A Comprehensive Report on the East Asian Miracle and Economic Growth

This report provides an in-depth analysis of the East Asian Miracle, focusing on the remarkable economic growth experienced by several East Asian economies between 1965 and 1990. It examines the role of public policy, particularly fundamental and interventionist policies, in achieving high growth rates. The report delves into the concept of the East Asian Miracle, analyzing the performance of eight high-performing economies (HPAEs): Korea, Hong Kong, Thailand, Malaysia, Singapore, Japan, Indonesia, and Taiwan. It explores the three key functions of growth: accumulation of human and physical capital, efficient allocation of resources, and productivity change. The report also investigates the impact of macroeconomic stability, export-oriented policies, and the accumulation of human and physical capital on economic development. Furthermore, it assesses the role of government intervention, including subsidies, financial institution support, and investment in research and development. The conclusion considers whether the term "East Asian Miracle" is justified, providing explanations for the rapid economic growth observed in these economies, and analyzes the policies that led to their success.

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Executive Summary
East Asia has an incredible performance record of high economic growth. In the phase of 1965-
1990, some economies in East Asia grew rapidly than other economies in the region that led to a
controversial discussion on the reason behind this success. The report will be based on how
economies grew faster in these regions during 1965-1990 and the concept of The East Asian
Miracles. The report focuses on the eight high performing economies in Asia that were Korea,
Hong Kong, Thailand, Malaysia, Singapore, Japan, Indonesia, and Taiwan. These economies
used fundamental and interventionist policies to achieve three functions of growth that is
discussed below; accumulation, allocation, and productivity change. The report includes an
analysis of the role of HPAE in the success of East Asia. Furthermore, the conclusion is based on
analysis whether there is any such concept like East Asia Miracle. Lastly, the reasons for the
rapid growth of these economies are explained.

Table of Contents
Introduction.................................................................................................................................................3
The East Asian Miracle: Economic Growth and Public Policy......................................................................3
Macroeconomic stability and Export Growth due to public policies.......................................................6
Accumulating Human and Physical Capital..............................................................................................6
Efficient Allocation and Productivity Change...........................................................................................8
Conclusion...................................................................................................................................................9
References.................................................................................................................................................10

Introduction
East Asia growth and development was remarkable during 1965-1990. The 23 countries in this
region grew faster than expected. From these countries, high performing Asian economies were
Japan, Korea, Hong Kong, Singapore, Indonesia, Malaysia, Southeast Asia, and Thailand. These
eight high performing economies developed because of government interference in the market.
Growth in these Asian areas and the role of public policy in this development raised the issues
regarding the relationship between the private sector, market, and government (Terry, 2015).
The government intervened through multiple channels in these economies and contributed more
for their development and growth. The interventions took place through following ways that
were subsidies given to sick units, increasing support of government financial institutions, low
deposit rates on borrowing rate so that profits would be increased, and investment by
government in research and development, increasing role of export marketing institutions and
sharing of information at higher level between private sector and public sector (Holcombe,
2017).
This report focus on the analysis of the World Bank Report; The East Asian Miracle 1993 on the
success of HPAE's. In this report, a detailed discussion will be provided that includes the
framework and public policies that contributed to the development and growth of these
economies. Highlights of how East Asia was without the HPAE’s and the sources that were used
by East Asia for product performance.
The East Asian Miracle: Economic Growth and Public Policy
High performing Asian economies were a diverse group, differing in population, culture,
economic policies and availability of resources. These economies came together because of the
various benefits that they got in term of development and growth. Through analysis of their
growth status following points are noted, firstly these economies during 1960-1990 had rapid
growth. Secondly, these were characterized as the dynamic and strong agricultural sector
economies and rapid growth in exports (Yeung, 2017). The below figure 1 shows the average
growth of economies and the impact of HPAE's in the development of East Asia. These
economies were different from developing economies based on three factors that were; high

