The Economic Rise of East Asia: Development Paths of Japan, South Korea, and China (Contributions to Economics)

In light of the growing global economic importance of East Asia, this book analyzes and compares the extraordinary development paths and strategies of Japan, South Korea, and China. It examines both the factors that enabled these countries’ prolonged periods of high-speed economic growth, and the reasons for their subsequent “cool-downs.” In addition, the book illustrates how their development strategies served as role models for one another, and what current and future developing countries can learn from the East Asian success stories. This book will appeal to scholars and students of economics and development studies with an interest in the East Asian development model. Preface Contents 1 Introduction Appendix References 2 Japan’s Catching-Up Process 2.1 Introduction 2.2 Historical Roots: Edo Period (1603–1868) and Meiji Period (1868–1912) 2.3 Increasing Militarization and Aggressive Expansionism (1912–1945) 2.4 Post-war Period: Reforms Under American Occupation (1945–1952) 2.5 The Period of High Economic Growth: Mid-1950s–1973 2.5.1 The 1950s Booms and the Income Doubling Plan 2.5.2 Factors Driving Economic Growth 2.5.3 Industrial Policy 2.5.4 Monetary Policy 2.5.5 Trade Liberalization 2.6 Beginning Growth Slowdown in the 1970s 2.6.1 Major Determinants of the Growth Slowdown 2.6.2 Macroeconomic Policy Patterns and Performance 2.7 Japan’s Lost Two Decades 2.8 Abenomics (2013–2020) References 3 South Korea’s Catching-Up Process 3.1 Introduction 3.2 Historical Roots and Development Prior to 1945 3.3 The 1950s: Post-war Reconstruction 3.3.1 Import Substitution Policy 3.3.2 Foreign Aid Dependence 3.3.3 Corruption 3.3.4 Land Reform 3.3.5 Educational Reform 3.4 The Second Republic (1960–1961) 3.5 Foundation Building and Export Promotion of the 1960s Under the Park Administration 3.5.1 Export Expansion 3.5.2 Foreign Exchange Rate Reforms (1961–1965) 3.5.3 Reducing the Savings–Investment Gap to Increase Exports 3.5.4 Currency Reform of 1962 3.5.5 Interest Rate Reform of 1965 3.5.6 External Capital Sources 3.6 Heavy and Chemical Industrialization (HCI) Drive in the 1970s 3.6.1 HCI Plan 3.6.1.1 Financial Support 3.6.1.2 Protective Measures 3.6.1.3 Improving Technological Skills 3.6.2 Impact of the Reforms 3.6.3 HCI and the Rise of the Chaebol 3.6.4 Evaluation of the HCI Drive 3.6.5 The Role of Japan 3.7 Macroeconomic Imbalances at the Turn of the 1980s and Stabilization Measures 3.7.1 Main Factors of the Slowdown 3.7.2 Stabilization Measures 3.7.2.1 Restrictive Monetary and Fiscal Policy 3.7.2.2 Industrial Restructuring and Rationalization 3.7.2.3 Trade and Financial Liberalization 3.7.3 The “Three Lows” 3.7.4 Transition to Democracy 3.8 Kim Administration: Globalization, Liberalization, and Promotion of High-Technology Innovation 3.8.1 Financial Liberalization 3.8.2 Capital Account Liberalization 3.8.3 Liberalization and Chaebols—A Capital Structure and Maturity Structure Mismatch 3.8.4 Technology Development 3.9 The 1997 Financial Crisis and Its Aftermath 3.9.1 IMF Bailout 3.9.2 Tight Monetary and Fiscal Policies 3.9.3 Structural Reforms of Four Sectors 3.9.3.1 Corporate Sector Reform 3.9.3.2 Financial Sector Reform 3.9.3.3 Labor Sector Reform 3.9.3.4 Public Sector Reform 3.9.4 Back to Normal? 