For example 7 to 10 percent of gross domestic product

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For example, 7 to 10 percent of Gross Domestic Product (GDP) went into investment; this high rate of investment greatly facili-tated rapid capital accumulation. (3) The export push or export-led growth strategy of these econo-mies was another reason for their success. Focus on foreign mar-kets promoted economic efficiency by keeping domestic prices closely in line with international prices and also accelerated intro-duction of foreign technologies; this then facilitated increased productivity. The Report was very critical of the "mystics," the theory of endog-enous growth, and the idea of the developmental state. Although it acknowledged that industrial policy and other forms of state interven-tion might indeed have assisted the process of economic development, its message was quite negative about the efficacy of state intervention. The Report reached the following conclusions about the develop-mental state: (1) Industrial policies to promote particular sectors, to determine the structure of the economy, and thereby to accelerate development and productivity growth failed to explain the region's rapid growth. State intervention was ineffective at best and counter-productive at worst. The major source of economic growth was capital accumulation, which accounted for 60 to 70 percent of the growth, whereas productivity growth-technological input-accounted for only about 30 percent of economic growth. (2) Even without public-sector intervention, market forces by them-selves would have brought about the changes in industrial struc-ture that were encouraged by governments. ( 3) Government controls of financial markets, the Report did point out, had lowered the cost of capital and directed credit to favored sectors. In light of the crisis of 1997, it is ironic that the Report had praised governments' interventions in financial markets. The World Development Report, based on such findings, described the theory or model of economic growth it used to explain East Asian economic success as functionalist and concluded that a developing country would be successful if it carried out specific mutually rein-forcing functions. The country had to find a way to rapidly accumu-late such assets as human capital and capital investments. It had to allocate resources efficiently. And the country also had to achieve 324
T H E STATE AND E CONOMIC DEVE LOPMENT rapid productivity growth by catching up technologically with ad-vanced countries. Although the Report gave some credit to effective state intervention in the economy, this was played down due to con-cern that LDCs with less competent and/or more corrupt govern-ments might attempt to use the Report to defend undesirable inter-ventionist policies. Ironically, this project that began as an attempt by the Japanese to support their heterodox concept of an Asian model of economic development had been transformed into a defense of neoliberal orthodoxy and was hailed as a decisive vindication of neo-liberal emphasis on the central role of the market in economic devel-opment.

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