"The East Asian miracle : economic growth and public policy"

The full report is available in PDF format from this website.

This is an old report by a stellar team of World Bank economists, focusing on economic development from about 1960 to the late 1980's, now available online.

World Bank description:

This study discusses the relationship between public policy and rapid economic growth. East Asia has a record of high and sustained economic growth during the last twenty-five years. Most of this growth occurred in eight economies - Japan, Hong Kong, the Republic of Korea, Singapore, Taiwan, and the newly industrializing Indonesia, Malaysia, and Thailand. The High Performing Asian Economies (HPAEs) use a variety of policies to achieve three functions of growth - accumulation, allocation, and productivity growth. They are diverse in natural resources, culture, and political institutions; and they differ in the degree of government intervention in the economy and the manner in which policies are shaped and implemented. The study attempts to explain East Asia's success and to develop a model of rapid growth with equity. It finds that the diversity of experience, the variety of institutions, and the variations in policies among the HPAEs does not allow a model to be developed. However, some lessons for other developing countries can be learned from the East Asian experience. First, it is essential to get the fundamentals right. High levels of domestic saving, broad based human capital, good macroeconomic management, and limited price distortions provide the basis for growth. Second, careful policy interventions to accelerate growth produces very rapid growth.

The study was by a team lead by John Page and including Nancy Birdsall,Ed Campos, W. Max Corden, Chang-Shik Kim, Howard Pack, Richard Sabot, Joseph E. Stiglitz, and Marilou Uy. Robert Cassen, William Easrerly, Robert Z. Lawrence Peter Petri, and Lant Pritchett made major contributions. Lawrence MacDonald was the principal ditor.Published for the World Bank by the Oxford University Press, 1993. (PDF, 402 pages)

I note especially this statement:

About two-thirds of East Asia's extraordinary growth is attributable to rapid accumulation; that is, to unusually rapid growth in physical and human capital. The remaining third of its growth cannot be explained by accumulation and is therefore attributable to increased efficiency or TFP. This is large relative to other economies, both absolutely and as a share of output growth, and therefore partly explains why these economies have been catching up writh the industrial economies, while most other developing economies have not. (page 48)

I suggest that the accumulation of human capital, high rates of investment, and technology based increases in productivity are all highly causally interrelated.

For example:

* increasing the education levels of a population probably eventually helps its workers innovate technologically and helps those workers to master and improve the technology they adopt;
* increasing productivity encourages investment;
* economic growth changes relative factor prices, calling for technological change to produce more efficiently with the new factor costs;
* the demand for more technological change and innovation calls for more investment;
* economic growth means education is more affordable thus there is more of it.

This sounds a little like "all good things go together", and I guess it is true. But it may well be that investments in human capital and policies that stimulate technological innovation are drivers for rapid economic growth, in countries were institutions, policies and other conditions are suitable for such growth.