16

N.T.Dollars

%

45

14

40

12

35

10

30

8

25

6
20

4

15

2

10

0
Economic growth rate

-2

5

Average exchange rate against the U.S. dollar (right axis)

0-41951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Source: Directorate-General of Budget, Accounting, and Statistics; National Statistics, ROC

3. The pluses and minuses of compressiveness
To South Korea and Taiwan, even if having achieved efficient and compressed
econmic growth would be a plus, did the compressed growth bring about side effects(minuses)?

Two such minuses will be discussed here.

The first minus as statedearlier appeared during the Asian currency financial crisis in 1997 in South Korea.
This is the negative effect of the three-in-one economic development regime ofgovernment = conglomerates = finance. If the public sector and the for-profit private
sector partner constantly, if a rational function of mutual checks does not take effect, adivision of roles involving specialization in fields of particular skill becomesinsufficient.7 At the time of the Asian economic crisis, the need arose to acount for all
the deferred costs of institutional reforms and structural reforms that had
accumulated in the past, and the structural reforms accompanying the IMF
intervention were forced.
The other minus is the negative effect resulting from compressive changes arising insocial instituions and familes.

The achievement of a high level for the per capita

income on the one hand brought about the progression for women towards a higher
7

Even when aiming to shift from light industry to the heavy and chemical industry, South Korea ―was inclined towards carrying
through with the heavy and chemical industry ignoring costs as a defense industry‖ (Fukagawa 1999) against the backdrop of
military tensions with North Korea.

Chapter 7 | Development and Implications of the Asian NIEs

100

level of educational achievement and participation in the labor force. The enrollment
by women in two- and four-year colleges increased, and the proportion of women in thelabor force in South Korea and Taiwan rose sharply, particularly among
25-29-year-olds.

These changes altered the thought process of people who would havechosen marriage previously.

In other words, there was an increasing trend to still get

married eventually but to postpone it and to focus on career progression.

This change

in judgment and behavior by individuals led to an increase in the average age of firstmarriage for women. The average age of first marriage for South Korean women rosefrom 26.5 (in 2000) to 29.4 (in 2012), and in Taiwan rose from 26.1 (in 2000) to 29.5 (in2012), thus shifting later.

If a society as a whole becomes economically abundant in a rapid manner, and the mannerof working for individual women changes greatly, it is easy for social institutions and the liketo fall behind the pace of the changes.

For example, for childbirth and childcare, as thenumber of working women increases, there is also an increase in women who wish to continue
working after childbirth, or in other words to achieve both a child/home lifestyle andemployment. Meanwhile, the provisions in the social environment to support that have notcaught up. As individual ways of working and ways of living diversify, if the provisions of
the institutions that support them do not follow suit, there could be cases where a person would
be pressured to withdraw from the labor market or be overburdened with childcare in the cases
when work is continued.
When comparing South Korea, Taiwan, and Japan in the crude marriage rate (number ofmarriages per 1000 people), the crude birth rate (number of births per 1000 people) and thecrude divorce rate (number of divorces per 1000 people), all of which pertain to family
formation, in each indicator the tendency of compressing Japan‘s experience can be seen in
South Korea and Taiwan.8

8101Soma (2010) notes that the changes in birth rate and diversification of family formation (more fluid, i.e. including divorce, andmore global, i.e. including international marriage) are occurring 1) in a short period of time, and simultaneously 2) abruptly.
Compared to Japan, it is argued that more compressive changes are occurring in families in South Korea.

