The East Asian Growth Miracle

Between the 1960s and the 1990s, a group of East Asian economies grew so fast that the World Bank titled a 1993 report The East Asian Miracle. Japan led the way after World War Two. It was followed by the four Asian Tigers: South Korea, Taiwan, Hong Kong and Singapore. Later, Malaysia, Thailand, Indonesia and, on the largest scale of all, China joined the pattern. For decades, several of these economies grew around 7 percent a year or more, a pace that doubles income roughly every ten years. Within about two generations, some went from poverty to wealth comparable with Western Europe.

Common ingredients

Although these economies differed in many ways, economists have identified shared features.

First, very high rates of saving and investment. Households and firms saved a large share of income, which funded factories, machinery and infrastructure.

Second, heavy investment in education. Near-universal primary schooling came early, followed by rapid expansion of secondary and technical education, producing a disciplined and increasingly skilled workforce.

Third, export-led growth. Rather than protecting local industry behind high tariffs and producing only for the home market, these economies pushed firms to sell abroad. Competing in world markets forced companies to meet international standards of quality and cost, and exports earned the foreign currency needed to buy advanced machinery.

Fourth, in South Korea and Taiwan, land reform after World War Two broke up large estates and gave land to farmers who worked it. This raised rural incomes, reduced inequality and created a broad base of demand and political stability.

The role of government

The most debated feature is industrial policy: deliberate government efforts to promote particular industries. South Korea’s government directed cheap credit to chosen sectors such as steel, shipbuilding and electronics, and backed large family-run conglomerates. Taiwan supported smaller firms and state research institutes. Singapore courted multinational companies.

Supporters argue that this guidance helped these economies move quickly into more advanced industries. Skeptics note that similar policies failed badly in many other countries. A common middle view is that East Asian governments often tied their support to strict performance tests, especially export success, and withdrew help from firms that failed to deliver.

Miracle or hard work?

In 1994, economist Paul Krugman published a provocative essay arguing that the growth was less mysterious than it seemed. Drawing on research by Alwyn Young and others, he suggested that much of it came from factor accumulation: putting more people to work, educating them, and investing enormous sums in capital, rather than from dramatic gains in efficiency. This mattered because accumulation eventually hits limits. Other economists found larger productivity gains than Young did, and the debate continues. The 1997 Asian financial crisis showed that the region also had weaknesses, particularly in its banking systems, though most of these economies recovered and kept growing.