University Global Economy Analysis: The East Asian Miracle Report

This report provides an analysis of the 'East Asian Miracle,' focusing on Japan's economic performance between 1960 and 1985, drawing on the World Bank Report of 1991 and other academic sources. The report examines Japan's rapid economic growth, its trade structure, and the role of government intervention, including import substitution and export credit strategies. It defines the 'miracle' as unexpected economic change and discusses the World Bank's fundamental and selective intervention approaches. The report also explores neoclassical, revisionist, and market-friendly views on Japan's economic success, highlighting the impact of government policies, investment in human capital, and the country's overall macroeconomic stability. The analysis considers the impact of government policies and the country's economic position in 2020, comparing Japan’s performance with other developed countries and evaluating the contribution of the technology and manufacturing sectors. The report concludes with a summary of key findings and references to supporting literature.

Running head: GLOBAL ECONOMY
Global Economy
Name of the Student
Name of the University
Author Note

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Executive Summary
The objective of this paper is to analyze the economic scenario of the East Asian Miracle. Japan
was one of those East Asian countries who exhibited an extraordinary performance between
1960s and 1980s. The central part of the discussion has been developed on an article ‘The East
Asian miracle in political perspective’. The article is focused on the World Bank Report 1991.
From the neoclassical perspective, the success of Japan is acceptable. The trade structure of
Japan is key parameter which has enhanced the country’s robust growth. The trade structure of
the country is comprised of large variable limitation on the domestic market. The import
substitution policy highly relies on export credit strategy and foreign direct investment.

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Table of Contents
1. Introduction..................................................................................................................................3
2. Japan finding the report...............................................................................................................3
3. Define Miracle.............................................................................................................................3
4. World Bank fundamentals and selective intervention.................................................................3
5. Neoclassical, revisionist and market friendly view.....................................................................3
6. Summary......................................................................................................................................3
Reference List..................................................................................................................................4

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1. Introduction
The economy of East Asia has experienced a remarkable growth between 1965 and 1990.
The resilient contribution of twenty-three countries has helped East Asia to achieve a sustainable
economic growth as compared to other European and American economies. According to the
article, Japan and four Asian tiger economies Hong Kong, Singapore, Taiwan, the Republic
Korea, China, Indonesia, Thailand and Malaysia are the eight major contributors to this
miraculous economic performance. The group of these eight nations is termed as High
Performing Asian Economies (HPAEs). Equal income distribution among HPAEs has led to the
change in the Gini Coefficient combined with greater growth in per capita income (Wade 1996).
These unique characteristics have made the HPAEs different from other developing countries in
Asia. The data states that Japan including the four tigers have recorded four times growth in real
per capita income from 1960 to 1985. The transformation of the Japanese economy is the key
concern of this study. Imposition of effective subsidy policy and convincing governmental policy
are claimed to promote miracle economic growth in Japan.
2. Japan finding the report
The article states that market friendly approach is the driving force for the Japan’s
success. The extensive intervention of the Japanese government has resulted in the
macroeconomic stability in the country. It has been observed that share of the international trade
to GDP has intensified to a great amount following the effectiveness of the government
intervention (Beckley, Horiuchi and Miller 2018). To explore the economic opportunities, the
government has guided the resource allocation process between the public and private sector. As
per the economic theory, accumulation of economic resources, fast technological catch-up and
efficient allocation are the fundamental pillars of the Japanese economy. It is important to

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identify the appropriate functional approach to understand the nature of the economic growth.
The policymakers in Japan have preferred to adopt fundamental intervention policy to support
the sustainable economic growth. They have decided to invest more in human capital and secure
stability in the financial systems through limited price changes. Meanwhile, the competitive
discipline has accelerated the economic growth process depending on the competitive market
structure. Both exporter and importer in Japan have accrued benefits from modification in the
governmental strategies. The intensive focus on the pro-exporter regime during the early 1950s
and 1960s has introduced the import-substitution policy in Japan. Well bureaucratic structure
with substantial power has helped the macroeconomic policymakers to formulate a credible
economic strategy.
Nonetheless, the business-friendly attitude between Japan and other HPAEs countries has
reported to promote competitive advantage in the international trade regime. High private
savings rate and greater interest cost on bank loan has considerably reduced the average
expenditure on the luxury goods (Yusof and Othman 2016). This has resulted in the
improvement of the human welfare. The article has found that the Japanese government has
deliberately taken government assistance which is associated with great social returns (Esteban-
Pretel and Sawada 2014). The evidence supports that financial repression has helped both private
and public bank sectors to revive the growth from the devastating condition. Adoption of direct
credit control policy of the deliberative council can be directly linked to the growth of chemical,
automobile and shipbuilding industries in Japan. As implicit subsidies seemed very small it was
important for the Japanese government to direct the credit allocation process.

