INDUSTRIALIZATION AND STRUCTURAL CHANGE
In fact, it was only about half as fast as
ASIAN EXPERIENCE WITH INDUSTRIALIZATION
The Asian industrialization and growth experience was
unprecedented in economic history.
Rapidly increase of Per capita income and GDP.
Per-capita incomes increased by about 7 percent
per year, so that income doubled every ten years. At the
end of thirty years, incomes per capita had increased
fourfold. Furthermore, during the sameperiod the
industrial sector's share of gross domestic product
(GDP) in these countries also increased sharply.
orea
The share went from about 24 percent of GDP in
1970 to nearly 38 percent in 1980, and even higher in
1990. This implies an even more spectacular growth
rate for the industrial sector than for the overall
economy.
Taiwan, Singapore and Hongkong
The increase in the share of industry was more
modest but it also saw a more rapid growth in the
industrial sector than in the economy as a whole.
How were these economies able to sustain such a
breakneck pace of growth of industry for such a
prolonged period?
Economic historians point to a period of growth in the
Japanese economy from the Meiji Restoration to the
middle of the twentieth century as a comparable period
of rapid growth.
the growth of the Asian "tigers."
The reason for the rapid growth was brute force
application of a simple Harrod-Domar growth model
augmented by the growth of the population. They argue
that both the capital stock and the labor force grew
rapidly. Combined with good government policies, and
this cause to ensure the Asian "miracle”.
COMPARATIVE ADVANTAGE AND ASIAN
INDUSTRIALIZATION
In studying how industrialization evolved in the NIEs
and
Southeast Asia, we must assess the efficiency of the
process. Here,
the notion of the comparative advantage comes into
play. It is
impossible to know what the actual comparative
advantage is
because this would require knowing all the potential
cost for the
entire mix of industries in a country. However, there are
indirect
methods of measuring comparative advantage.
Concepts of comparative advantage
According to Balassa (1965) products that are being
exported more intensively are
those that a country has comparative advantage.
Nevertheless, it does not show
how competition weeds out the less competitive
rewards, those that are efficient by
exporting more.
Amsden (2001) suggests that to calculate whether a
country would have dynamic
comparative advantage for a product in sector, the
share of output in that sector
should compared with those of the United States and
Japan.
Following a strategy of developing exports in sectors
where the United States and
other industrial countries’ import demand was growing
rapidly. A question could
also be asked “did they have a comparative advantage
in these product lines?”
An index of report growth was constructed by
Dowling and Ray (2000) for Asian Economies. If a
country changes its export structure in favor of
products for which import growth from the rest of the
world is growing rapidly, then this index will be larger
than when a country’s exports are not responding to
this shift in world demand.
A comparison of Amsden (2001) and Dowling and Ray
(2000) show a significant overlap
in the industries that are growing rapidly in Asia. Below
are the inferences that we can
draw from this evidence on the industrialization
experience of the Asian economies.
The share of manufactured goods in total industrial
production increased; at the
same time, there was a shift toward manufactured
goods as a share of total exports
of goods and services.
The shift in production of manufactured goods within
Asia corresponded closely to
a similar pattern of production that was taking place in
the world economy. (see
figure on the next slide)
The shift toward manufactured goods production and
exports within Asia began
with labor intensive products and moved toward high-
intensity technological and
science-based exports.
THE ROLE OF INNOVATION
Education and the labour force would always play a big
role just like what it did to East and Southeast Asia in
the decades 1970 to 1990.
With that labour force contributed 20% of the growth
income meanwhile education places 1/5 of the growth
in gross output.
Gross output (GO) is the measure of total economic
activity in the production of new goods and services in
an accounting period.
Innovation - a new idea, method, or device
Innovation produces growth but to achieve this
innovative system, innovation requires a creative
process of abandoning old ways of doing things and
adopting new methods and processes.
To do this effectively and dynamically requires the
ability of the economic system to facilitate the exit of
inefficient companies and the entry of productive ones.
The method of facilitating entry is to set up Special
Economic Zones (SEZs) – where sites and services are
provided and regulatory and licensing requirements are
minimized.
The main kinds of clusters are:

1.Large metropolitan agglomerations that contain a mix
of different industries
2. Small groups of networked firms with similar but not
identical interests, such as in northern Italy, Brazil, and
India
3. Clusters which have a few main producers and their
suppliers, such as MNC plants and their component
suppliers, like those existing in Penang, Malaysia, and in
Bataan and the region south of Manila in the
Philippines. In the United States, Korea, and China,
there are clusters anchored by major enterprises, such
as automobile or steel plants and their affiliates.
Innovation in Southeast Asia has primarily been the
result of spending by MNCs.
Innovation in East Asia has been developed through
licensing arrangements rather than MNC participation.
