Abstract

This paper argues that the single most important factor that explains East Asia’s development success was its fast structural transformation toward industrialization, manufacturing in particular. Workers moved out of agriculture into manufacturing, and the sector diversified and upgraded its structure. Manufacturing activities are subject to increasing returns to scale, and many manufacturing goods have high income elasticities of demand. For these reasons, manufacturing is referred to as the “engine of growth.” It is in the context of industrialization that openness played an important role in East Asia’s success, i.e., the connection between “export-led growth” (the relaxation of the balance-of-payments constraint on foreign exchange) and industrialization. Part 1 of the paper documents the extent of structural transformation in developing Asia. Second, it analyzes the relationship between the exportled growth model (i.e., the relaxation of the balance-of-payments constraint on foreign exchange) and industrialization. Finally, it reviews the industrialization experiences of Japan and the Republic of Korea, and discusses the recent deindustrialization debate.

Highlights

  • Aggregate growth is related to the rate of expansion of the sector with the most favorable growth characteristics

  • Adam Smith was the first economist to grasp the essential idea that not all products have the same consequences for development, namely that if a country wants to develop it needs to get into products/activities subject to increasing returns to scale and with a relatively high income elasticity of demand

  • This view of growth and development, i.e., as a cumulative interactive process based on the division of labor and increasing returns in industry, lay dormant until the economist Allyn Young revived it in a 1928 paper entitled ‘Increasing Returns and Economic Progress.’3 In this paper, he provided a view of increasing returns as a macroeconomic phenomenon

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Summary

INTRODUCTION

Aggregate growth is related to the rate of expansion of the sector with the most favorable growth characteristics. Adam Smith was the first economist to grasp the essential idea that not all products have the same consequences for development, namely that if a country wants to develop it needs to get into products/activities subject to increasing returns to scale and with a relatively high income elasticity of demand This is the essence of the export-led industrialization strategy that Japan and other successful Asian countries followed. Through the greater scope for capital accumulation, that is, the ability to break up complex processes into simpler processes permitting the use of machinery, which raises productivity still further This view of growth and development, i.e., as a cumulative interactive process based on the division of labor and increasing returns in industry, lay dormant until the economist Allyn Young revived it in a 1928 paper entitled ‘Increasing Returns and Economic Progress.’ In this paper, he provided a view of increasing returns as a macroeconomic phenomenon. Asia’s Industrial Transformation: The Role of Manufacturing and Global Value Chains (Part 1) | 3

STRUCTURAL TRANSFORMATION IN DEVELOPING ASIA
MANUFACTURING AND ECONOMIC DEVELOPMENT
17 Asian developing countries for 1980–2004
Understanding the Role of Manufacturing in Development
Export-Led Growth and Industrialization
The variables used to proxy technological competitiveness are
The Industrialization Experiences of Japan and the Republic of Korea
The Recent Deindustrialization Debate
26 The list of economies included in the study are the following
30 BLEUL XAUT
Findings
40 | References
Full Text
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