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3. Define Miracle
Miracle stands for unexpected change in the economic condition. The article has
indicated the extraordinary economic growth of Japan and other four tiger Asian economies as
East Asian miracle. The unexpected economic performance is not only supported by the
overwhelming economic performance also improvement in the human and physical capital. Most
of South-East Asian countries were far lag behind the developed countries in Europe and
America (Arkhipov, Yerznkyan and Martishin 2015). Significant gap in technology and human
capital were the key differential factors behind this considerable economic disparity. However,
this situation got changed following the 1960s, especially for Japan. The country has received
huge devastating impact during World War II. Instead of that, Japan has been successfully
achieved the sustainable growth along with other eight nations in Asia. The progressive growth
in per capita income combined with equitable income distribution has helped Japan to uplift
among the top 20 countries during 1960 to 1985 (Kim 2018). The extraordinary growth has also
been noticed in the country’s trade and financial sector.
The changes observed in the Japanese economy can be explained by the ‘trickle down’
hypothesis of Joseph Stiglitz. The economist explains that regressive economic policy finally
results in the improvement of every section of the people irrespective of rich and poor people.
The economic benefits get trickled down to everyone, which in turn, leads to equitable
distribution of economic welfare among the entire population. Stiglitz has observed that pattern
of the economic growth during the twentieth century is same as of the growth structure during
1950s and 1960s. He observes that Gini index in terms of the income inequality has exhibited
best performance for the Japanese economy. Japan has observed only 6% (approximately)
improvement in Gini Index in the last twenty five years among all other developed countries,

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like, Canada (13%), Germany (22%), the UK (13%0 and Italy (8%). The richest population is
used to hold 1% of total income of Japan, whereas, the concentration of income has increased
from 5.8% in 1980 to 14.7% in the UK. The data reflects that the miracle economic growth of
Japan with respect to other developed countries.
The overachieving economic performance of Japan is also discernible in the context of 2020.
The country has ranked the 3rd position in terms of the world GDP rank with expected GDP
growth of 0.5% in 2020. Economists predict that Japan will be able to hold strong market
position on the account of resilient growth of the technology and manufacturing sector. The
banking sector of Japan has been trying to establish projects considering the fundamental
economic criteria and rigorous credit evaluation program.
4. World Bank fundamentals and selective intervention
The article asserts that the East Asian economies have gained the miracle success due to
the compliance with the country-specific economic policies. The countries have adopted a group
of common strategies to achieve the significant growth. World Report states that stability of the
macroeconomic model is accomplished driven by three fundamental parameters, including,
accumulation, fast technological catch-up and effective allocation (Sugihara 2017). These
necessary economic activities can be possible through selective and fundamental interventions.
As per the fundamental approach, steady and secure fundamental system, greater investment in
human capital, good governance in the macroeconomic policy, trade openness to the overseas
countries and controlled price strategy can develop a significant economic outcome for the
countries. Meanwhile, alteration in the interest rate, export stimulation strategy and foreign direct
investment are considered as principal objectives of the selective interventions (Francks 2015).
According to the analysts, selective intervention calls for the sustainable development of the

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economy. On this account, World Bank emphasizes on the three necessary prerequisite
conditions which include addressing the market nature, selection of fundamental economic
policies and establishment of the government policies. In this regard, economists contest for the
cooperative coordination between public and private investment in Korea and Japan (Castley
2016). The deliberation council of Japan has been reported to play a significant role in credit
distribution on the performance of the competing firms.
The economic outlook of Japan is concerned about the engrossing presence of the global
business, increasing consumption tax and trade tariff. This results in the downsize impact on the
consumer expenditure as well as lower investment in the trade sector (Stubbs 2017). The
restriction on the trade sector discourages the investors to the export and import sector. Along
with that, the drowning index condition of the industries and enterprises exhibits the lack of
coordination between the public and private sector. Referring to a reliable data source, the 0.50%
of GDP growth will be led by the private sector. This gradual growth pace is possible to be
achieved with the help of government assistance of around $10 trillion for the structural
development work (Fitzgerald and Rowley 2017).
5. Neoclassical, revisionist and market friendly view
According to the World Bank Report 1991, the miracle economic growth of HPAEs
including Japan is the reflection of the neoclassical view. It has been observed that economic
progress has successfully promoted both international and domestic competition. Negligible
price control in case of international trade is the part of the market friendly view. Growing
investment for the export promotion policy has played as a key influencing factor for the
exporters (Settsu, Bassino and Fukao 2016). Apart from that, government intervention has
resulted in the less distortion of relative price. The difference between the export earnings and