Japan Center for Economic Research ―Asia Research‖ ReportFigure 5: Changes in family formation in South Korea and Taiwan

4(South Korea)

‰

‰

25
20

3

Crude divorce rate (left axis)

15
2

Crude marriage rate (right axis)

10
1

5

0
1980

4

1985

1990

1995

2000

2005

(Taiwan)

‰

2010

‰

Crude birth rate (right axis)

0

25
20

3

Crude divorce rate (left axis)
15

2

Crude marriage rate (right axis)

10
Crude birth rate (right axis)

1

5

0
1980

1985

1990

1995

2000

2005

(Japan- reference)

‰

2010

‰

4

0

25

20

3

Crude divorce rate (left axis)
15
Crude marriage rate (right axis)

2
10

Crude birth rate (right axis)

1
0

5

1980

1985

1990

1995

2000

2005

2010

0

Source: Kabe (2013b)

Chapter 7 | Development and Implications of the Asian NIEs

102

Economic development is expected through formulating and engaging with policy goals on
a macro basis.

Meanwhile, improvements in social institutions pertaining to family and ways

of working need to be handled on a micro-basis targeting individuals or households, and so
success requires a complicated path of improvement as well as time. The more compressed theeconomic developments or family changes, the less social institutions can change fast enough,and the resulting gap often is borne by the individual or household on a micro-basis.
Figure 6 indicates the relationship between the female labor force participation rate and total
fertility rate (TFR) in 2009.

In it, not only Japan but also South Korea and Taiwan fall below

the positive correlation line (the direction of a lower TFR).

This suggests the possibility thatin Taiwan and South Korea, the educational level of women rose and opportunities for women
to work increased, whereas the environmental developments for balancing working andchildcare are behind those in the other OECD countries.

McDonald (2008) notes that ―low

fertility derives from social and economic institutions that are unfriendly to families withchildren,‖ which may apply to South Korea and Taiwan.

Figure 6: Female labor force participation rate and TFR for OECD 31 and Taiwan (2009)
TFR
3

2.5
2
1.5
1
0.5
40

50

60

70

80

Female labor force participation rate (%)
Source: Kabe (2013a)

This painful experience in Taiwan and South Korea signifies the possibility thateven after escaping the middle-income trap during compressed economic growth,“unexpected traps” were waiting in the socioeconomic arena after reaching
high-income status.

103Japan Center for Economic Research ―Asia Research‖ ReportAs an example of an unexpected trap, let us examine the TFR data.

South Korea

and Taiwan are low-birthrate societies, and the TFR is less than or equal to 1.3 foreach.9Less than or equal to 1.3 is an extremely low birth rate.

Once this low of arate is reached, it has been noted that it may not be possible to escape from such astate.

This is called the low-fertility trap hypothesis (Lutz et al., 2006).10

Even if other problems11 that are faced by a society after it achieves high growth
and reaches a high-income stage are called traps, they may qualitatively differ fromthe middle-income trap.

However, if in order to avoid the middle-income trap, issues

are postponed, and economic growth is concentrated in an attempt to achieve as muchgrowth in a short period as possible, it must be noted that this is a short-sighted
perspective focusing on the middle-income trap. 12

In other words, there is thequestion of whether it would have been evaluated poorly if growth took too much timeand resluted in getting caught in the middle-income trap.
4. Implications for ASEAN

In this chapter, the following three questions are discussed: 1) Can the development processexperienced by the NIEs be applied? 2) Were the NIEs star pupils that did not get caught in the
middle-income trap? 3) Is the view from ASEAN at the NIEs as a future target the same as theview from the NIEs reflecting back at history?
Regarding 1), the basic factors of economic growth (high savings rate, strong human capital,
high trade freedom, superior institutions such as low corruption, cautious fiscal and monetary
policy) are believed to be a reference point for ASEAN.

