#176 Of East Asian Transformations

Global Policy Watch #1: The Road Not Taken <br/><br/><em>Insights on policy issues making news around the world</em><br/><br/><em>&#8212; Pranay Kotasthane</em><br/><br/>East Asian economic success is one of India&#8217;s favourite public policy discussion themes. Regardless of the facts, we have strengthened our own beliefs based on that transformation. For instance, many Indians are convinced that South Korea, Taiwan, and Japan became powerhouses through well-executed industrial policies in which governments threw their full weight behind specific domestic sectors and companies. East Asian examples are often used to justify India&#8217;s protectionist trade measures, a business environment that places higher compliance requirements on foreign companies, and generous pro-business subsidies. <br/><br/>In this debate, we forget the role of two other crucial factors. One, the role of geopolitics. As Arthur Kroeber&#8217;s notes in <a target="_blank" href="https://www.amazon.com/Chinas-Economy-Everyone-Needs-Know%C2%AE/dp/0190239034"><em>China&#8217;s Economy</em></a>, Japan, South Korea, and Taiwan were part of the US alliance structure and benefited immensely from programs of technical assistance, educational exchanges, and access to the American market.<br/><br/>Two, <strong>what&#8217;s more significant is that South Korea&#8217;s transformation as an export powerhouse predates industrial policy measures</strong>. Like India, South Korea too had a scarce foreign exchange reserves problem. Like India, it too opted initially for trade and monetary policies ostensibly aimed at preserving these reserves. But starting 1964-65, South Korean leaders&#8212;nudged by the US&#8212;were able to reimagine a future in which their foreign exchange problem was to be ameliorated not by import controls but by increasing exports.<br/><br/>To explain the freakish similarities and differences between the paths India and South Korea chose, read these excerpts from an excellent NBER paper <a target="_blank" href="https://www.nber.or