Innovation and Technology transfer has taken place
most often when capital equipment and components
are imported by export-oriented manufacturing firms.
The business sector plays a key role in both funding
R&D and implementing research innovation in new and
improved products.
Innovation has also taken place in marketing and
distribution as ICT and transportation efficiencies have
cut costs.
The purpose of innovation is to come up with new ideas
and technologies that increase productivity and
generate greater output and value with the same input.
INNOVATION,
EDUCATION
AND
GROWTH CONVERGENCE
A significant convergence in growth between the
economies of Southeast Asia and East Asia and the
industrialized nations.
The dynamism of the industrial sector and the crucial
role that technology transfer has played have been
significant elements of this growth experience.
Without the mutual synergies, rapid growth would have
been possible. The process of industrialization and
Innovation is not necessarily linear.
Leung said that appropriate technology is the way for
those countries that left behind to move forward.
Countries beginning industrialization needed a different
set of policies for education and technologies transfer.
The adoption of new innovations can be often torturous
even when the initial conditions in terms of education
and infrastructure is in place.
employment growth
and industrialization
Industrialization is an important driver of employment
growth and poverty reduction in developing countries.
At the early stage of transition from an agrarian
economy to a modern economy, the manufacturing
sector in the typical developing economy has greater
potential to absorb surplus labour compared to the
services sector, which in the typical low-income country
is dominated by informal services. While it is feasible to
move unskilled workers from agriculture into better-
paid jobs in manufacturing activities, it is not feasible to
move them into the formal services sector.
As countries industrialize, workers are pulled out of low
productivity agriculture to manufacturing, leading to
both an increase in overall productivity in the economy
as well as an increase in the share of workers employed
in better paid jobs in manufacturing.
The wage gains associated with industrialisation can
play an important role in pulling significant proportions
of the population out of poverty
At an early stage of economic development, countries
are more likely to specialise in labour-intensive
industries, so that low income countries,
industrialisation can potentially have a strong positive
effect on job creation and consequently, poverty
reduction, under the appropriate policy environment.
How does employment grow in a country that is
industrializing rapidly?
-It will depend upon the rate of capital accumulation
and technical progress.
Is Industrialization Reduces Unemployment & Poverty?
- An increase in industrialization can lead to lower rates
of unemployment and poverty in a given region.
A MODEL
OF
RURAL-URBAN MIGRATION
Underemployment in the informal sector of the urban
areas is not unproductive but reflects the rural
economy's limited opportunities.
The evidence from Asia, in particular, suggests that job
creation in the urban sector eventually reduces
unemployment and underemployment.
In Asian cities, migrants from different parts of the
country tend to migrate and cluster in different
occupations.
Factors Affecting the Migration Decision
Migrants from urban to rural areas have to choose
whether to migrate based on incomplete information
and a certain amount of risk.
The rural setting also provides social capital in the
form of insurance (loans and other support from
relatives and friends in bad times)
Intraregional and International Labor Migration Within
Asia
- International labor migration is often a neglected and
sometimes misunderstood subject.
Reasons:
 There is much less freedom in people's movement
than in the movement of capital and goods and
services.
The restrictions on movements in labor are unlikely
to be relaxed, as they present complex social issues not
encountered in the movement of other factors of
production or international trade.
Labor migration patterns are most easily understood by
looking at economic growth and unemployment cycles.
6.14. 1 Causes of Labor Migration
Low domestic earning and Underemployment
Employment opportunities abroad
Additional: They migrate in order to provide remittance
income for their families at home.
6.14.2 Labor Migration and Public Policy
Immigration has been strictly controlled and very
selective.
3 S Policy- Skilled workers are sought for short term
employment in specific
sectors.
The economic impact of migration is
migration will result in a decrease in the real output of
the source country and an
increase in the real output of the host country.
Migration will raise world output. There will be also a
redistribution of income in
keeping with marginal productivity as the increase in
labor in the host country
will raise the productivity of capital and lower that of
labor assuming that
diminishing return factor prevails.
THE ROLE
OF
GOVERMENT
Government policies in the industrial sector are
reluctant to provide direct incentives to individual
sectors. The basic goal of economic development is to
improve people's well-being crowd.
Many governments have tried to use industry as a
tool to achieve this purpose. The role of government in
accelerating industrialization varies widely ideology,
political structure, administrative capacity, and
developments. Nevertheless, the trend towards certain
large-scale industries was maintained.
A more balanced stance prevails in Southeast Asia,
offering few subsidies or promotional perks.
There is also Indirect role of Government in correcting
market failures. Markets fail, so governments step in to
ensure industrialization success in a way that allocates
resources efficiently, addresses marginal social costs
achieving social limits. There are many issues related to
market failure. The rise of monopolies, investment
misdirection, externalities, and more.