1.1 Introduction
How can we reduce the income gap between developing and developed countries? This has long been an important issue for society to solve. The catch-up industrialization strategy has been considered one of the most effective solutions, as exemplified by the cases of South Korea and Taiwan. From the 1960s to the 1980s, the strategy allowed them to pursue the path of industrialization previously traveled by advanced countries, but at a faster pace and to radically transform themselves from low-income agricultural economies to middle-income industrialized economies. As Rodrik (2014) points out, â[w]ith the exception of natural-resource bonanzas, extraordinary high growth rates are almost always the result of rapid structural transformation, industrialization in particularâ (Rodrik 2014, p. 8).
In the 1990s, however, the development of latecomer countries has increasingly deviated from the single and rigid path of catch-up industrialization. Early developing countries such as South Korea and Taiwan have started seeking other paths beyond the end point of catch-up industrialization. Other countries have attempted paths other than catch-up industrialization based on their individual advantages, and some of these countries have discovered unique paths to success. It seems that these changes have become more apparent in the new century. In this context, this volume reconsiders our understanding of the development of latecomers in Asia based on the catch-up industrialization theory by taking these changes into consideration and, in so doing, aims to reassess and elaborate on the theory.
This introductory chapter consists of the following four sections. The next section examines the changes in the development of Asian latecomers as the background of our research. The third section describes our goals, tasks, and approach. The fourth section reviews theoretical and empirical studies on catch-up industrialization. Lastly, the fifth section summarizes the nine chapters of the volume and draws some implications, if not conclusions, from them.
1.2 Background
During the last half-century, Asian countries have experienced tremendous growth. Table 1.1 shows a rough sketch of their economic performance. These countries have grown faster than the USA and have remarkably reduced the income gap, with the exception of India. South Korea and Taiwan have maintained rapid growth for 50 years and, as a result, their per capita gross domestic product (GDP) has risen from around 5 % of per capita GDP in the USA in 1963 to more than 40 % in 2013. Southeast Asian countries such as Malaysia and Indonesia grew moderately in the 25 years from 1964 to 1988 and the gap between them and the USA hardly changed. However, in the next 25 years from 1989 to 2013, their speed of growth exceeded that of the USA and they succeeded in considerably closing the income gap. Indiaâs economy was stagnant compared to the other prospering countries during the first 25 years, and the gap between it and the USA widened. In the second 25 years, India began to grow at a faster pace than the USA and the gap had shrunk to its original level by 2013. China is estimated to have performed similarly to India during the early years, but then achieved unprecedented growth after introducing reforms in the late 1970s. Although its per capita GDP was only slightly more than 1 % of that of the USA in 1988, the figure had risen to as high as 12.8 % in 2013.
Table 1.1
Income growth of Asian countries
USA | Japan | Korea | Taiwan | China | Malaysia | Indonesia | India | ||
|---|---|---|---|---|---|---|---|---|---|
Per capita GDP (USD) | 1963 | 3,151 | 704 | 138 | 189 | â | 288 | 73 | 89 |
1988 | 21,483 | 24,593 | 4,813 | 6,369 | 281 | 2,050 | 515 | 362 | |
2013 | 53,042 | 38,634 | 25,977 | 21,902 | 6,807 | 10,538 | 3,475 | 1,499 | |
Comparison to US (US = 100) | 1963 | 100.0 | 22.3 | 4.4 | 6.0 | â | 9.1 | 2.3 | 2.8 |
1988 | 100.0 | 114.5 | 22.4 | 29.6 | 1.3 | 9.5 | 2.4 | 1.7 | |
2013 | 100.0 | 72.8 | 49.0 | 41.3 | 12.8 | 19.9 | 6.6 | 2.8 |
In most cases, a substantial portion of economic growth in Asian countries can be attributed to industrialization. Indeed, these successful cases of industrialization generally correspond to the theory of catch-up industrialization that has been forged gradually over the years, primarily based on the idea of the âadvantages of backwardnessâ put forward by Gerschenkron (1962). However, the growth mechanisms of Asian countries began changing around 1990.
Some of these changes were caused internally by the progress of catch-up industrialization itself. South Korea and Taiwan reached the completion stages of catch-up industrialization in the 2000s. The per capita GDP of these two countries now exceeds 20,000 USD and some sectors of their high-tech industries can be considered state of the art, confirming that they have almost finished the process of catch-up industrialization. Accordingly, some questions specific to this stage have emerged.
First, although a latecomer has the possibility of closing the gap with advanced countries by exploiting the advantage of backwardness, it cannot complete the catching-up process by depending solely on this catch-up mechanism because the advantage of backwardness disappears before completion. Therefore, other mechanisms were necessary for South Korea and Taiwan to finish the catch-up process and to compete head-to-head with advanced countries. Second, a closer inspection of the situation reveals that in South Korea and Taiwan, some industries have still struggled to finish the last stage and reach the level of advanced countries, whereas other sectors have already succeeded in completing the catching-up process. These differences across industries indicate that the mechanisms for completing catch-up industrialization are, to some degree, industry-specific. Third, at the advanced stage of catch-up industrialization for countries such as South Korea and Taiwan after the 1990s, their economies have become highly complex because of the development of diverse industries, which may be a result of catching up. Consequently, the industries have begun to dynamically interact with each other, generating another development mechanism. As a result, catch-up industrialization has become merely one mechanism of development, yet nevertheless a very important one.
