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. As a consequence, the sector 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 2 of the paper reviews the role of Asia’s developmental states in consciously accelerating industrial development and learning, as well as the region’s mixed experiences with industrial policies. Second, it provides a discussion of how Asian firms hooked up on to global value chains.
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
Summary
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
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