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This edited volume examines the flaws in the Washington Consensus. The missing link identified is the relationship between market and government. The East Asian Miracle showed that the market and government are complementary, particularly with regard to economic development. However, the nature of this relationship has not been fully clarified. This book assesses development strategies and policy issues in the context of individual and/or regional economy's history and political-economic reality. The relationship may be conditional to these two factors. With these perceptions in mind, the book focuses on the role and significance of government in economic development in pursuit for new development strategies.



New Development Strategies: Beyond the Washington Consensus

1. New Development Strategies: Beyond the Washington Consensus

Development economics became an independent field of study in the 1950s. Since then we have witnessed differing views on the relationship between (nation) states and their economic development (Meier and Rauch, 2000, p. 421). In the early days, states were optimistically presumed to be represented by social-welfare-maximizing governments, but then the pessimistic view emerged that states were one of the largest hindrances to development and served only to maximize the profits of selected interest groups, politicians and/or bureaucrats.
Akira Kohsaka

Markets, Governments and Institutions


2. Development Strategies for the Twenty-First Century

The mixed economy is possibly the most valuable heritage that the twentieth century has bequeathed to the twenty-first in the realm of economic policy. The nineteenth century discovered capitalism. The twentieth century learned how to tame it and render it more productive by supplying the institutional ingredients needed for a self-sustaining market economy: central banking, stabilizing fiscal policy, antitrust legislation and regulation, social insurance and political democracy. It was during the twentieth century that these elements of the mixed economy took root in today’s advanced industrial countries. The simple idea that markets and the state are complements — recognized in practice if not always in principle — enabled the unprecedented prosperity experienced by the United States, Western Europe and parts of East Asia during the second half of the century.
Dani Rodrik

3. Re-examination of Development Policies and Strategies: Some Political Economy Lessons

Views on which policies and strategies are good for development have changed radically over the last half century. So too have the prevailing circumstances, particularly the national and international political and economic environments in which development policies are chosen. Not surprisingly, there have been two lags of considerable length in the adjustment process. First, views on desirable development policies have lagged behind the experience in development and the realization of changing circumstances. Second, the policies chosen have lagged considerably behind the views on good policy.
Jeffrey B. Nugent

4. National Economies under Globalization: A Quest for New Development Strategies

Since the late 1980s the pace of economic globalization has accelerated. International trade has grown twice as fast as world GDP, and international capital flows have increased the speed of this expansion. Although the Asian economic crisis put a brake on the phenomenon, when we look at the recovery process, we find that globalization has not slowed, let alone reversed.
Akira Kohsaka

Development Strategies under Globalization


5. Globalization and Development: A Re-examination of Development Policy

The nature of policy making in developing countries has been undergoing a sea change in recent times. This is due in part to the increasing maturity of the discipline of development economics and in part to the changing nature of the global economy. Development economics has advanced rapidly on both the theoretical and empirical fronts. Better interaction with mainstream economic theory, and the increasing availability of data sets that enable us to analyze aspects of the economy that were previously beyond scrutiny, have deeply influenced the study of development. As far as the real world goes, technological advancement and globalization have had a huge impact on the nature of policy making in developing countries and, more generally, policy making for development.
Kaushik Basu

6. New Development Strategies under Globalization: Foreign Direct Investment and International Commercial Policy in Southeast Asia

With the rapid progress of globalization there has been increasing demand for a fundamentally different policy framework for industrial development in less developed countries (LDCs). Today LDCs are facing a vastly changed economic environment. Corporate activities have rapidly globalized and channels of international transactions have become ever more diversified. Enforcement power has been given to the international policy discipline imposed by the World Trade Organization (WTO) and participation in the formation of free trade agreement (FTA) networks has become a sort of obsession. In the 1950s and 1960s developing countries such as Japan, Korea and Taiwan existed in a much quieter world and took a lot of time to foster their firms and industries. Today’s LDCs cannot afford to be slow in building up the foundations of economic development. The key issue when formulating development strategies is how to catch up with the wave of globalization.
Fukunari Kimura

