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IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT?

IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT?. Manu Bhaskaran Centennial Group Inc July 2002. KEY POINTS. East Asian Model Definition / Was there such a model? New arguments Shift to domestic-driven growth? The real story: Major re-thinking of growth models. THE EAST ASIAN MODEL.

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IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT?

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  1. IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT? Manu Bhaskaran Centennial Group Inc July 2002

  2. KEY POINTS • East Asian Model • Definition / Was there such a model? • New arguments • Shift to domestic-driven growth? • The real story: • Major re-thinking of growth models

  3. THE EAST ASIAN MODEL Common features • High savings rate • Emphasis on education • Export-friendly policy regimes • Pragmatic, non-ideological • Egalitarian approach • Agriculture in Korea,Taiwan • Public housing in HK/Singapore

  4. THE EAST ASIAN MODEL (2) Were these features unique to Asia? • Good economic housekeeping rules • Other success stories shared these • Botswana: fastest growing economy NOT UNIQUE TO EAST ASIA ALONE

  5. EAST ASIANS PURSUED DIFFERENT MODELS 1. Government role • Hong Kong: laissez-faire • Taiwan: focused in some sectors • Korea: allocated capital,… • Singapore: hyper-active govt • Each had different starting points • Each evolved own responses

  6. DIFFERENT MODELS • Foreign capital inflows • Korea: xenophobic • Taiwan: wary • Singapore: open • Hong Kong: ultra open • Portfolio capital: earlier opening • Direct investment: liberalised later

  7. DIFFERENT MODELS (2) 3. Capital markets • Korea: heavily distorted • Taiwan: some political influence • Singapore: Relatively free, ex-CPF • HK: Free, main allocator of capital Banks under tight govt control ex-HK

  8. DIFFERENT MODELS (3) • Size of companies • Korea: chaebol-driven • Taiwan: Mainly small companies, govt-backed ones in crucial sectors • Singapore: MNCs and GLCs • HK: Vibrant, early globalisers

  9. DIFFERENT MODELS (4) 5. Other degrees of openness • Labour market • HK/Singapore: Highly open • Korea: closed • Protectionism • Korea/Taiwan: High • HK/Singapore: Very low

  10. DIFFERENT MODELS (5) • Domestic competition policy • HK: Some cartels, otherwise free • Taiwan: Generally free • Singapore: GLCs dominated • Korea: SMEs/consumers squeezed

  11. RE-THINKING MODELS SHIFT TO DOMESTIC DEMAND? • Slowdown in global demand • More competitive export markets • Means better depend on domestic

  12. DOMESTIC DEMAND AS DRIVER? Is this possible? • Domestic linked to external demand • Trade sector generates incomes • Freer trade increases incomes • Can policy discriminate? • Favouring domestic demand distorts

  13. NEW THINKING • Economic philosophy • HK: Shift away from laissez-faire • S’pore: Allowing more laissez-faire • Korea: Substantial opening • Taiwan: Opening up as well • Malaysia: Reviewing NEP • Thailand: Moderating growth targets

  14. NEW THINKING (2) 2. Resource allocation • Bond markets: less bank financing • Banks liberalised • Prices less distorted • Interest rates freed • Product prices closer to world prices

  15. NEW THINKING (3) • Savings and consumption • Freer banks: easy consumer credit • Trade liberalisation: prices fell Consumption/GDP rose post-crisis

  16. NEW THINKING (4) 4. Corporate sector • Restructuring: more efficient • More policy emphasis on • Local companies vs MNCs • Consumer protection, competition policy

  17. CONCLUSION • No single model • Pragmatism prevailed • Substantial re-thinking going on BEWARE APPLYING SIMPLISTIC MODELS TO ECONOMIES

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