In publishing The East Asian Miracle: Economic Growth and Public Policy, the World Bank has for the first time officially acknowledged the key role of extensive government intervention in most `high-performing Asian economies' (HPAEs). In Discussion Paper No. 944, Research Fellow Dani Rodrik argues that much of this report's empirical analysis is questionable and its recommendations must therefore be regarded with caution. It takes no account of their higher levels of schooling and educational attainment than other countries at similar levels of development in 1960 or of their uncommonly equal initial distributions of income and wealth. Its empirical analysis of industrial policies does not investigate the effectiveness of specific policy instruments but focuses simply on whether high-wage or high-value-added industries expanded more rapidly than their cross-country evidence or factor endowments would suggest and whether productivity increased more in `promoted' sectors than others. While it attributes a key role to `export-push' strategies in generating and sustaining growth, there is no serious evidence to support its claim that exports provide many technological spillovers to the rest of the economy. The cross-country evidence that purports to demonstrate the growth benefits of openness relates to real exchange rates rather than trade policy per se, while the use of exports as `performance standards', which is claimed to have enhanced the effectiveness of government interventions, requires substantial elaboration to be credible.

Rodrik welcomes the Miracle's recognition that there is something special about the HPAEs' style of government based on insulating technocratic elites and creating institutions to foster communication and cooperation between public and private sectors. The fundamental conflict between their style of policy-making and economists' own rules of good conduct and the fact that corruption is much more widespread in these countries than is generally believed indicate, however, that our understanding of the HPAEs' governance structures is much more limited than the Miracle suggests.

King Kong Meets Godzilla: The World Bank and The East Asian Miracle
Dani Rodrik

Discussion Paper No. 944, April 1994 (IM/IT)