7. Development Strategy and the Role of Government Policies: Reconsidering the East Asian Experience

Until recently, government intervention in the process of economic development was not seen in a positive light in debates on the successful industrialization experience of East Asia. Rather, under the growing dominance of neoclassical development economics the role of markets was emphasized. However, the naïve neoclassical explanation is now being questioned as a result of more careful analyses of the East Asian experience, together with the lack of success with structural adjustment programmes in developing countries in other regions and with marketization schemes in the former centrally planned economies. Many commentators have reconsidered the part played by government in economic development and spoken positively of the rationality of government intervention in markets.
Koichi Ohno

Policy Reforms and the Asian Financial Crisis


8. Political and Institutional Lessons from the Asian Financial Crisis

The debate on the Asian financial crisis followed a curious path in the United States. Paul Krugman (1998) wrote an early theoretical analysis that emphasized the role of moral hazard and ‘crony capitalism’. This theme was reflected in a number of journalistic accounts and US policy pronouncements. But Krugman changed his mind (in 1999). He and other analysts gradually moved away from the political economy of the crisis and towards one of three different foci: the macroeconomic and exchange rate policies that left countries vulnerable to shocks; the vulnerabilities associated with high corporate leveraging and weak financial sectors; and the international dimensions of the crisis. This last cluster of issues included the costs of capital account liberalization, the role of contagion and a particularly heated debate on whether the IMF had eased or exacerbated the crisis (Stiglitz, 2002).
Stephan Haggard

9. Re-examination of Korea’s Economic Adjustment Policies since the 1997 Crisis

Korea’s experience since the 1997 economic crisis has prompted many questions about its development policies and strategy towards the transition of the economy, whose rapid growth in the past had been based on a government-led development strategy, with heavy protection and intervention, in the move towards a fully market-based economy.
Yoon Je Cho

10. The Regulator’s Dilemma: Hedge Funds in the International Financial Architecture

Hedge funds have been the subject of considerable recent commentary, much of it not entirely favorable. Malaysia’s Mahathir bin Mohamad famously accused them of precipitating the Asian currency and financial crisis. Joseph Yam of the Hong Kong Monetary Authority accused them of coordinating short sales on the Hong Kong Exchange with short sales of the Hong Kong dollar (the so-called ‘double whammy’ or ‘double play’). And the Reserve Bank of Australia has accused them of manipulating the market in the Australian dollar by coordinating their position taking and signalling that they were about to attack the currency. Hedge funds had substantial positions in Russian GKDs in the summer of 1998 and suffered large losses from Russia’s default; in the rush to cover their positions and restore their liquidity, they may have played a major role in last autumn’s credit crunch. And then there was the all-but-failure of Long-Term Capital Management (LTCM) and the threat this may have posed to the stability of the global financial system.
Barry Eichengreen

Transition to a Market Economy


11. Market Creation in Transition Economies: Reconstruction of Production Linkages in Kazakhstan

Since the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1991, countries in Central and Southeastern Europe and the Baltics (CSB), as well as the Commonwealth of Independent States (CIS), have been struggling to create market economies, in contrast with the booming transitions in China and Vietnam, which will be discussed in the next chapter.2 While the transition experiences of the CSB countries and the CIS have been similar in several aspects, the most striking similarity is the substantial magnitude of the drop in GDP (de Melo et al., 1996; de Melo et al., 1997; de Broeck and Koen, 2000; Campos and Coricelli, 2002; World Bank, 2002a). This fall took place immediately after the beginning of the transition and lasted three to six years in the CSB countries and four to ten years in the CIS. As a consequence these countries generally suffered from serious contractions of production and income in the 1990s, in sharp contrast with the perpetual double-digit growth in China and Vietnam. Indeed 21 of the 25 countries in question had lower GDPs in 1999 than in 1989; in the most serious cases, real GDP plummeted by more than 50 per cent during the decade (CIS Stat, 1996, 2000; EBRD, 2000; World Bank, 2002a).
Koji Nishikimi

12. Strategic Choices for China and Vietnam in the Twenty-First Century

China since 1978 and Vietnam since 1989 have taken major steps towards becoming market economies. In the first decades of market-oriented reform the choices facing policy makers have been comparatively simple, but no reasonable person could think that active government direction is a sensible way of managing household farms, retail shops or even small industrial enterprises. If the objective is political control rather than economic growth or efficiency, of course, government intervention may make sense in almost any sphere, but the political leaders of China and Vietnam clearly want economic growth, not just political control.
Dwight H. Perkins


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