Economic Development of Emerging East Asia: Catching Up of Taiwan and South Korea

Economic Development of Emerging East Asia: Catching Up of Taiwan and South Korea

by Frank S.T. Hsiao, Mei-Chu Wang Hsiao

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Economic Development of Emerging East Asia presents economic studies of Taiwan and South Korea, compares them chiefly with Japan and the United States and finds that these East Asian countries are still in the process of emerging in the world economy. A timely quantitative and econometric analysis of the regional economies of emerging East Asia, the volume examines development indicators, effects of the 1997 Asian financial crisis, productivity growth, catching up and convergence of long run real GDP per capita growth, the time required for a country to catch up, colonialism and economic development in Taiwan and India. Arranged in increasing complexity of economic analyses, the chapters in this book provide a comprehensive understanding of emerging East Asian economies. In addition to serving as a handy reference for regional economists, policy analysts and researchers, Economic Development of Emerging East Asia can also be used as a textbook on economics and business.

Product Details

ISBN-13: 9781783086894
Publisher: Anthem Press
Publication date: 09/27/2017
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 318
File size: 11 MB
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About the Author

Frank S. T. Hsiao, professor emeritus of economics, Department of Economics, University of Colorado at Boulder, USA, is associate editor of the Journal of Asian Economics. He has published extensively on growth models, production functions, Asian economic development and computer-assisted teaching in leading professional journals, and is the author of Economic and Business Analysis: Quantitative Methods Using Spreadsheets (2011).

Mei-Chu Wang Hsiao, professor emerita of economics, Department of Economics, University of Colorado at Denver, USA, has published many articles on econometric analysis of Asian economies. She is the coauthor (along with Frank S. T. Hsiao) of Economic Development of Taiwan: Early Experiences and the Pacific Trade Triangle (2015).

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This chapter presents the initial conditions of the pretakeoff period of Taiwan as compared with other comparable neighboring countries like South Korea, Japan and China. It presents the degree of "institutional readiness" of Taiwan, one of the newly industrializing economies (NIEs) in 1970s and 1980s, for takeoff to rapid economic development. We start from comparing the social indexes (including cultural, health and educational efforts), political freedom, defense burden and so forth. We then compare economic development indicators of Taiwan in the 1970s, the period in which Asia was just starting to emerge, with other Asian newly industrializing countries (NICs), namely, South Korea, Singapore and Hong Kong. In some comparisons, we also included Japan, China and the United States.

1.1 Introduction

Special interest in East Asia has been aroused again recently from Japan's emergence as a world industrial power (Patrick and Rosovsky 1976). After much acclaim of Japan as number one (Vogel 1979), people began realizing that not only Japan but also the smaller, newly industrializing countries (hereafter NICs) in Asia, such as Hong Kong, South Korea, Singapore and Taiwan, have followed closely and performed as well as Japan, although on a smaller scale (Little 1979). These five fast-growing countries, along with China and North Korea, are now viewed as a "challenge" and a "threat" to the United States and the Western world. They are known as the Eastasia Edge (Hofheinz and Calder 1982). With this perspective, this chapter examines some development indexes of Taiwan.

Taiwan's economic performance has been one of the best among the nations in the world after World War II. In fact, among 134 countries, for the period between 1950 and 1975, Taiwan's annual growth rate of per capita gross national product (GNP) in 1974 US dollars was 5.3%, ranking fifth, behind only Japan (7.6%), Swaziland (7.0%), Iraq (5.9%), and Greece (5.4%) (Morawetz, 1977, 77–80). In recent years the Taiwanese economy has been in the spotlight again as a new study has disclosed that Taiwan might be one of the few countries that has achieved this rapid growth with an equitable distribution of family income (Fei, Ranis and Kuo 1979). Since there currently exists extensive literature on the Taiwanese economy itself (e.g., Ho 1978; Galenson 1979), the purpose of this chapter is to compare some of its development indicators with those of selected countries.

1.2 Some Economic Indexes

It should be noted first that the term "development" has different meanings. Here we use it in a broad sense to include some economic, social and political aspects of Taiwanese society. Each of the indexes chosen is explained as it is introduced. Theoretically, an international comparison of these indexes may be made among all the countries in the world, as we have done previously (Hsiao and Hsiao 1981), or among countries in the same geographic area (WT 1980), or among those at similar levels of development (WDR 1980). Since most people like to compare themselves with a similar reference group, the emphasis of the comparisons in this chapter will be on the NICs, especially among the Asian NICs: Hong Kong, South Korea, Singapore and Taiwan. Whenever appropriate, we also compare the Taiwanese indexes with those of other countries not among the NICs.

