The East-Asian economic growth miracle : lessons for sub-Sahara Africa

Thesis (M.Com. (Economics))--North-West University, Potchefstroom Campus, 2004.The economic performance of eight East Asian countries - Japan, South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia and Indonesia - have been described as the "East Asian Miracle" because of their economies' significant growth since the 1960s. In these eight countries real per capita Gross Domestic Product (GDP) rose twice as fast as in any other region between 1965 and 1990. In contrast, much of Sub-Sahara African (SSA) remains in poverty with slow growth in many SSA economies over the same period of time. In this light, it is the purpose of this study to identify the determinants of economic growth in East Asia over the period 1960 to 1990, and to determine whether these determinants are also relevant to explain economic growth in SSA. The hypothesis is that the determinants of economic growth in East Asia are similar to the determinants of economic growth in SSA. The experiences of East Asia - Malaysia, Thailand and Indonesia - can probably be most meaningfully compared to SSA economies. In the 1960s, the average levels of GDP in East Asia (Indonesia, Malaysia and Thailand) and SSA were similar. Also, economic structures and the social contexts of countries in East Asia in the 1960s were not apparently so different from those of some SSA countries. East Asia could be characterized as being relatively rich in natural resources but weaker in human resources. This is similar to the situation in many countries in SSA both in the 1960s and today. East Asia also had problems of ethnic conflict and periods of political instability. At the time (circa early 1960s), many expected rapid growth in SSA and stagnation in Asia. The study showed that SSA's exports have a small and declining share in the world trade and that its exports are largely confined to primary products and the importation of non-primary products. The study then showed that the causes for SSA's failure to grow were either because of proximate causes, i.e. exogenous factors such as bad weather, deteriorating terms of trade, fluctuating international interest rates and reduced inflows of foreign aid, or because of ultimate causes i.e. endogenous factors such as, inappropriate domestic policies, including incentive structures, and the mismanagement of public resources. The study found the determinants of East Asia's economic growth to be an outward oriented strategy, which build strong linkages with world markets and technology through an export promotion policy. East Asian countries also pursued conservative macroeconomic policies, which created a stable, predictable environment for investment and trade. Inflation was kept low, exchange rates competitive and debt affordable. Human capital was vigorously invested to develop an educated and technically competent labour force. And finally, competitive markets were maintained for factors to facilitate the structural transformation from primary production to manufacturing and eventually to knowledge-intensive industries. After running a regression analysis, which combined SSA and East Asian growth determinants, it is the findings of this study that policies, institutions and geographical factors determine SSA's growth performance. In particular factors such as initial GDP, exports as a percentage of GDP, government effectiveness, political stability, landlockness and tropics, external debt, population growth rate and literacy rate. If SSA could some way improve their policies and focus on becoming more open to international trade and thus promoting their exports, it may improve their economic growth rate. Although many of the same determinants, which caused East Asia's economic growth were found to be significant in the SSA experience, it was also found that the African dummy were extremely significant. This means that not all the determinants, which caused East Asia's economic growth, could be identified, and thus creates an avenue for further research.Master