3.10 The Global Financial Crisis 3.10.1 The First Phase of the 2008 Crisis 3.10.2 The Second Phase of the Crisis 3.10.3 What Helped in the GFC: Lessons Learnt from the AFC and Crisis Recovery Appendix References 4 The Rise of China 4.1 Introduction 4.2 Historical Roots 4.3 The Republic of China (1927–1949) and the Centrally Planned Economy Under Mao Zedong (1949–1978) 4.4 Phase of Market-Seeking Reforms (1978–1992/3) 4.4.1 Agricultural Reforms 4.4.2 The Reform of the Township and Village Enterprises (TVEs) 4.4.3 Reform of State-Owned Enterprises (SOEs) 4.4.4 Fiscal Reform 4.4.5 Foreign Trade Reform 4.4.6 Foreign Direct Investment (FDI) 4.4.7 Financial Reform 4.5 Phase of Market-Building Reforms Starting from 1992/3 4.5.1 Enhanced Reform of State-Owned Enterprises (SOEs) 4.5.2 Fiscal Reforms—Tax System Modernization 4.5.3 Increased Liberalization—China Becomes a WTO Member 4.5.3.1 Trade Reforms in the 1990s 4.5.3.2 China’s WTO Membership 4.5.3.3 Development of China’s Foreign Trade 4.5.4 Accelerated FDI Reforms 4.5.4.1 The Nationwide Implementation of FDI-Enhancing Policies 4.5.4.2 FDI Development Since the 1990s 4.5.4.3 Beneficial Effects of FDI for Economic Development 4.5.5 Accelerated Financial Reforms 4.5.5.1 Creation of Policy Banks and Improved Legal Framework 4.5.5.2 The Increasing Non-performing Loan (NPL) Problem 4.5.5.3 Ownership Reform of State-Owned Commercial Banks 4.5.5.4 Opening of the Financial System to Foreign Firms and Bank Privatization 4.5.5.5 Interest Rate Liberalization 4.6 Reform Slowdown After 2003 (and the Transition to the Xi Jinping Era) 4.6.1 Tackling Social Problems 4.6.1.1 Healthcare System Reform 4.6.1.2 Pension System Reform 4.6.1.3 Decreasing the Rural–Urban Income Gap 4.6.2 The Return of Industrial Policy 4.6.3 Toward the “Xi-Strategy” References 5 The Development Paths and Strategies of Japan, South Korea, and China—A Comparison 5.1 Introduction 5.2 Similarities 5.2.1 The Idea of an East Asian Development Model 5.2.2 Characteristics of the East Asian Development Model 5.2.3 Reform Strategies and Sequencing—What Has South Korea Learned from Japan? What Has China Learned from South Korea and Japan? 5.3 Differences 5.3.1 The Varying Initial Levels of Development (After World War II) 5.3.2 The Varying Driving Forces of Development 5.3.3 Varying Political Systems and the Rise of Democracy 5.3.4 Varying Economic Systems/Industrial Structure 5.3.5 Varying Development Strategies—Learning from Foreign Technology 5.3.6 Cultural Aspects 5.3.7 Country Size 5.3.8 Geographical Differences 5.3.9 Institutional Quality 5.3.10 Economic/Industrial Policies 5.3.11 Breaks in the Development Process 5.3.12 Inequality 5.3.13 Implications and Summary 5.4 Conclusions Appendix References 6 Current Challenges 6.1 Introduction: Where Does East Asia Stand Today? 6.2 Recent Policy Course in Japan, South Korea, and China (in Period 2010–2020, After Global Financial Crisis) 6.3 Challenges (for This and the Next Decade/s) 6.3.1 General (Common) Challenges (Structural Change in a Wider Sense): Demographic, Climate, Digital, and Cultural Change 6.3.1.1 Demographic Change (Population Aging) 6.3.1.2 Climate Change (Environmental Problems) 6.3.1.3 Digital Change 6.3.1.4 Cultural Change 6.3.1.5 Contact Change ((De-)Globalization) and Pandemics 6.3.1.6 (Sectoral) Structural Change and Welfare System 6.3.1.7 Structural (System) Interdependencies 6.3.2 Specific Current East Asian Challenges: Financial Crises, System Competition, and Strained International Relations 6.3.2.1 Risk of Financial Crises 6.3.2.2 System Competition (China–USA) 6.3.2.3 Strained International Relations 6.3.2.4 Avoiding the Disappointment of Expectations (Raised by Project Announcements) 6.3.2.5 Reducing Inequalities/Ensuring Social Stability 6.3.3 Specific Challenges in Individual East Asian Countries 6.3.3.1 Overcoming Risks of Stagnation 6.4 Who Will Be the Next China (Success Model Country) in Asia? 6.4.1 India 6.4.2 Vietnam Appendix References 7 Conclusions References