Economy

Economic Growth Strategies: Asia’s Success & Struggles (Part 1)

Trường Lăng

November 25, 2023

Economy

Economic Growth Strategies: Asia’s Success & Struggles (Part 1)

Trường Lăng

November 25, 2023

In a world where economic growth is a driving force for nations, it’s imperative to explore the paths taken by different regions. Our journey begins by contrasting the remarkable trajectories of economic growth in Northeast and Southeast Asian countries. These two areas have distinct stories to tell, each with its own set of challenges and opportunities. As we delve into the intricacies of their development models, we’ll gain valuable insights that can guide investors and policymakers in their endeavors. Northeast and Southeast Asian countries stand as compelling case studies in the quest for prosperity and innovation.

Northeast Asian Economic Growth Success Stories

The Japanese Economic Miracle

Japan’s remarkable journey from post-World War II devastation to becoming one of the wealthiest countries in the world is often hailed as the Japanese Economic Miracle. This transformation was achieved through a series of well-calculated economic strategies, highlighting the role of state intervention and development economics.

Japan’s post-war recovery was no small feat. The devastation it faced after World War II had left the country in ruins. However, Japan’s leaders and policymakers were determined to resurrect their nation and place it on a path of economic growth. Central to Japan’s success was the government’s active role in orchestrating economic growth. The country’s GDP growth was significantly driven by state-led initiatives.

One of the standout factors in Japan’s success was the Ministry of International Trade and Industry (MITI). MITI played a pivotal role in guiding Japan’s industrial policies. It provided strategic direction and support to key industries, fostering their growth and development. Through strategic planning and coordination, MITI helped identify industries with the potential to drive the nation’s economic growth.

The Ministry of International Trade and Industry. Source: Internet

Another crucial element of Japan’s economic miracle was the establishment of the Japan Development Bank. This financial institution was instrumental in providing the necessary funding for strategic projects that could contribute to GDP growth. The bank’s focus on infrastructure development, technological advancements, and key industries bolstered Japan’s economic rise. As of the most recent data by Statista, Japan’s GDP stands at approximately $4.23 trillion, positioning it as the third-largest economy globally. 

Additionally, the role of education in Japan’s transformation cannot be overstated. The government invested heavily in education, ensuring that the workforce was equipped with the skills and knowledge required for the emerging industries. This investment in human capital played a significant role in driving Japan’s economic growth.

South Korea’s Transition into a Global Economic Player

South Korea’s story of rapid economic growth is equally impressive. The country’s shift from an impoverished state to a global economic player is often referred to as the “Miracle on the Han River.” South Korea’s model is another example of the success of development economics and state intervention.

The government was actively involved in promoting key industries like steel, shipbuilding, and electronics. The Economic Planning Board (EPB) was established to lead the nation’s economic development. Under its guidance, South Korea’s heavy and chemical industries were given a significant boost, leading to the emergence of global players like POSCO in the steel industry. As a result, South Korea stands proudly among the world’s leading export countries, with the value of its exports amounting to nearly 683.59 billion U.S. dollars in 2022.

Another key component of South Korea’s economic growth was the nurturing of national brands. The government encouraged companies to compete globally, and they did so with remarkable success. Samsung and Hyundai are prime examples of South Korean companies that have become global giants through a combination of state support and private-sector innovation.

South Korea’s approach to economic development also included the development of human capital. The country heavily invested in education and research and development. This investment played a crucial role in ensuring a skilled and innovative workforce capable of driving GDP growth.

South Korea's Transition into a Global Economic Player
South Korea’s story of rapid economic growth is equally impressive. Source: Internet

Taiwan’s Developmental Success

Taiwan’s story of economic growth echoes the successes of its Northeast Asian neighbors. The government played a critical role in providing financial and policy support to emerging industries, boosting manufacturing, and encouraging exports.

Taiwan’s Gross National Product (GNP) trajectory exemplifies its consistent economic growth, maintaining average growth rates slightly above three percent over the last decade. In 2021, Taiwan’s GNP reached an impressive figure of approximately 789.7 billion U.S. dollars.

One standout example of Taiwan’s commitment to economic development was the “land to the tiller” program. By significantly improving land distribution and granting land to the farming population, Taiwan managed to boost agricultural productivity. This agricultural reform was a pivotal step toward the country’s economic growth.

Taiwan also established the Industrial Technology Research Institute (ITRI), a research and development organization focused on fostering technological advancements and innovation. ITRI played a crucial role in driving technological progress in Taiwan, particularly in the electronics and technology sectors.

Economic Growth Challenges in Southeast Asian Countries

Adoption of Western Economic Efficiency Model in Southeast Asia

The adoption of the Western economic efficiency model in several ASEAN countries was marked by a strong emphasis on market liberalization, deregulation, and an export-oriented approach. This approach, defined by Joe Studwell as an economic system focusing on free-market principles and efficiency, often overlooked the significance of state intervention and developmental economics, crucial for sustainable economic growth. For instance, in the case of Thailand, the liberalization policies implemented in the 1990s led to an overreliance on the financial sector and real estate, contributing to the 1997 financial crisis, which heavily impacted the country’s GDP growth.

Neglect of Domestic Industries and Human Capital Development

One of the significant pitfalls experienced by Southeast Asian countries was the neglect of domestic industries and the inadequate emphasis on human capital development. In the pursuit of attracting foreign investment, these nations often failed to prioritize the development of a robust domestic industrial base and failed to allocate sufficient resources to enhance the skill sets of their workforce. For instance, the Philippines’ overreliance on service-oriented sectors and the neglect of agriculture and manufacturing hindered the nation’s overall economic growth potential, leading to a persistent disparity in wealth distribution and contributing to the challenges of the growing income gap.

Impact of Western Financial Institutions

The influence of Western financial institutions like the World Bank and the International Monetary Fund (IMF) played a pivotal role in shaping the economic policies of Southeast Asian countries. These institutions advocated for measures promoting foreign investments and open markets without adequately considering the local nuances and challenges of the region. 

By addressing these fundamental issues and adopting a more balanced and context-specific approach to economic development, Southeast Asian countries can overcome their current challenges and pave the way for sustainable and equitable economic growth.

Economic Growth Challenges in Southeast Asian Countries
Impact of Western Financial Institutions. Source: World Economic Forum

Final Thoughts

In closing, as we reflect on the contrasting paths of economic growth in Northeast and Southeast Asia, we uncover invaluable insights. The remarkable achievements of Northeast Asian nations, driven by state intervention and development economics, stand in stark contrast to the challenges faced by their Southeast Asian counterparts. Southeast Asian countries, having embraced the Western economic efficiency model, grapple with obstacles on their journey towards wealth and GDP growth. To shape a prosperous future, these Southeast Asian nations have the opportunity to draw inspiration from the Northeast Asian development models. While charting this course of transformation, Viettonkin stands as your trusted partner, offering expertise to international investors seeking success in the dynamic landscape of Southeast Asian countries. For tailored guidance and to realize the full potential of your investments, partner with Viettonkin.

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