Discussion:

 What are the benefits of the HDI measurement?

Useful in recognizing that some countries may have rather
low income levels but still have achieved a lot in terms of
satisfying human needs
 Though the HDI has been seen as a more accurate measure of
development in a country what are its drawbacks?

1. Gross enrollment may overstate the amount of

schooling (but does not consider the drop outs)
2. No attention to the role of quality of life (but on
duration of life)
3. Bias to health and education (easier to obtain data)
across nation

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 1
Discussion:
 What are the 8 MDGs? And why are these MDGs so
important?
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empoer women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other deseases
7. Ensure environmental sustainabiilty
8. Develop a global partnership for development

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 2
How developing Countries Today differ from
developing countries in their earlier stages

 Physical and HR Endowments – today LDCs population

are less educated, less informed, less skilled then their
counterparts in the early days. The “ingenuity gap” (the
ability to apply innovative ideas and solve practical problems)
 Relative levels of Per Capita Income and GDP –
todays developed nations were economically advanced than
the rest of the world where as LDCs are subsisting on bare
minimum.
 Climatic Differences –”temperate” vs “tropical” (heat and
humidity contributes to deteriorating soil quality and rapid
depreciation of natural goods, low crop productivity)
 Population Size, Distribution and Growth – western
nations experience very slow rise in population

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 3
 How developing Countries Today differ
from developing countries in their earlier
stages
 Stability and fexibility of political and Social
institutions – Globalization has increased the need for
countries to be able to react quickly when faced with
crises

 Efficacy of Domestic Economic Institutions – The

degree in which systems are in place

 Growth Stimulus of international trade – LDCs

forced to use Terms of trades and face deteriorating trade
position.

 Historical role of migration – ‘free movement’ of

immigrants in the past (now there is very restrictive
nature of immigration laws in developed countries)

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 4
 EGEE2102
ECONOMIC DEVELOPMENT

Lecturer : Melur Natasya Saufi

FEA UM 5
 What is the Asian Growth Miracle?

 What are the factors that led to the

rapid growth?
 1- Primary factors
 2- Secondary factors

 What are some of the development

and growth strategies suitable for the
developing countries?

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 6
 One of the most outstanding features of the recent economics
history

 A rapid change in the structure and economic growth in Asia

in the past 30-40 yrs

 Incomes in developing Asia increased rapidly for a a sustained

period of time (up to 4 decades) then anywhere else in the
world

 Moved from very low level of economic activity in the late

50’s & 60’s, to fairly high levels of per capita income ( much
faster then industrial countries outside Japan – during their
rapid growth rate)

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 7
 These changes in
economic activities
and income per
capita were unusual
and faster than
Japan, US and UK.

 In the 19th & 20th

century, even
developed countries
like US & UK did not
have growth rates
more than 3% per yr.

8
 It has been termed the “ Asian growth
miracle”

 World Bank classified “miracle

economies” included:
◦ Japan &
◦ Newly Industrialized Economies (NIEs) –
Singapore, Hong Kong, Taiwan & Korea.
◦ Indonesia, Malaysia, Thailand & China.

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 9
 Quibria (2002) explanations to miracle growth:
1. Primary factors – present in all miracle
economies at the time of economic take off
- outward looking policies
- macro econ policies & govt.role
- education, labour growth & productivity
- labour market flexibility
 These factors are crucial in the sustenance of the
rapid Asian economic growth.
 These factors are common denominator of the
Asian growth experience.

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 10
 Quibria (2002) explanations to
miracle growth:

2. Secondary factors –
were sometimes present
and sometimes not
 Contribute to Asian
economic growth but varied
from country to country
 Added variety to the growth
experience

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 11
Dynamics of the Growth Process
 “Miracle” economies started with a policy
matrix that stress “import substitution”
across a wide range of industries.
 Up until the beginning of 1960’s the policy
regime and development strategy of miracle
economies and India were similar
 In 1960s “miracle economies” especially East
Asia developed outward looking policies that
focused on exports and acquisition of foreign
technology which led to:
 Economic efficiency
Investment environment (upgrade in labor skills
& acquisition of new technology)

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 12
Dynamics of the Growth Process
As a result of these policies:
 Both savings and investment rates
increased.
 Education and skills formation improved

 Rapid shift from agriculture to industry

 Flexible labor market quickly adaptive to

market needs
 Better educated labor force resulting in
sound macroeconomic policies (low fiscal
deficits, high growth and increase in FDI)
 Growth no longer constrained on
agriculture and adopting new
technologies but able to look at world
market for manufactured goods
(imports).

