Summary of the main argument of the paper including critical assessment of the methodology and/or results
The paper focuses on the economic development of two chosen countries within the East Asia region, namely South Korea and Taiwan. As indicated, South Korea and Taiwan have experienced tremendous economic growth over the last fifty years with a record per-capita income of over 6%. The two countries managed to transform themselves into economic powerhouses. Such positive economic responses from the two countries have made them reduce substantially the percentage of aid from other developed countries.
Initially, these countries engaged a lot in traditional import substitution policies coupled with multiple exchange rates within the repressed financial markets. However, such situation changed over the years with an appropriate alteration of existing economic strategies where instead of focusing on imports, the countries adopted export-oriented policies.
Bigger percentage of the economy is attributable to the nature of expansion within export sector which ultimately led to rising incomes, investment, savings as well as productivity. Clear industrial priorities considered by both countries led to reshaping of comparative advantage which ultimately created conducive environment for trade within the mentioned countries (Rodrick56-58).
Such economic growth and status required the involved countries to concentrate on development of robust investment subsidies, an administrative guidance as well as public enterprise.
On the same note, productive roles in these countries could be attributed to government intervention through an appropriate utilization of human capital as well as equal distribution of income and wealth (Rodrick 58). Investment sector has experienced increase over last three decades where GDP rose from merely 10% to over 30% in S. Korea and Taiwan. However, the sector has continued to be on upward trend within Korea contrary to that in Taiwan.
Resource transfers from developed countries to Taiwan and Korea have been moderate, leading to capital accumulation with less output from industrial productivity. However, the phenomenal growth and increase in the labor-intensive manufacturing sector also contributed to the success. Such inclination was eminent due to removal of bias which existed earlier in manufacturing for export (Winters et al 72-115).
This led to high profitability within exports supported by enlightened work force and diversification from agricultural sector (Rodrick60). Relative prices of export goods were always stable within South Korea and Taiwan during harsh economic times. Political instability experienced in Korea in 1950s drastically affected economic growth and export. However, export programs were expanded from 1965 which gave exporters priority in acquiring import licenses.
Relating the article to the Latin American experiences (The ISI model)
Critical analysis of economic performance indicates that the majority of countries which experienced industrialization after Great Britain had passed its stages, whereby larger investment within industries were considered to replace imports (Baer 95-96). The delay in response to economic development in Latin America was attributed to socio-economic experiences.
Some countries adopted mix of trade and macroeconomic policies which incorporated trade barriers as well exchange rates (Zagha et al. 7-11). However, complementation from government by complex mechanisms led towards focusing on strategic imports as well as dispensing cheap credit for strategic sectors.
Significant structural changes that were evident in Latin America were attributed to application of ISI model. The size of domestic market within Latin America limited opportunities for further industrialization (Perry and Olarreaga).
A comparative perspective of East Asia and Latin America are based on international events, role of education, technology and natural resources. Development within East Asia focuses on education and technology since there are less natural resources.
On the flip side, Latin America is considered to be rich in natural resources hence it focused less on education as well as technology development. However, evidence on trade liberalization as well as wage inequality remain one of the most challenging factors in Latin America since most industries in the international field pay the highest wages (World bank 151).
The standard economy has been postulated to be the turning point for the economies of two tiger countries, Taiwan and South Korea. This theory attempts to define an economy that has grown by exploiting exportation as a new venture.
It seeks to explain the efforts that Taiwan and South Korea implemented in their quest to become giant economies. Some of the policies adopted by these economies, according to the standard theory, include downward adjustment of the two countries’ currencies relative to other currencies, merging currency exchange fee, tax exemptions for exporters on imported production materials, elevated interest charge and a free import market.
These strategies together with other helpful actions and a conducive atmosphere enabled the export market to flourish. Both countries would then focus on the most relatively beneficial export venture (Hausmann and Rodrik). There is, however, certain critical elements of the export business that remain unclear. The proposal does not elaborate the duties played by the administration of the two nations as far as apportioning of capital is concerned.
The achievements made by these economies were not only a result of a liberalized market but also a result of many other factors. They contend that the administration in both Taiwan and South Korea also played a significant role and made contributions towards the success of the export industry. Both sides of argument however, agree on the fact that the export business venture is responsible for the economic growth. Such claims have been included in the report written by the World Bank, that feature the standard theory.
Draft some findings and/or conclusions
The significance of the role played by an export based economy towards development is not well defined by the standard plan theory. It does not reliably explain the association between exports, capital and economic development. The initial and subsequent rise of the Gross Domestic Product cannot be attributed to the minimal economic gains accrued from the export venture at the time of the economic shift.
The rapid rise in the number of interested sponsors was more responsible for the economic up turn. After the adoption of the export oriented economy, the South Korean and Taiwan’s administrations were responsible for the elevated number of investors (Krueger 1-22). A number of policies were initiated by these governments that were favorable to create a conducive environment to the investors.
Some of the barriers that had stood in the way for these investors were eliminated and other organizational shortcomings were rectified. Some costs associated with establishing export business were minimized; the government also ensured that they had control of the industry in addition to investing in it. The administrative efforts were boosted from the onset by certain factors such as an availability of human capital and a level playing field for earning creating revenue (Hausmann and Rodrik).
Works Cited
Baer, Werner. “Import Substitution and Industrialization in Latin America: Experiences and Interpretations.” Latin American Research Review, 7 (1972): 95-122. Print.
Hausmann, Ricardo and Dani, Rodrik.“Economic Development as Self-Discovery.”Journal of Development Economics, 2 (2003): 2-20. Print.
Krueger, Anne. “Trade Policy and Economic Development: How We Learn.” American Economic Review, 87(1997): 1-22. Print.
Perry, Guillermo & Marcelo, Olarreaga. Trade Liberalization, Inequality and Poverty Reduction in Latin America, Paper presented at ABCDE Conference, San Petersburg, mimeo, 2006. Print.
Rodrick, Dani.Getting interventions right: how South Korea and Taiwan grew rich, Institute of Columbia Univesity, Policy Reform Paper, 1995. Print.
Winters, Alan, Neil McCulloch, and Andrew, McKay.“Trade liberalization and Poverty: The Evidence So Far.”Journal of Economic Literature, 22 (2004): 72-115. Print.
World Bank.Economic Growth in the 1990s: Learning from a Decade of Reform,Washington, D.C, The World Bank, 2005. Print.
Zagha, Roberto, Gobind Nankani, and Indermit Gill. “Rethinking Growth. ”Finance and Development, 43 (2006): 7-11. Print.