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import spending has been reported to get reduced by a significant level. The neoclassical
economists believe that the reliable trade system is the fundamental pillar of the country’s
macroeconomic stability. Investments in publics, health and education are valid roles for
government under the neoclassical framework (Wan 2016). The theory identifies the cumulative
effect of these investment has led to the development of the human capital in Japan. The
application of the market policy by the Japanese government is unendingly effective for the
country’s robust growth.
Nevertheless, revisionists argue that the intervention in the financial markets and
industrial framework of HPAEs has performed better than the neoclassical mechanism. HPAE’s
progressive action in the public savings model and bank interest rate has intensified the growth
process of the economy (Martishin 2014). The miracle economic growth has been supported by
the shared growth model. The government’s initiative on cooperation and competition has
delivered social legitimacy to the people. In this way, people have become ensured with
government assistance and action of the institutional model. HPAEs have never encouraged the
limited government mechanism like the neoclassical theory.
6. Summary
The natural disaster is another economic concern for Japan. The economy is deeply
affected by consecutive occurrence of natural disaster. On this account, the country incurs huge
public expenditure in every year. This extravagant government spending hampers the structural
development work which is related to the improvement of the real wage level. The deficiency in
skill production causes the shortage in the skilled labor supply. The successive growth in the
migration labor is considered as the reflection of the deteriorating domestic labor supply.
However, this economic growth does not approach to the sustainable growth owing to having

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worsening condition in economic confidence index. The evolving uncertainty in the international
economy related to trade war between China and the USA triggers a serious challenge to the
macroeconomic policymakers of Japan.

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Reference List
Arkhipov, A.Y., Yerznkyan, B.H. and Martishin, E.M., 2015. Anatomy of the “economic
miracle”.
Beckley, M., Horiuchi, Y. and Miller, J.M., 2018. America's Role in the Making of Japan's
Economic Miracle. Journal of East Asian Studies, 18(1), pp.1-21.
Castley, R., 2016. Korea’s economic miracle: The crucial role of Japan. Springer.
Esteban-Pretel, J. and Sawada, Y., 2014. On the role of policy interventions in structural change
and economic development: The case of postwar Japan. Journal of Economic Dynamics and
Control, 40, pp.67-83.
Fitzgerald, R. and Rowley, C. eds., 2017. Multinational Companies from Japan: Capabilities,
Competitiveness, and Challenges. Routledge.
Francks, P., 2015. Japanese economic development: theory and practice. Routledge.
Kim, Y., 2018. The Southeast Asian Economic Miracle. Routledge.
Martishin, E.M., 2014. Evolutional and institutional foundation of “economic miracle”. p.101.
Settsu, T., Bassino, J.P. and Fukao, K., 2016. Revisiting Economic Growth in Meiji Japan:
Industrial Structure, Labour Productivityand Regional Inequality. Economic Review, 67(3),
pp.193-214.
Stubbs, R., 2017. Rethinking Asia's economic miracle: The political economy of war, prosperity
and crisis. Macmillan International Higher Education.

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Sugihara, K., 2017. The European Miracle and the East Asian Miracle: Towards a New Global
Economic History (1). In The Pacific in the Age of Early Industrialization (pp. 1-21). Routledge.
Wade, R., 1996. Japan, the World Bank, and the art of paradigm maintenance: The East Asian
miracle in political perspective. New Left Review, pp.3-37.
Wan, M., 2016. Japan Between Asia and the West: Economic Power and Strategic Balance:
Economic Power and Strategic Balance. Routledge.
Yusof, S.M. and Othman, R., 2016. Leadership for creativity and innovation: Is Japan
unique. Journal of Advanced Management Science, 4(2).