Latin America/Caribbean and Asia/Pacific Economics and Business Association An initiative of the Inter-American Development Bank and the Asian Development Bank Institute Second LAEBA Annual Meeting Buenos Aires, Argentina November 28-29, 2005 Export Growth and Industrial Policy: Lessons from the East Asian Miracle Experience John Weiss Sponsored by Inter American Development Bank Integration and Trade Sector Institute for the Integration of Latin American and the Caribbean (INTAL)
Export growth and industrial policy Lessons from East Asian Miracle experience
LAEBA conference 2005 Strategic policies for global competition Four ADBI papers Overview Technology and competitiveness Indonesia Singapore model Clusters and linkages Malaysia
Revival of industrial policy? Some additional theorizing - increasing returns, externalities Evidence of history kicking away the ladder Globalization competitiveness strategies East Asian model provides reference for successful experience in poor countries
East Asian Miracle 1993 study 4 first tier NIEs Singapore, Hong Kong, Korea, Taipei,China plus 3 second tier NIEs Malaysia, Thailand, Indonesia Rapid growth, export driven, ladder of comparative advantage 1990 s second tier FDI-driven new exports
Explanations for Miracle Vast literature, diverse experience Macro stability, trade openness, avoidance exchange rate overvaluation, benefits from exporting Focus on education High domestic savings and investment partly endogenous Technology import and improvement Role of government, particularly re support for manufacturing
Industrial policy Interventions to alter resource allocation towards particular sectors, firms or activities No single East Asian model although Korea circa 1970 often exemplar Wide range of mechanisms import protection, export subsidies, tax credits, directed credit, EPZs, preferential licensing, technology support, wage repression, financial restraint Diverse success
Korea shifting pattern 1960 s export focus functional, export targets 1970 s heavy industry drive selective, links with chaebol, heavy directed credit 1980 s gradual liberalization, R and D 1990 s trade reform, technology focus, less government direction
Characteristics:where it worked Strong export focus Balance of incentives avoidance of antiexport bias (Bhagwati), cross subsidization Flexibility changing instruments Performance linked -export criteria Support time limited Technology upgrading either domestically or through FDI
Characteristics:where it failed Cronyism, political connections Ethnic dimension Import substitution orientation support for high cost producers Lack of performance criteria and targets Technology stagnant or inappropriate Soft state versus developmental state
Did it make a difference? Tests unsatisfactory can we isolate one policy? What is the counterfactual Where did the money go? Taipei, China most support to declining not strategic sectors Comparisons of productivity growth in supported and non-supported sectors
Did it make a difference? Korea evidence that 8/12 infants grew up Macro simulations suggest modest positive impact 0.5% annually to growth (Pack) when growth 8% hardly trivial but not secret of success The fact that almost all economies of the region had industrial policies.. suggests that such policies were an important part of their growth strategies, whether or not the highly imperfect econometric techniques for quantifying such impacts succeeded in verifying such claims (Stiglitz)
If so, what was the mechanism? Not first-best, non-distorting interventions High investment high export high savings nexus Industrial policy raised profitability of manufacturing viz other sectors Maintained high investment with export focus Built up industrial capacity at early stage of development
What is role today? Often dismissed, but are we kicking away the ladder? Lack of independent, technically competent bureaucracy Global rules (WTO, FTAs) and TNCs only partially rule it out Bound tariffs, actionable trade-distorting subsidies
Alternative versions Support types of activities (training, R and D, risk-taking) and clusters (Rodrik) Identify dynamic / strategic sectors (Lall) Common principles, time-bound, selective, performance-based, clustering, open trade, innovation Let winners emerge not be picked
Lessons from Miracle No single model Governments can play a positive role, but not all East Asian economies successful Policy flexibility is important Exporting a key dimension Learning and technological upgrading critical