Other changes are external, and have affected both advanced latecomers and late latecomers. Important changes since the 1990s include the progress of communication and transportation technologies, the shift of technology in the manufacturing sector from integral to modular type, the construction of transnational fragmented value chains, the end of the Cold War, the progress of economic liberalizationâparticularly in China and India, which have the worldâs two largest populationsâand the rapid growth of international capital flows both in volume and speed, among others. Most of these changes can be summarized in one word: globalization.
It is important to understand that globalization and other changes have nullified some of the main premises for catch-up industrialization. For instance, the conventional catch-up industrialization strategy, which often explicitly or implicitly depended on the domestic market, is far less effective for many countries. This shift has occurred mainly because radical changes in technology and institutions have substantially reduced the barriers between domestic and overseas markets. Meanwhile, changes relating to globalization have produced opportunities for creating different mechanisms from those of conventional catch-up industrialization. As discussed below, new mechanisms include modified versions of catch-up industrialization as well as entirely new types.
To sum up, the development of latecomer countries since the 1990s cannot be understood solely according to the conventional view of catch-up industrialization. The internal and external changes in development mechanisms in latecomer countries require us to reconsider and reconstruct the framework of our study.
1.3 Goals, Tasks, and Approach
1.3.1 Goals and Tasks
The theory of catch-up industrialization has been the standard view of the development of latecomer countries. It has two core propositions: first, economic growth depends on technological progress; and second, a latecomer may achieve technological progress faster than advanced countries by exploiting advantages of backwardness. The theory combines these two propositions and maintains that a latecomer country is equipped to take advantage of the opportunity to attain compressed economic growth. As discussed in Section I, however, the theory is now being challenged by various changes in the Asian countries, especially since the 1990s. There is an urgent need to reexamine our view of the development of latecomers and refine the theory of catch-up industrialization to acquire a more accurate and comprehensive understanding of the development of latecomer countries and address current trends.
Toward this goal, our study takes on three tasks.
The first task is to closely examine the processes of catch-up industrialization taking into consideration the aspects that have not been included properly in the conventional theory of catch-up industrialization. More specifically, we look at factors other than just technological ones, such as demand for the manufacturing goods produced by latecomer countries, in contrast to the conventional theory, which generally tends to focus on technologies and the supply-side factors. Nontechnological factors may generate opportunities for latecomer countries to build up more diversified development paths, although they may also present obstacles that hinder their development. In addition, we examine the interactions between technological and nontechnological factors.
The second task is to analyze the relationship between catch-up industrialization and other development mechanisms, particularly forward and backward linkage effects. It is highly likely that catch-up industrialization and linkage effects and other mechanisms might complement or substitute each other. The interaction between development mechanisms have not been fully addressed by the conventional theory of catch-up industrialization, although Gerschenkron (1962) briefly hinted at the combination of linkage effects and the advantage of backwardness when citing the example of interactions between the steel industry and the railway industry.
The third task is to highlight other newly emerging mechanisms besides catch-up industrialization that make a significant contribution to development. This task also includes exploring factors and conditions that have caused these mechanisms to become dominant. Through this task, we attempt to place catch-up industrialization as one of various development mechanisms. Furthermore, clarifying the alternative mechanisms and their foundations is expected to contribute to our review of the conditions for catch-up industrialization.
In addition to these three tasks directly related to our goals, our research also contributes to the reconsideration of the roles of various actors, such as local firms, multinational corporations, and governments, as well as the interactions among them. Studies on catch-up industrialization have been closely associated with debate over which actor leads the development of latecomer countries, particularly with respect to the role of government in development. Our study attempts to reassess the role of various actors from an alternate viewpoint of the conventional theory of catch-up industrialization.
1.3.2 Approach
To accomplish the tasks discussed above, our study employs a case study approach at industry and sector levels. The industries studied in this project include the semiconductor industry, the flat panel display industry, the steel industry, the palm oil industry, and the software service industry.
Why do we choose this approach? The catching up by a latecomer can be discussed at three levels: the macro level, the industry/sector level, and the firm level. At the macro level, catching up means reducing the income gap between the latecomer and advanced countries. In mainstream economics, this issue is treated as a convergence problem. Indeed, studies on a latecomerâs development originate from a macro-level interest in reducing the income gap between developing and developed countries. However, macro-level analysis cannot reveal the complicated structure of development mechanisms which are the amalgamation of technologies, markets, management practices, relations among firms, government policies, social conditions, and so on, as these factors are abstracted and reduced to aggregate variables such as âcapitalâ, âlaborâ, and âaggregate production functionâ. To address development mechanisms more specifically, we need to conduct more detailed analysis that looks at how one or some industries in a latecomer economy develop. Of course, the research results for one or some sectors may not be applicable to other sectors or to the whole economy. To overcome or at least minimize this limitation, we choose to analyze sectors that are significantly relevant to macro-level development. For example, ...