On Controversies over the East Asian Growth Miracle

Cho, Dong Chul / Hahn, Chin Hee


Sustainability of rapid growth in the East Asian countries was called into question by Krugman on the grounds that the
growth of the region is mostly input-driven. The recent economic slowdown of the region seems to be putting more
weight on Krugman's view. The discussions in this essay shows that his gloomy prediction could well be based in shaky
grounds, both theoretically and empirically. However, it will take long until the debate reaches a consensus, especially with
regards to the causes of fast growth future growth prospects, and the role of government.

Then, what lessons can we draw form the above discussions on the recent debates? In other words, what are Krugman's contributions? First of all, his argument and the subsequent debates have renewed attention to the importance of
technological progress or improvements in efficiency in the economic growth process. Economic growth is important since it can raise the living standard of people. However, a blind pursuit of high growth rate is neither desirable nor feasible without increases in the level of technology or efficiency. In Korea, R&D expenditure as a share of GNP is now over 2.6 percent, which is higher than that of the United Sates. However, not only the size but also the efficiency of R&D is crucial for maintaining further growth potential.

Secondly, in as much as technological knowledge can be productive only when it is human-embodied, more attention
should be paid to producing creative and high-skilled labor force. For this, more efforts have to be directed towards devising incentive schemes that favor knowledge creation and diffusion activity.

The final lesson we can draw is on the role of government. Despite Krugman's assessment of the past role of East Asian
governments is somewhat questionable, his emphasis on free markets would be a timely advice for East Asian policy
intellectuals. This is to way that, whatever the past roles of the governments mights have been, future policies of East Asian
governments have to rely more on market mechanism; for increases in efficiency and further technological progress we just
don't have a better alternative than relying on market forces. In this respect, the current reform efforts in various areas-- labor market, financial market, and education system-- should be pursued without succumbing to political pressures. If these reforms are successfully accomplished, we might be able to say 'Krugman was wrong' someday later.

(※본 보고서의 Concluding Remarks 부분을 요약으로 대체)

Issue Date
Korea Development Institute
Ⅰ. Krugman's View

Ⅱ. Conventional Views
 1. Neoclassical Growth Theory
 2. Trade and Development Economists' Account
 3. Endogenous Growth Theories

Ⅲ. Evaluations
 1. Growth Accounting Methodology
 2. Some Growth Accounting Evidence
 3. Criticisms on Growth Accounting

Ⅳ. Further Discussions

Ⅴ. Concluding Remarks
Series Title
KDI Working Paper No.9712
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