III - Recent Developments in East Asian Economies

Summary

Since the mid-1980s, more than half of the increase in world production of goods and services has occurred in East Asia. Between 1986 and 1991, growth in Japan added annual output equivalent to an economy the size of France. Internationally-oriented growth became firmly entrenched in East Asia's most populous economies, China and Indonesia, and commenced in Vietnam. Most remarkably, strong growth in the region's developing countries continued undiminished in the early 1990s, despite deep and prolonged recession in the advanced industrial economies of the northern hemisphere. As rapid growth has become established in each of these countries, foreign trade has expanded more rapidly than output and expenditure, although less outstandingly so in Japan than in the region's developing economies.

It happens that the East Asian economies which have grown rapidly through the post-war period have had initial relative resource endowments that are very different from those of the established industrial economies. Japan, Hong Kong, Taiwan, Singapore, Korea and the coastal provinces of mainland China are all densely populated by the standards of the established industrial economies of the North Atlantic, or the rest of the world. Their patterns of specialization in international trade are therefore distinctive, both in the early stages of industrialization when incomes are low, and later when they are high. This increases pressures for structural adjustment in the rest of the world as their foreign trade expands, at the same time as it expands the potential gains from trade. It also leads to criticism that East Asia does not behave “normally” in its trade relations with the rest of the world, and to arguments that the old trade rules are not suitable for the new big players.

The emergence of East Asia as one of three major centres of production and trade, alongside Western Europe and North America has placed great strain on the international trading system.