With a population of 17 million in mid-1978, Taiwan is a large country, ranking 37th among 153 UN members, and is comparable to the former East Germany, Sudan and Peru. Taiwan is rather small in terms of its area (36,000 km2), ranking 116th among UN members. It is 70% larger than Belgium (21,000 km2), but is slightly smaller than the Netherlands (41,000 km2). The large population and small land area make Taiwan one of the most densely populated countries in the world. It has 472 persons per km2, the sixth highest among UN members, although it is only about one-eighth as dense as Singapore and Hong Kong. Apparently population density has little to do with the degree of development, as shown in Table 1.1.

The most important, although controversial, economic development index is per capita gross national product (GNP). GNP is a measure of the total gross domestic and foreign output claimed by the residents of a country. It is the sum of gross domestic product (GDP) and net factor income abroad (WT 1980, 6). At current market prices, Taiwan's per capita GNP in 1977 was $1,179, ranking 51st among 126 countries according to the World Bank (WT 1980, 430). It is slightly higher than South Korea ($977) and Turkey ($1,110, not shown), and is almost the same as Mexico ($1,164, No. 52) and Panama ($1,195, No. 50).

Taiwan's per capita GNP in 1977 is also higher than all those of the Asian countries except Japan ($6,511), Singapore ($2,820), Hong Kong ($2,622) and Fiji ($1,326). An alternate index to per capita GNP is per capita energy consumption, which is measured in kilograms of coal equivalent to petroleum, natural gas, coal and lignite, hydroelectricity and nuclear power consumed, excluding traditional firewood. This is shown in row 5 of Table 1.1. Taiwan's figure is certainly high, indicating a vigorous industrial country. However, in contrast with GNP per capita, Taiwan's energy consumption seems too high, particularly when it is compared with Hong Kong and South Korea, which is probably an indication of a lack of effective energy conservation policies in the country.

Although per capita national income is rather low, Taiwan's average national savings rate is high. It is measured by the total gross national savings between 1972 and 1977 divided by the total GNP at current market prices for the same period. With average national saving ratio at 29.6%, Taiwan ranked 12th among 126 countries. Other countries with high average saving ratios are mostly oil-producing countries, except Japan, which had 34.4% and ranked seventh. High saving ratios result in high investment and consequently a high growth rate. Since Taiwan is a resource poor country, a high saving ratio depends only on the frugality of the Taiwanese people. This partly explains the rapid growth of the Taiwanese economy.

Industrialization requires some degree of urbanization. Urbanization is partially revealed in the size of the urban population and in the size of the industrial labor force vis-à-vis agricultural labor. These are shown in rows 7 and 8 of Table 1.1. About 77% of the Taiwanese population live in urban areas, almost the same as that of Japan and the United States. However, the percentage of the labor force in agriculture is still 37%, slightly lower than South Korea (41%), but much higher than that of Japan (13%) and the United States. (2%). The low percentages of agricultural labor in Singapore and Hong Kong are due to the city-state nature of these islands.

In addition to domestic saving, other sources of investment for development come from trade surplus, foreign loans and foreign investment. These are shown in rows 9 to 13. In 1978, the last year of the recovery from the first oil crisis of 1973–74 and just a year before the second oil crisis in 1979, the Taiwanese and Japanese economies had recovered from the initial crisis and experienced a large trade surplus, while South Korea, Singapore and the United States had trade deficits.

In terms of foreign loans that were disbursed by 1978, Taiwan's external public debt outstanding stood at US$ 2.9 billion, ranking 21st among 90 low-income and middle-income countries (WDR 1980, 138–39). Taiwan's external public debt is about one-fourth of Korea's debt, but it is well above those of Singapore and Hong Kong. Both Taiwan and Korea borrow heavily from outside to promote economic development.

Row 11, Table 1.1, shows the external public debt as a percentage of GNP. For Taiwan, the debt burden is 12.1%, ranking 64th among 90 low-and middle-income countries. Its debt burden in terms of GNP is not as heavy as most of the other developing nations. Rows 12 and 13 show the extent of the net inflow of public loans and private investment in 1978. Note the importance of public loans for Taiwan and South Korea. Japan and the United States had negative private investment, which shows the amount of foreign investment by firms of the developed countries.

