The benchmark model offers an explanation as to why the growth of Korea, Taiwan,
Hong Kong, and Singapore in the 1980s was not sustained
This model indicates that
the economic growth rate of the NIEs will not overtake that of the United States and the
NIEs’s per capita real incomes will always lie significantly lower than that of the U.S.
Assume that the growth rate of cgdp (i) is represented as a function, F = d log cgdp
Three elements increase this function: the ability to absorb technology transfer
(y), the scope of possible technology transfer (1-y), and a policy parameter that is
favorable to technology transfer (θ).
Even if economies enjoy high, positive growth,
it may still fall further and further behind the advanced economies.
benchmark model helps to explain the scenario of the NIEs’s failure to sustain rapid
growth and the four countries’ inability to complete close the income gap between
themselves and the United States.
The combination of foreign debt and a lack of financial transparency on the lenders’ part
played a large role in driving Korea, Taiwan, Hong Kong, and Singapore into the Crisis of
It is foreign debt and not domestic debt that can lead a country to an acute crisis,
forcing governments to begin to lose power (Wan, 2004, p. 177).
For example, Korea
approved short-term foreign borrowing rather than a devaluation of its own currency to raise
national pride (Wan, 2004, p. 179).
Once the growth expectations had been built up, the
government had to maintain growth whenever possible; as a result, private borrow had to be
undertaken, in an attempt to at least maintain an appearance of sustained growth.
failed, the lack of financial transparency left the lenders that were involved to remain
Thus, the lenders who suffered losses refused to roll over credits.