The Role of State in Economic Growth in the Asia Pacific - Essay Example

Running head: THE ROLE OF IN ECONOMIC GROWTH IN ASIA PACIFIC The Role of in Economic Growth in Asia Pacific by of Professor’s name Date The Role of State in Economic Growth in Asia Pacific Introduction From time immemorial, the role of the state in economic development has attracted attention of different individuals and institutions with interests in economy. In theory, the neoclassical orthodoxy favors the rise of non-interventionist state. They argue that the economy should have free markets to allow it achieve Pareto efficiency in its operation. However, the neoclassical paradigm has been criticized by the proponents of government intervention on economies. This discussion forms the background of our analyses of the Asia Pacific in which we look at the role of the state in the growth of the economies. Looking at the economic growth and development of Asia Pacific, clearly, such developments were due to state policy recommendations (Kraemer, Gurbaxani and King, 1992). For instance, in China and South Korea it emerges that the competitiveness of the economies was sharpened by an active role played by the state in both cases. In the realization of economic development in Asia Pacific region, the state is active in pursuing trade and industrial policies, fostering of human resource development, and in managing the financial sector. As such, the transition of most economies in this region from import-substituting to export-led growth strategies was a strategy to move from interventionist economy to market free economy. The countries affected included Thailand, Taiwan, South Korea, and China. Although this was a measure put in place, no doubt the state intervention continued to arbitrate in the pursuit of trade and industrial policies especially in the period of 1960s through 1970s. Therefore, the involvement has continued to manifest through the protection of import-competing sectors in the Asia Pacific region. The region in the 1980s had higher real tariff rates for imports in order to spur their growth rate and protect their industries. The real tariff rates in China and Taiwan, for instance, was 7.60 in 1983 as compared to that of US, which was at 3.24 while Singapore was at 1.83. This was an indication that Taiwan among other countries of Asia Pacific region was ready to protect their locally produced goods. During the transition period to export growth in the region, the states supported numerous mechanisms, which included the creation of uniform and almost equilibrium exchange rates. These exchange rates would then replace the multiple rate structures that were in operation at the time. The support of the state was evident during the time they waited for share of permissible imports to increase then they liberalized the economy. The states ensured that all imports were incensed, and even though they were treated more liberally than other consumer commodities, the various restrictions stood in place. For example, South Korea continued to impose controls on imports though the number of restricted items was reduced from 118 in 1967 to 50 in 1978. In the region, trade and industrial policies were enforced through different methods, direct and indirect methods. Each of the economies different policy mechanisms was applied, and they included credit subsidies, exemption from tax, and tariff and import licenses. In the 1970s, the credit allocation became more industry specific during the expansionary phase of Heavy and Chemical Industry Development Plan Further, the state intervened in enhancing infrastructural development and providing duty-free export processing zones, which reduced transaction costs that were incurred by the exporters. This strategy would be successful in the attraction of direct foreign investment. In ensuring that industries are properly developed and equipped, some of the economies had corporations. The corporations were mandated to oversee industrial sites and such included Industry Site Development Corporation in Korea, which was assigned to guarantee that the sight had the entire required infrastructures. The rates at which the sites are provided are affordable to ensure that private sector appropriately uses them. The involvement of Asia Pacific states in economic growth involves promotion of human capital, as well as technological developments. Human capital formation entails basic type of education acquired, the technical expertise and skills acquired as well as the vocational training offered. The governments in the Asia Pacific region support the public education, and it is guided by the allocation of the central government towards acquisition of the same. There is some support given in terms of free education for basic schooling and the higher education funded partly by the governments. Additionally, the state has ensured that there is no duplication in the imports, and a reduction in the purchase of obsolete equipment. In Taiwan, the state attempted to make the integrated circuits that show their commitment and interest in the technological sector. The governments also ensure that their technical experts are trained in the technological areas, they are assisted in starting their plants and ultimately they are given patents and their work areas as well as projects supervised. With respect to control of financial markets, different economies in the region had different ways to control their financial markets, notably; most banking institutions remained in the hands of the public. In the economies, the interest rates were not allowed to reach an equilibrium level. Therefore, they had an insignificant impact in allocation of resources in the economy. Some of the economies like Japan pursued a monetary policy mainly dictated by positive real interest rates. The interest rates thus controlled inflation and increased the level of investments in the region. Most countries in the region have endeavored to ensure that interest rates remain below the market clearing wages resulting in credit rationing in the formal financial markets. Rationing usually is influenced by the state where funds are allocated at subsidized rates to the favored sectors. The reason for such engagement is that the area aims to emerge among the world’s strongest economies. Conclusion This paper advances the argument for the critical role played by the state in economic growth in the Asia Pacific region. Some of the interventions by the state include active trade and industrial policies. The states also engaged in technological and infrastructural developments to attract investors to the region. Thus, the intervention measures applied by countries in the Asia Pacific region such as Taiwan, Japan, and South Korea among others was a success, which has seen the region become more independent economically and emerge one of the favorable economic regions in the world. Read More