At the same time, technologicalThe birthrate level necessary for the children‘s generation to have the same population as that of the parents is approximately 2.1,
If this level is continuously not met over the long term, the future population decreases. There are many levels beneath the 2.1
level, among which a birthrate of 1.5 was considered the lowest. However, countries reaching a ―lowest-low fertility‖ of lessthan or equal to 1.3 appeared in the 1990s. These countries are in South and East Europe, the former Soviet Union, and East
Asia.
10
In Lutz‘s hypothesis, the trap of not being able to escape from a low birth rate constitutes the factors that 1) the overall population
declines, 2) when children who have experienced a low-child society become parents, the number of children they want to havedecreases, 3) and at the same time as the birthrate declines, the population ages, resulting in a lower expected income by theyounger generations compared to those prior, reducing the desire to have children.
11
For example, Chang (2010) discusses the ―compressed modernity‖ of South Korea in a multifaceted manner from political andeconomic aspects pertaining to families.
12
There is the persistent argument that in order to avoid the trap, growth should be achieved while taking as little time as possible
by concentrating economic resources in fields linked to economic growth. However, if the reason is to aim for the mostefficient mode of economic development from the perspective of cost burden, this would remain a short-term perspective. History
shows that problems such as pollution and environmental contamination have arisen as a result of advancing towards efficienteconomic development and industrial vitalization. It is true that designs and revising production processes for the environment
and to prevent pollution are often avoided due to increased costs. However, ignoring environmental problems causes negative
effect to become much greater, ultimately causing countermeasures to be unable to be adopted. As a result of putting off
immediate costs, the costs borne by the society as a whole become yet greater. In the future, although it is nearly certain thatparticular problems will occur, considering countermeasures would ultimately be the most cost-effective path. Conversely, anattempt to delay costs will result in them swinging right back.
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development differed greatly even between the NIEs of South Korea and Taiwan themselves.
Therefore, even if the ASEAN countries emulate the successful experiences of South Korea or
the like, they will not always succeed, and it is necessary to consider the process of promoting
technological development to match the conditions in the country.
As to 2), if the middle-income trap itself is hiding at a number of different developmentlevels, just avoiding one trap cannot be a final policy objective.

On the contrary, it should be

more important to change thought processes and to develop plans based on the possibility of
being caught in multiple traps.
Finally, regarding 3), countermeasures kept in mind against traps found even after reaching
high-income status should be considered.

In other words, even after transitioning from being

a middle-income country to a high-income country, there is the possibility of other traps thatface high-income countries waiting beyond the middle-income trap.

The experience of South

Korea and Taiwan that achieving high growth in a short period of time could increase the riskof falling into the next trap (for high-income countries) suggests that compressed economic
growth is not necessarily the best counterplan.

If more time is required for development andthe middle-income trap is experienced, if that time period is used to develop social institutions
and the like to provide against the high-income trap, this could lead to a mid-/long-term growthstrategy.

When considering methods for handling traps currently being faced, even though it

takes some time, if a careful response that includes preparing against the next trap is heeded, it
is possible to face not only the middle-income trap but also the high-income trap in a mannersuperior to the NIEs.
Extending this thought process leads to that different middle-income countries may havedifferent countermeasures for the traps depending on income level.
Finally, the positioning of South Korea and Taiwan is summarized for ASEAN as follows:
the two counties potentially 1) are prior examples that give a hint for avoiding the
middle-income trap as much as possible, 2) are references indicating ideas for measuresagainst having fallen into the trap, and 3) are negative examples of unexpected burdens in thesocioeconomic sphere resulting from the rapid economic development.

The economic

development miracle of these countries should not be one-dimensionally followed andreferenced, but a multi-faceted verification of their development path is believed to be usefulfor ASEAN, which is facing the middle-income trap.
Learning the experienced of South Korea and Taiwan as negative examples, the ASEAN
countries facing the problem of the middle-income trap must keep in mind the issues in theway of becoming abundant, and indicate a blueprint for the issues expected in the next

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Although the predicted future issues differ by country, if the case ofSouth Korea and Taiwan is considered, how to support working women becomes an important
problem.

As a society becomes wealthy and women become more educated and employed in

the workforce, if women cannot balance childbearing/childcare with work, a drop in the birthrate and a labor shortage could become severe problems.
Also, alongside increases in standards of living, increases in public health, medical level,and nutrition tend to lead to longer average lifespans.

As a result, although an increase in the

proportion of elderly individuals as well as the absolute value of such individuals has been
predicted, in such a case, it would also be necessary to promote the development of social
welfare aspects such as medicine and pensions.13

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