November 3, 2008
Economics of Export-Led Development
Professor Henry Wan
Take Home Prelim:
Econ 4730 F2008
1a) Refer also to the following:
Young, A., (1994). “Lessons from the East Asian NICS: A contrarian view,” European
(1995). “The Tyranny of Numbers: Confronting the Statistical Realities of
the East Asian Growth Experience,” The Quarterly Journal of Economics
The key here is to recognize the concept that differentiates between perspiration
Alwyn Young used Solow residuals to argue that GDP growth of Korea,
Taiwan, Hong Kong and Singapore’s economies was the effect of factor accumulation.
Young argues that these NIEs worked hard, following a path of “perspiration,” but they
did not necessarily work smart and follow a path “inspiration.”
TFP is low in these NIEs,
productivity is relatively low, and factor accumulation was the effect of growth in labor
participation rates, intersectoral transfers in labor, human capital, and investment to GDP
Since this is all explained in the Solow Growth Model, Young argues that if
controlling for factor accumulation, the “success in growth” by these NIEs is not that
They represent the “miracles of accumulation.”
Young also argues prior
measurements of output-per-capita should be replaced with output-per-worker, because
of a better correlation to productivity.
1b) Refer also to the following:
Young, A., (1991). “Learning by Doing and the Dynamic Effect of International Trade,”
Journal of Political Economy
. 101(3), 443-472.
The first key here is to recognize the concept of one-for-all static gains. Using an
endogenous growth model, Young looks at the effects of spillovers across goods in the
process of learning by doing.
Young accepts the level effect, which is a one-time jump in
growth level rather than a continuous, sustained growth.
So, he distinguishes between
growth and level effects.
Young used Solow residuals to question whether outward-
orientated policies of nations leads to higher growth rates, more technological progress
and better welfare than inward-orientated policies.
The comparison can be presented as
free trade vs. autarky, and the answer to the question may seem relatively obvious…
However, Young accepts that while level effects may be increasing in free trade
economies, he shows that their growth levels of a DC are always less than those of
Young concludes that an NIC can upgrade and move up the
international product ladder if they start out technologically a little bit ahead of the LDCs.
The LDCs have to wait for the NICs to experience this upgrade to benefit from the