Markets and economic growth in East Asia

Do markets and governments work in a complementary fashion by improving the rate of expansion and effectiveness of:

• physical capital accumulation?
• human capital accumulation?
• technological progress?

Governments may have occasion to intervene in markets to enhance the rate of growth of these three fundamental factors, and to improve upon their effectiveness. Rather than considering the roles of government and markets as substitutes, this paper adopts the approach of conceiving of the two as complementary.

The paper divides itself into three parts, taking each of the factors in turn, and asking what roles do markets and governments play in influencing their rates of increase and their effectiveness?

Conclusions include:

• in expanding economies, resources used for investment in productive capacity can determine the future structure of the economy
• the predominant role of the banks in nearly all East Asian financial markets allows them, or those who control them, to exert a major influence on economic growth
• Asian countries differ considerably in the way banks are controlled and directed, this goes a long way toward explaining the different structures and performance of their economies
• in a few countries, notably Korea, banks have been used to pursue a highly dirigiste economy, and to promote the acquisition of new technology
• whilst the attractiveness of the market lies in the discipline it imposes on entrepreneurs, Korea has shown that the state could impose a discipline of equal severity