ITRN 736: ECONOMIC GROWTH AND CRISES IN EAST ASIA

George Mason University: International Commerce and Policy Program

Dr. G. Chris Rodrigo Tel: 703-993-8223 E-mail: crodrigo@gmu.edu Fall 2002

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This course develops a critical appraisal of the high-growth economies of East Asia - Hong Kong, Singapore, Taiwan and South Korea and the causes of the 1997-8 Asian crises. The problems of China and Japan will also be examined to some extent. The study will be primarily focused on understanding the proximate sources of growth, i.e. what can be explained by means of contemporary economic analysis. The social and political background to formulation and practice of economic strategy will be touched on briefly, but most attention will be paid to the role of technological development. The respective roles of the state and market will also be examined in the context of East Asia’s development. The origins and development of the recent economic crises in East Asia will be examined through the writings of well known analysts.

Since this course covers a broad range of issues, students will be asked to pursue specialized study on the current challenges faced by a selected East Asian country, including China and Japan. Each student will write a paper and make a presentation on the selected topic. There will also be a final exam. The overall grade will be determined as follows.

Presentation on special topic 15 %

Special topic paper 25 %

Final exam 50 %

Class participation 10 %

The paper and the final exam must be typed or printed, with a 12 point font and one inch margins. The paper must not be more than 6 pages, single spaced or 10 pages if double spaced. All sources must be cited in full. Diagrams, tables, list of sources and other supplementary material can be on additional pages. The outline of the presentation must be submitted prior to the presentation. E-mailed or faxed submissions of take home work will not be accepted.

Students are encouraged to contact the instructor either individually or in groups for topics that need clarification or for any other issue or problem. Consultations are by appointment preferably negotiated by e-mail.

Reading assignments

There are two required texts for the course, but no reading packet. Supplementary readings will be accessed on the Internet or put on reserve in the library; students need only consult the readings that relate to their area of concentration.

1. Michael Hobday; Innovation in East Asia, Edward Elgar (Paperback) 1996.

2. G. Chris Rodrigo; Technology, economic growth and crises in East Asia, Edward Elgar, 2001.

Topics to be covered

1. Basic concepts of economic growth. An introduction will be provided to contemporary views of economic growth in industrialized and developing countries, covering the major sources of growth. The roles of human capital, technology, infrastructure, institutions, the state, competitive markets and the trade regime, will be discussed in detail. Growth accounting will also be discussed briefly. An analytical framework will be developed to examine the particular instances of growth in East Asia. Special emphasis is placed on examining the role of markets, the state and the building of market-friendly institutions.

2. Long term growth patterns of East Asia in historical perspective. East Asian countries have exhibited extraordinarily high rates of growth sustained over many decades, judged by previous standards for industrial countries. The basis for this achievement, patterned on the strategy of “late industrialization” is examined and contrasted with the patterns followed by India and most other developing countries until recently.

3. Post-1950 development strategies in Asia: overview of strategies followed in Japan, Taiwan, Korea, Taiwan, Hong Kong and Singapore contrasted with those adopted by India and China. This section compares and contrasts the domestic market oriented development strategies followed by most developing countries (until recently) to the export-oriented strategies forged by Japan and the East Asian economies.

4. Growth and crisis in South Korea. Korea’s strategy, strongly guided by the state, has been centered on the promotion of the chaebol (conglomerates). The chaebol have mastered key technologies and expanded globally in a very short space of time. They have even grown more powerful than the state which incubated them, but the crisis of 1997-8 displayed serious weaknesses. The techniques by which their technological capabilities were acquired is examined in detail. The development of financial institutions have, however, lagged behind industry and currently Korea is faced with very serious problems of readjustment after the financial crisis. The reasons for the crisis are examined as well.

5. Taiwan: growth through small firms. Taiwan’s growth has been based on small and medium enterprises which have cooperated closely with Western firms, often as OEM suppliers. Yet their mastery of technology and success in export markets have been no less impressive than that of the Korean chaebol. Taiwan has accumulated extraordinarily technological and findancial capabilities and contributed greatly to the industrialization of China since 1979. The reasons why Taiwan has followed a very different strategy from Korea are examined, along with the techniques adopted for the acquisition of technology.

6. Singapore. Singapore’s economy appears to be largely in the hands of multi-national companies, but their activities are closely orchestrated by a powerful and efficient state. Using instruments such as the provident fund, the state has raised incomes and living standards to levels that exceed those of many developed countries. Like Taiwan this city state has many extraordinary achievements to its credit, but is presently faced with some of the biggest problems in its history. The evolution of Singapore’s growth strategy over the years is examined along with the present challenges.

7. Hong Kong. This (former) city state has been called the temple of free-market capitalism or alternatively the closest approximation to the ideal laissez-faire economy. Hong Kong’s undoubted success is examined in detail, using the analytical framework developed in section 1. It is argued that inherited and contingent factors, in addition to the magic of market forces, significantly favored Hong Kong’s spectacular success. Hong Kong’s continued evolution in relation to China’s explosive entry into the world economy is also examined in some detail.

8. Regional and global linkages in East Asia. This section examines a number of important influences (political and economic) on East Asian economies. The role of Japan, as the regions growth pole and model of development is the most important. But also examined are, the evolution of global trading and investment patterns, the role of China, US Cold War strategy, inter-regional trade patterns, growth triangles and the special role of the overseas Chinese networks. The functioning of the global financial system in the 1997-8 financial crisis is also examined.

9. The second-tier NIEs and the current crisis in East Asia. The performance of the second tier of newly industrializing countries in South East Asia, i.e. Thailand, Indonesia and Malaysia, will also be examined briefly and compared to the progress of the first tier.

10. Current explanations of the economic crises and their propagation. Current theories and disputes, about the origins, country-specific features, and rapid onset of economic crises, will be examined with particular reference to the East Asian crises of 1997-8. The class discussion will draw on the ideas of Joseph Stiglitz, Paul Krugman, Jeffrey Sachs, and others, on the East Asian crises.