investment rate, increasing domestic saving and rising abilities of human resource because of
secondary and primary education. All these factors differentiate HPAE’s from other economies
and contributed approximately 70% in the growth of HPAE’s. Thus, considering this entire
factors economist said that there was no such East Asian miracle (Jomo, 2019).
East Asia
HPAE's
East Asia without HPAE's
South Asia
Middle East
Sab Saharan Africa
OECD Economics
Latin America and
Caribbean
0 1 2 3 4 5 6 7
GNP per capita growth rate (Percentage)
GNP per capita growth rate
Figure 1: Average Growth, 1965-1990
Source: (Lawrence, 1993)
The public policy helped in the growth and development of these economies. This policy
framework includes three functions for the attainment of growth; efficient resource allocation,
technological advancement, and accumulation. Furthermore, policies for the growth of these
economies were classified into selective interventions and fundamental interventions. Selective
policies include lower interest rate, industrial promotion, leniency in export policies and direct
credit options whereas fundamental policies include stable financial system, acceptance of
technology, control over price distortion and macroeconomic policies. In further below sections
consist of analysis on how these policies helped in the development and growth of these
economies and resultant in rapid growth, allocation, and accumulation. The role of East Asian
miracle in this growth and development was the identification of problems faced by these

economies and analyzing the result of all this on market failure. These interventionist policies
were framed by East Asia to overcome all these failures and problems (Hsieh, 2017).
The growth and development of HPAE’s based on two important factors. First was getting the
fundamental rights and this was done through imposing fundamentally sound policy in attaining
growth. Macroeconomic stability attracted more private investments in these economics; policies
were formulated to increase the transparency level of the banking system that increased financial
saving, primary education policies helped in generation of skills and agricultural sector policies
focused on increasing productivity. The second was strict policy interventions by Korea, Japan,
Taiwan, and Singapore for faster growth and development.
Figure: 2 East Asian Miracles; Economic Growth and Public Policy
Source: (Abramson, et al., 2016)

East Asia economies used various policies to achieve rapid growth and development. Figure 2
shows the policies used in these economies and the outcome of the implication of these policies
in the growth and development of the economies.
Macroeconomic stability and Export Growth due to public policies
It was analyzed that the annual inflation rate in HPAE's from the last 30 years was stable at 9 %
compared to 17% in other middle and low-income economies. HPAE's implemented policies to
stabilize the economy that resulted in a small amount of fiscal deficit and low inflation in the
economies (Corden, 1993). These policies were adjusted according to the market demand so that
trade shocks were managed effectively. As a result of these adjustments, the high performing
economies enjoyed fast recovery of private investments. High savings and investment led to
extended exchange rate protection in Taiwan and Japan (Lui & Chiu, 2019). Many of the policies
that were used to foster macroeconomic stability also helped in promoting the export in the
economies. In the 1950s four tigers and Japan shifted or adjusted their trade policies to
encourage export. In Korea, Taiwan and Japan government of these economies implemented a
pro export structure which helped in the protection of the domestic market against foreign
competitors. To boost up the exports in these economies various instrument was used such as
duty-free imports for available exporters, export credit, tax incentives, and export target. East
Asian economies achieved growth with the key principles of shared growth. HPAE's also
focused on creating a business-friendly environment and the main element was a regulatory and
legal structure for getting private investment.
Accumulating Human and Physical Capital
East Asian Economies used many policies to accumulate human capital that policies were
classified as interventionist policies and fundamental policies. Intervention policies included
savings mechanism, control on the interest rate, socialization of risk and state capitalism.
Fundamental policies to accumulate human capital were government expenditure on education,
adequate infrastructure, and well-secured financial institutions. In HPAE's, human capital was at
a higher level in the 1960s compared to other middle and lower economies. These high
performing economies invested in education in all the levels that were primary, secondary and
tertiary. Investment in education led to many benefits to the economies in term of technological
advancement. The government in higher-income economies gave subsidies in educational

expenses to the citizens and that led to rose in education expenditure by the public. Overall
investment in education by high-income economies focused on the mastery and acquisition of
technology in the economies. Accumulation of human capital was based on two factors, Firstly
low inequality of income resultant in education expansion and secondly public spending on
primary, secondary and tertiary education focused on technological education (Zhuang, 2017).
The implementation of fundamental policies in HPAE’s led to improved savings. The first policy
was to stabilize the real interest rate by avoiding inflation in the economy. The second policy
was providing security in banks for the more convenient transaction by the savers. In Taiwan and
Japan, the postal saving system was introduced that lowered the transaction cost per head and
that increased the interest on savings. All these policies or initiatives by the government led to an
increase in deposits in financial institutions (Felpie & McCombie, 2017). Below figure 3 shows
how much the savings and investments increased in HPAE's because of the implication of the
policies by the government.
Developing HPAE's
American
South Asia
Sub Saharan Africa
0 5 10 15 20 25 30 35 40
Gross Domestic Investment
1990
1965
Developing HPAE's
American
South Asia
Sub Saharan Africa
0 5 10 15 20 25 30 35 40
Gross Domestic Savings
1990
1965

