Economic Growth in East Asia

Economic Growth and Development in East Asia

• Asia will contribute 70% of global growth, with China being the main driver (around 35%)
• The World Economic Outlook highlights this contribution
• The theories of growth and development from the West are being applied to countries in East Asia (e.g., Japan, China, South Korea)
• There is debate on whether these theories apply equally to East Asian nations and how these theories influence them.

Trade Openness

• The graph shows the development of trade openness since the birth of capitalism and the industrial revolution.
• Trade openness experienced a peak around 1915, then had a significant drop between WWI and WWII.
• A consistent upward trend in trade openness began in the 1990s and continued until the 2008 financial crisis.
• The 2020 Covid-19 pandemic also impacted the trend, causing a slight slowdown.

History of Economic Thought – Adam Smith

• Smith's work founded the study of economic systems
• Political Economy, a unified discipline, developed from moral philosophy
• Smith's key publications include: "The theory of moral sentiments" (1759), and "An inquiry into the nature and causes of the wealth of nations" (1776).
• Smith observed the shift from a feudal society to a capitalist society and described the concept of a "market economy", where equal individuals exchange property rights.
• The "invisible hand" of the market was a concept Smith introduced to show how self-interest in the economy benefits society by driving a more efficient distribution of goods and services.

History of Economic Thought – David Ricardo

• Ricardo introduced the concept of comparative advantage, which allows countries to mutually benefit from trade.
• Comparative advantage means that countries should specialize in goods they can efficiently produce with relatively less labor input compared to other countries.
• International exchanges of goods are possible and beneficial even between countries where one country has no absolute advantage in producing any good compared to the other.

History of Economic Thought – Karl Marx

• Karl Marx analyzed the conflict between the bourgeoisie (capitalist class) and the proletariat (working class) in an industrial society.
• He argued that perpetual global growth is necessarily coupled with conflicts between early-stage and late-stage capitalist countries, as well as conflicts between capitalists and working class inside countries.
• The class struggle in capitalism is the central dynamic, and conflict is unavoidable.
• Marx believed that the ultimate solution was the proletarian revolution and transition to communism, which would resolve the underlying conflict and create a more equitable society.

History of Economic Thought – Alfred Marshall

• Alfred Marshall was a key figure in the Neoclassical or Marginalist revolution.
• Economists shifted away from political economy towards a more scientific and objective approach.
• Economics was redefined for the study of choice and supply and demand in markets by individual agents.
• He focused on organization of production on local and regional levels (instead of the national level).

Growth vs. Development

• Growth is a means to achieve development, which is the final objective.
• Economic development involves a multidimensional expansion of human capabilities, not just economic output.

GDP (Gross Domestic Product)

• The market value of newly produced goods and services in a country during a specific period.
• It is used as a basic metric to evaluate the performance of a country, but it misses items that cannot be valued as part of the market, like household work, and quality of life and leisure factors.

Human Development

• Development should focus on expanding capabilities and functionings of each individual.
• It is multidimensional (consider things like capabilities and entitlements, not just monetary measures).
• Key figures in this school of thought include Amartya Sen

Poverty and Inequality

• Poverty and inequality have been consistent issues of concern in economics
• The gap between the richest 1% and the rest of the population is a valid topic of concern and possible research area.
• Globalization's impact on cost and benefit distribution is a field for research.

International Economics

• International economics studies national interactions in trade, finance, and investments.
• The topic includes international trade (that focuses on transactions of goods, services, and money), as well as international finance (involving monetary transactions).

U.S. Exports and Imports

• U.S. Exports and Imports are an increasingly important part of the U.S. economy, growing substantially over the past 60 years, however, they both declined during the 2009 recession and 2020 pandemic.
• The composition of world trade is dominated by manufactured goods.

Borders and Trade

• Formal processes for crossing borders (like customs and currency) add costs that influence trade.
• Distance, transaction costs, and exchange of currency all play important roles in the trade between countries

International Capital Markets

• Capital markets are arrangements for exchanging money now for promises of future payment.
• International financial markets include foreign investments and regulations surrounding the transactions.

Enterprise Models and Organization of Production

• Different models of business organization exist (e.g., corporations, zaibatsu, chaebols, cooperatives).
• Enterprise groups and clusters are types of organization associated with economies where there are lower costs to coordinate and conduct trades.
• Enterprise groups are structured in different forms, like informal networks, global value chains, captive networks, and relational networks, all of which influence transaction costs within the organization.
• Hierarchical organization of production is a mechanism for controlling costs in enterprises.
• Cooperation and competition can be complementary. Businesses can benefit from collective action in addition to competition.
• Industrial districts are geographically concentrated business areas that are crucial for production organization post-Industrial Revolution.
• Various benefits arise from clustering, such as lower production costs, access to skilled labor, and knowledge sharing.

External Economies

• External economies are sources of benefits stemming from agglomeration of industries in a particular place, such as the shared knowledge among enterprises and the proximity of suppliers and customers.
• External economies (pecuniary and technological) arising from the cluster are beneficial features.

Industrial Policy

• Industrial policy is a set of government actions to influence the development of industries.
• The purpose is to coordinate structural change towards specific long-term economic and social goals.