What Can Economics Learn from East Asian Success?

Abstract

Most economics literature on East Asian industrialization falls victim to the assumption that only those features of economic policy consistent with neoclassical principles could have contributed to good economic performance. Explanations of good performance accordingly ignore nonneoclassical features. This article suggests that new insights can be gained by carefully examining what these governments actually did. We find that much of what they did is consistent with the principles of old-style pre- 1970 development economics. In particular, they gave central attention to ways of augmenting and directing the composition of investment, and much less attention to ways of increasing efficiency of resource use. They used protection as an instrument to enhance innovation and international competitiveness. In important industries they regulated both quantities and prices so as to achieve government-selected goals, preventing those parts of the economy from being guided by international prices. Economics has much to learn by embracing such nonneoclassical facts and seeking to build a theory to accommodate them.