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 13
What have we learn so far?
1. Miracle Economies (more than 3% growth)
2. NIEs
3. Primary Factors – present in all miracle
economies (common denominators)
4. Secondary Factors – differentiators
5. Dynamics of Growth Process – economic
efficiency & provide investment environment

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 14
 The East & Southeast Asia countries started the
industrialization process by developing import substituting
industries.
Eg: food processing , textiles, apparel & footwear

 In Korea & India pushed towards medium & heavy industry

 1960s Economist emphasized on developing a wide range of

domestic industries that could replace imports – “Bootstrap”
development

 It was believed that developing countries need large inflow

of assistance to supplement domestic savings in order to
accomplish this transformation of the production structure

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 15
 India developed a wide range of industries
(followed Soviet Union),
 Other countries in Asia (including Korea)
reluctant and look to Japan instead (look east) on
how to industrialize.
 Taiwan – adjusted Japans model to focus on small
& medium industrial development which inbturn
was channeled to some southeast Asian countries,
HK, Singapore, Europe & North America focusing
on apparels but shifted quickly to electronics.
 Korea model followed Japan most close, developed
“chaebol” (industrial conglomerates) model after
“Kareitsu” e.g. daewoo = honda.

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 16
 The Southeast Asian countries ( Malaysia, Filipina & Thailand – initial
emphasis was on agricultural based products).
◦ Eg: getah, gula, kelapa. dan produk minyak sawit & textile fabrics (silk)
 Later, this gave way to labour intensive industries
◦ Eg: apparel, footwear & electronics assembly

 Emphasis on exports were supported by the government policies

which varied from country to country
 The policies assist in protecting these industries through import
restrictions & tariffs (varied from country to country).
 Reason for this: Resource are allocated to them by the private
sectors for an anticipation good potential profit.
 However taxes were lower in East & Southeast Asia than South Asia
(more importantly reduced over time to correct the distortions- not
so in South Asia)

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 17
 The challenge in South Asia is not only to
reduce rates of taxation but also to find Taxes on Trade
revenue sources to replace tax on trade Mean tariff rates
 The combination of a shift toward export
promotion policies with reduction in tariff
rates and inflow of FDI and supportive Economy 1980 90 99
macroeconomic policies produced an export
boom that lasted over 20 years.
 By 2000 over 50% of GDP was generated by        
the export sector in East and Southeast
Asian countries except Indonesia and Korea
(close to 50%) HK China 0 0 0
 Hongkong and Singapore exports 150% to
180% in 2000. Singapore 0.3 0.4 0.4

India 74.3 79.2 32.9

Bangladesh 99 102 22.1

EGEE2102 M. Natasya Saufi

Lecturer FEA UM 18
Technology plays an important role as the
growth and income increase higher.
3 ways of getting access to technology:

1. Buying it from foreign companies

under licence
2. Copying without licence
3. Enter into a joint venture & import
technology through FDI

In recent years much of the transfer in

technology has been from FDI

EGEE2102 M.Natasya Saufi

Lecturer FEA UM 19
Foreign Technology
 In the beginning, NIEs attracted & used foreign technology
through licence
 Japan & Korea didn’t encourage FDI . They sent mission
overseas to get the knowledge and skill and copied it and
adapt to their R&D. This increased their competitive edge .
Eg : automobile
 Southeast Asian countries mainly bought foreign technology
through the process of FDI
 The FDI inflow increased rapidly after industrial countries
agreed to enter foreign exchange market to increase the
value of yen following the WTO, Plaza Accord.
 The value of yen in the industrial countries increase but the
industries in Japan lose their competitiveness.
 Most Japanese firms, labour intensive manufacturing &
electronics went offshore (Southeast Asia & China) to lower
cost
EGEE2102 M. Natasya Saufi
Lecturer FEA UM 20