Figure 3: Saving and Investment as a percentage of GDP
Sources: (Madsen & Mamum, 2016)
Some governments in these economies used more interventionist policies to increase the level of
savings. Korea, Taiwan, and Japan all these higher economies imposed a higher rate of interest
on loans and strict control on all the financial activities. HPAE's also used various tools to
increase investment. First thing was the focus on the development of infrastructure that attracted
private investment in the economies. The second thing done by these economies was developing
an investment-friendly environment through forming tax policies to encourage investment and
by lowering the prices of capital goods. The third tool, intervene of government in controlling
lending and deposit rates that benefitted the most to HPAE's. All these initiatives led to the
transfer of income from households to the corporate world in way of savings. In Japan, Hong
Kong, Malaysia, Singapore, Korea, Thailand and Taiwan, the banking sector was linked with
enterprises for the management of the troubled enterprise in these economies (Stubbs, 2017).
Efficient Allocation and Productivity Change
Allocation and productivity change was also achieved in these economies with the help of
interventionist and fundamental policies. The devices or tools used by HPAE's for allocation of
resources were the most controversial part of East Asia success. The HPAE’s government
focused on job generation whereas other developing economies focused on the legislation of
minimum wages in the economy. As a result, the job generation policy helped HPAE's to boost
the demand of workers in the market. In comparison to other developing economies, the East
Asia adjustments for macroeconomic stability were less painful and quicker. On another hand,
the agricultural sector of these economies played an important role in increasing productivity and
efficient allocation of resources that resultant in lower the gap between urban and rural income
groups in the HPAE's and this gap was more in the other developing economies. In Latin
America, South Asia and Africa, their minimum wages system pushed up the urban sector and
that resulted in the gap between the informal and formal sector approximately 20% in East Asia.
Smaller gaps in the incomes of urban and rural sector contributed highly to social stability and
thus enhanced the growth of these economies (Sugihara, 2017).

Allocation of funds in HPAE’s was done in three ways; firstly government created financial
institutions or credit development banks; Secondly, enforced strict rules and regulation to
improve functioning of the private banks and lastly formed rules to give credit only to specific
firms or to specific sectors with the help of private and public East Asian economies started a
policy for exporters that was automatic access to credit that resulted in increase in exports of the
economies. In HPAE's, the government intervened continuously to boost up the exports and to
ensure efficient allocation of resources or capital to each sector or to the sectors that most need it.
These high performing economies also focused on the transfer of technology at the right time for
that they used mechanisms like technology transfer license, foreign training, and import of
capital goods in the country. Some East Asian economies implemented industrial policies
according to the specific sector, for example, Japan formulated heavy industries promotion
policies in 1950 and that was the same copied by Korea. All the HPAE's developed programs for
the advancements of specific industries. Further, the productivity change took place in these
economies because of the promotion of manufactured exports. In some of these economies,
various trade regimes were adopted that were related to free trade across the world (Wigdor,
2016).
Conclusion
East Asia success depended on the policies and rules implemented by the governments of the
economies. There was no such miracle as the HPAE’s growth and development were achieved
by getting the basic rights. Accumulation of human capital and private domestic investment were
the key areas for the growth of the economies. It is analyzed from the above report that there
were no such miraculous things, the success and growth of HPAE's were due to the superior
accumulation of capital and human resources. For the growth of HPAE’s various policies were
formed and implemented across countries to attain these functions of growth; allocation,
productivity change, and accumulation. It is concluded from the above report or pieces of
evidence from the World Bank data that HPAE's growth and success was due to the
implementation of fundamental and interventionist policies at the right time in the economies.
These policies directly or indirectly affected the areas such as exports of the countries, saving
and investment level in the economy and development of education sector, these areas
contributed in the growth and development of East Asia.

References
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