1.3 Social Indexes

Social indexes include cultural, health and educational development (Harbison, Maruhnic and Resnick 1970, 15–17). Due to the availability of data, the following indexes are chosen for comparison.

Cultural Development Index (as a proxy for modernization):

1. Radio receivers per 1,000 population

2. Passenger cars and commercial vehicles per 1,000 population

3. Literacy rate of adult population over 15 years old

Health Index:

4. Population per physician

5. Population per hospital bed

6. Daily calorie supply per capita

7. Life expectancy at birth

Educational Effort Index:

8. Second-level enrollment

9. Third-level enrollment

Composite Index:

10. Physical quality of life index (PQLI)

These ten indexes are listed in Table 1.2. All data are based on the World Development Report (WDR, 1980), except rows 1, 2 and 5, which are taken from the most recent estimation (MRE) between 1974 and 1977 by the World Bank (WT 1980). The last index, the "physical quality of life index" (PQLI), was taken from Sewell (1980). The numbers with a plus sign are taken from the data "for years other than, but generally not more than two years distant from, those specified" (WDR 1980, 158). Hence, most of the data are not strictly comparable. However, since social conditions change only gradually, the data provide some long-run trends of development and modernization.

In general, Taiwan's social indexes, like the economic indexes, are better than those of Korea but worse than those of Singapore and Hong Kong, as might be expected. However, the data reveal several surprises. Despite the fact that about 16% of Taiwan's exports consist of electric machinery and appliances, Taiwan's radio receivers per thousand population (97, row 1) is well below other countries. It seems that most of the electric and electronic equipment was produced in the Export Processing Zone and not directly accessible to the Taiwanese people themselves.

Another disappointment is the adult literacy rate (row 3), which is the percentage of adults aged 15 and over with the ability to both read and write. Despite well-touted achievements in the field of education, as much as 20% of the people in Taiwan were still illiterate, possibly well below all other countries in Table 1.2 except Singapore. The Taiwanese data are somewhat better in the number enrolled in the third (higher) level of education as a percentage of population aged 20–24 (row 9, Table 1.2). However, the differences among the four NICs are not significant and are still well below Japan and the United States.

Another interesting point is about the Taiwanese data on the population per physician and per hospital bed (rows 4 and 5), which are, respectively, "the total population divided by the number of practicing physicians qualified from medical school at a university level," and "by the number of hospital beds available in public and private hospitals and rehabilitation centers." Both numbers for Taiwan are high when compared with other countries except South Korea. The lack of physicians is not due to a lack of medical schools. It seems to reflect the brain drain. Many graduates of Taiwan's medical schools went abroad for "study," but as few as 4.4% came back to Taiwan from 1965 to 1980 (Hsiao and Kim 1982).

Taiwan's daily calorie supply per capita (row 6), which is the per capita calorie equivalent of food supplies as a percentage of requirement, is almost the same as Korea, but it is relatively low when compared with others. Nevertheless, life expectancy at birth (row 7), which indicates the number of years newborn children may expect to live, are more or less equivalent with other countries except Korea. Note that China's daily calorie equivalent per capita is estimated to be above the minimum daily requirement (105%), a feast for a country with a population close to one billion (India has only 91%, WDR (1980, Table 22). Similarly, China's life expectancy at birth is 70 years (WDR 1980, Table 1), which is comparable to most other countries except South Korea and Japan. This may reflect a good, if not better, medical care system in China (Hsiao and Hsiao 1981; Richman 1975, 353).

The last index is PQLI, which combines three indexes: literacy, life expectancy and infant mortality. The results are more or less expected from the above analysis. However, two things are worth noting. First, despite the difference in the economic and social indexes we have discussed above, the "physical quality of life" in Taiwan, South Korea and Singapore does not differ significantly. Second, the quality of Chinese life (71) is, although relatively low in the table, very respectable considering its population and the land area, especially when it is compared with the PQLI of India (43), Pakistan (38) and Indonesia (55) (Sewell 1980; Wright 1982, 16–17).

1.4 Political and Defense Development Indexes

Two of the most important aspects of the economic and social development indicators are the degree of political freedom and military defense. They are, however, often neglected in an international comparison since the concept of freedom is hard to measure and defense expenditures are always shrouded with much secrecy. We have tried to compare these two indexes based on the data published by Freedom House and the International Institute for Strategic Studies in London. These are shown in Tables 1.3 and 1.4.

