'Catch-Up' Problem in Developing Countries

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The Asian crisis of the late 1990s altered the fortunes of those stricken countries overnight, turning the much-ballyhooed economic miracle into chaos. Japan too became (and still is) trapped in a banking crisis of its own making after the bubble of 1987-1990.


Those that had to depend on bailouts from the IMF were forced to accept a wide-ranging reform program as obligatory conditions for the rescue loans.
The themes of this paper are (1) that the Asian crises were the inevitable outcomes of the dirigiste development policies the Asian economies pursued in their successful catch-up growth, (2) that such an institutional regime, however, finally met its match in the form of free-market global capitalism, especially in terms of unbridled capital flows, and (3) that East Asia's present trend of deregulation and marketization is all the more pushed by the institutional requirements of the Internet revolution as the region struggles to catch up in the digital age.
Any successfully developing economy climbs a ladder of growth. Until the arrival of a New Economy, all the advanced economies had, in the past, trodden a path of industrial structural transformation from the "Heckscher-Ohlin" labour-intensive industries (typified by textiles) to the "nondifferentiated Smithian" scale-driven industries (steel, basic chemicals, and heavy machinery), to the "differentiated Smithian" assembly-based industries (automobiles and electric/electronics goods), and finally to the "Schumpeterian" R&D-intensive industries (specialty chips, biotechnology, and new materials) (Ozawa 1992). ...
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