Late Industrialization

Diffusion of Development: The LateIndustrializing Model and Greater
East Asia
Alice Amsden
Amsden, Alice H. (1991), “Diffusion of Development: The Late-Industrializing Model
and Greater East Asia,” American Economic Review 81 (2), 282-286.
“Late Industrialization”
• Movement from an agrarian base. (note: does not include Hong
Kong and Singapore)
• From 1960-1988 annual economic growth in East Asia was approx.
10.6% vs 6.3% for all developing nations.
• Why?
• Export Growth?
– Between 1973-86, the Philippines nearly twice doubled their
manufactured exports to value added exports ratio while economically
• Equity?
– Rapid growth in countries with high income inequality. (ie: Brazil,
Indonesia and Singapore)
• Conclusion:
– Need a model rather than individual variables to explain EA growth.
• Market vs Institutional
Industrialization Through Learning
• Late Industrializing Countries have the challenge of
growing without development of new technology.
– “learning” in order to compete
• Market Model: follow competitive advantage. “Get
prices right.”
– Low wages  labor intensive manufacturing
– Japanese textile growth over Britain due to superior
facilities rather than wage.
• Korea and Taiwan can’t compete. Required intervention.
• Institutional Model: subsidies used to “get prices
– Stimulate investment and trade.
Subsidy Allocation
• Goal: Increase efficiency so that the “wrong
prices are right.”
• Subsidies in EA awarded in exchange for
meeting performance standards rather than
just a giveaway like in other developing
countries. (Reduces rent seeking)
• Disciplined subsidies  faster growth.
Import Substitution to Exports
• Subsidies early on encouraged import
• “Standby incentives” for exporters ensured that
development would reach globally competitive
– Achieved through low wage gap, educated labor,
bonuses based on performance, and adoption of “best
practice” on the shop floor.
• Cycle: Import Substitution Phase: 1. Gov’t
controlled  2. Export Growth: Market led  3.
Neo-import substitution phase: Gov’t led.
• Late industrializers struggle to compete on
low-wage alone.
• Gov’t intervention/industrial policy a
“necessary evil.”
• Focused subsidies lead to faster growth.
• Allow market forces to take over.
The East Asian Miracle: Four
Lessons for Development Policy
John Page
Page, John. (1994), “The East Asian Miracle: Four Lessons for Development Policy,”
NBER Macroeconomics Annual 9, 219-269.
Fundamentalists vs Mystics
• Fundamentalists:
factor accumulation,
getting basics right,
macro stability,
investments in people,
few market failures.
• Mystics:
– “catching up” technologically, (TFP growth)
– market consistently fails to guide investment to high
growth industries,
– “get prices wrong,”
– flexible gov’t policies.
TFP Analysis
• TFP in developing nations is a combination of “catching
up” (or falling behind) and efficiency of factor
• TFP findings not conclusive.
• Fundamentalist:
– “Between 60% and 120% of EA output growth derived
from accumulation of physical and human capital and
labor force growth.”
• Mystic:
– EA countries are some of the few developing nations that
appear to be “catching up” or growing similarly to
international best practice.
Success of Export Push
• Import substitution phase shorter than in other
• Japan, Korea and Taiwan: incentives between import
substitution and exports neutral on average.
– Not neutral among firms, certain industries pushed.
• EA has an increasingly large share of international
– Manufactured exports contributing most of this growth.
• Manufactured export performance strongly correlated
with increased TFP growth.
– Possibly due to “catchup” to best practice.
(In)Significance of Industrial Policy
• “Gov’t efforts to alter industrial structure to
promote productivity based growth.”
• Sectoral growth rates of TFP for Japan, Korea and
Taiwan are high by international standards.
– However, growth in promoted sectors not higher than
other domestic sectors. (Excluding Japan)
• Between 1966-85, Korea promoted iron, steel,
and chemicals which all experienced modest TFP
growth. While textiles, a non-promoted industry,
had very high TFP growth.
• Industrial policy ineffective at choosing winners?
• While both seem to agree that export promotion played a large role
in EA development, Amsden puts a larger emphasis on the
importance of the import substitution phase of growth, attributing
“catching up” to this phase rather than the export phase as done by
• Amsden also strongly advocates the effectiveness of industrial
policy in EA, while Page marginalizes it.
• Though Page uses a much larger quantity of statistics in his analysis,
much of the EA data (particularly in the TFP analysis) is guesswork.
Additionally, Page asserts that Korea did not promote it’s textile
industry through industrial policy, and that is not entirely accurate.
• As such, I feel that Amsden provides a more compelling argument
that Industrial Policy did in fact play an important role in EA’s late

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