Freedom House uses a seven-point scale for political and civil freedom, one corresponding to the most freedom and seven to the least. It then provides an overall judgment of each country as "free" (1 and 2), "partly free" (3 to 5), or "not free" (6 and 7) (Gastil, 1979, 15–24). Political rights rate electoral powers, existence of significant opposition parties, openness of voting procedures and the power of the elected representatives. The civil liberties are evaluated on the basis of independence of the news media, freedom of opinion, religion and movements, right to a fair trial and number of political prisoners. Economic freedom considers freedom to own property, of association, movement and information (Wright 1982, 15).

In Table 1.3, it can be seen that economic freedom is closely related to the status of freedom in each country. Except for Hong Kong, the political freedom of Taiwan, South Korea and Singapore are similar. The average rating between 1973 and 1982, however, shows Taiwan to be more restrictive in political rights (5.6, col. 2), with Korea being more restrictive in civil liberties (5.6, col. 4). In general, Taiwan's political freedom over the past ten years (col. 6) is rated more restrictive (4NF, 6PF) than any other except China (l0NF). It may be interesting to know that the difference in the average rating of political rights between Taiwan and China is insignificant (5.6 for Taiwan and 6.5 for China, col. 2), although there is some difference in civil liberties (4.5 vis-à-vis 6.4). These ratings belie the "Free" China.

For many developed and developing countries, defense expenditures constitute the largest drain for social and economic development programs. This is certainly true for the countries in Table 1.4, except Hong Kong. Taiwan has to defend itself against China, as does South Korea against North Korea. Singapore has to protect its 55 islands and secure water supplies on the Malaysian mainland. Table 1.4 shows the defense expenditures and various burdens for 1975 and 1980 (in parentheses), respectively. However, the Taiwanese data are available only up to 1977, and the Chinese data are not available for 1975.

Military expenditures almost doubled between 1975 and 1980 (row 1), as did the per capita defense expenditure (row 2), and as a percentage of GNP it increased slightly (row 4). Note that among the three countries, Singapore has the highest per capita expenditure, Taiwan has the highest ratio of defense expenditure to GNP, while Korea maintains the largest armed forces.


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Table of Contents

Introduction; Part I: Studies of Emerging East Asian Economies – Taiwan and Korea; 1. Some Development Indicators of Taiwan – A Comparative Study of East Asia in the Early Postwar Period; 2. Capital Flows and Exchange Rates during the Asian Financial Crisis – Recent Korean and Taiwanese Experiences and Challenges; 3. Productivity Growth in Newly Developed Countries – The Case of Korea and Taiwan (with Changsuh Park); 4. Korean and Taiwanese Productivity Performance – Comparisons at Matched Manufacturing Levels (with Changsuh Park); 5. Colonialism, Learning and Convergence – A Comparison of India and Taiwan. Part II Catching Up and Convergence in East Asian Economic Growth; 6. Miracle or Myth of Asian NICs’ Growth – The Irony of Numbers; 7. “Miracle Growth” in the Twentieth Century – International Comparisons of East Asian Development; 8. Catching Up and Convergence – On the Long-run Growth in East Asia; 9. Epilogue – From Emerging East Asia to an Asia-Centered World Economy. Index.

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From the Publisher

“Professors Frank and Mei-Chu Hsiao provide us with a comprehensive and concise volume on the comparative developments in Korea and Taiwan as the role models of successful development. It is a rich collection from their rigorous research in emerging East Asian economies in the past quarter century […] This book not only significantly contributes to development economics literature and Asian study, but also offers some important lessons for many practitioners in developing countries to further develop their economies.”

—Peter C. Y. Chow, Professor of Economics and Asian Studies, City University of New York, USA

“In Economic Development of Emerging East Asia: Catching Up of Taiwan and South Korea, Frank S. T. Hsiao and Mei-Chu Wang Hsiao offer a menu of their selective empirical work on the growth experiences of these notable economies, covering an impressive array of variables, from capital flows and exchange rates to productivity and economic growth. The book features innovative, practical econometric techniques that have been influential in the literature. It is an excellent compilation and an essential resource for any economist focusing on Asian economic development.”

—Michael G. Plummer, Director, SAIS Europe, and Eni Professor of International Economics, The Johns Hopkins University, USA

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