Table Of Content
SerieS on
economic Development 3
anD Growth Vol.
Industrial
Development
in East Asia
A Comparative Look
at Japan, Korea, Taiwan,
and Singapore
Series on Economic Development and Growth (ISSN: 1793-3668)
Series Editor: Linda Yueh (University of Oxford & London School of Economics
and Political Science, UK)
Advisory Board Members: John Knight (University of Oxford, UK)
Li Shi (Beijing Normal University, China)
Published
Vol. 1 Globalisation and Economic Growth in China
edited by Yang Yao & Linda Yueh
Vol. 2 Elderly Entrepreneurship in an Aging U.S. Economy
It’s Never Too Late
by Ting Zhang
Vol. 3 Industrial Development in East Asia
A Comparative Look at Japan, Korea, Taiwan, and Singapore
(With CD-ROM)
by K. Ali Akkemik
Juliet - Industrial Development.pmd 2 3/18/2009, 5:13 PM
SerieS on
e
conomic Development
3
anD Growth Vol.
Industrial
Development
in East Asia
A Comparative Look
at Japan, Korea, Taiwan,
and Singapore
K A l i A k k e m i k
Baskent University, Turkey
World Scientific
NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI
Published by
World Scientific Publishing Co. Pte. Ltd.
5 Toh Tuck Link, Singapore 596224
USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601
UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE
Library of Congress Cataloging-in-Publication Data
Akkemik, K. Ali (Kucik Ali), 1976-
Industrial development in East Asia : a comparative look at Japan, Korea, Taiwan, and
Singapore / by K. Ali Akkemik.
p. cm. -- (Series on economic development and growth, ISSN 1793-3668 ; v. 3)
Includes bibliographical references and index.
ISBN-13: 978-981-283-279-5
ISBN-10: 981-283-279-3
1. Industrial policy--East Asia. 2. Industrialization--East Asia. I. Title.
HD3616.E183.A45 2008
338.095--dc22
2008040321
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2009 by World Scientific Publishing Co. Pte. Ltd.
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
electronic or mechanical, including photocopying, recording or any information storage and retrieval
system now known or to be invented, without written permission from the Publisher.
For photocopying of material in this volume, please pay a copying fee through the Copyright
Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to
photocopy is not required from the publisher.
Printed in Singapore.
Juliet - Industrial Development.pmd 1 3/18/2009, 5:13 PM
September30,2008 13:27 9inx6in B-655 b655-fm
PREFACE
Thisbookrevisitsthepuzzleofwhethergovernmentinterventioninindus-
trialdevelopmentinEastAsialedtowelfareimprovement.Forthispurpose,
four well-studied East Asian countries, Japan, Korea, Singapore, and
Taiwan,aretaken.Thespecificfeaturesoftheselate-industrializingcoun-
triesmakeupaheterogeneousgroup.Amongthefour,Singaporedeserves
specialattentionasitsgovernmenthasmaintainedinterventionsinproduct
andfactormarketstodatewhereastheotherthreehavereducedgovernment
activismlargelyduringthelastoneandahalfdecades.Acommoncharac-
teristic of these economies is that all of them exercised industrial policies
ofsomesortduringthecourseofindustrialization.Thebookreassessesthe
impactandconsequencesofsuchactivistpoliciesofthegovernments.
Oneofthemostimportantconclusionsofthisbookwithregardstoindus-
trial policies in Singapore is that industrial policy in Singapore has con-
tributedtopositivegrowthandproductivityincreasesespeciallyafter1990.
Thisfindingclearlycontrastsearlierfindingsintheliterature.Ihavealways
been suspicious and critical of the validity of the findings of some highly
influential studies for Singapore which found zero productivity growth. It
seems quite unlikely for such a rapidly growing economy. Several recent
studiesalsofoundsimilarresultsforimprovedTFPgrowthafter1985.The
argumentofthisbookissuchthatpragmaticattitudeofthegovernmentand
itsindustrialpolicieshadapositiveroleinthis.Anotherstrikingfindingis
that interventions of the governments in Japan, Korea, and Singapore did
notresultinwelfarelosses.
The reader may find that the book is heavy on quantitative analyses
and their detailed discussions. The techniques used in the analyses are
standardones.However,itwasnecessarytoprovidethedetailsaboutpro-
ductivityanalysisasitishighlydata-intensiveanddataconstructionprocess
closelyfollowsthetechnicaldetails.Themethodologyisbasedonadetailed
v
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vi IndustrialDevelopmentinEastAsia
and very careful process of data construction. There is no doubt that data
accuracy is highly important in productivity analysis. These data are also
presentedintheappendixattheendofthebook.
Withregardtocontributionofthebooktotheliterature,itcanbeaused
as a resource material for economists interested in East Asian industrial
policiesandforthoseinsimilarprofessions.Itprovidesacasestudyinquan-
titative policy analysis using standard techniques. One of the anonymous
reviewersoftheearliestdraftofthisbookrecommendedtousethebookas
ateachingmaterialatgraduatelevelifprovidedwiththedatabaseandthe
modelinanattachment.Followingthisrecommendation,thedatabaseand
themodelareprovidedinaCD-ROMforthereaders.However,thereader
shouldberemindedthatthemodelhasbeenbuiltusingGeneralAlgebraic
Modeling System (GAMS) software, distributed by GAMS Development
Corporation based in Washington, D.C. The demo (beta) version of this
softwaredoesnotallowtherunningoflongmodels.Therefore,thelicensed
versionofthesoftwareisneeded.Theprogrammingcodeofthemodelcan
alsobeviewedwithastandardtexteditor.
Part of this book is based on my doctoral dissertation submitted to
NagoyaUniversity,GraduateSchoolofInternationalDevelopmentinJapan.
Iamgratefultoanumberofpeoplewhoencouragedmeduringmyresearch.
First and foremost, I wish to express deepest gratitude to Prof. Hiroshi
Osada,Prof.MitsuoEzaki,andProf.ShigeruOtsuboatNagoyaUniversity
fortheirguidanceandencouragementduringmyresearch.Ibenefitedalot
from Prof. Osada’s suggestions and long discussions with him as well as
thought-provoking questions by students at his seminar class. I benefited
from fruitful discussions with Prof. Ezaki and Prof. Otsubo, especially on
modelingpart.Thegeneralequilibriummodelinthisbookisdifferentfrom
theoneIusedinthedissertation.Thecurrentmodelincludesmoresectors
andisdifferentinequationspecificationsandspecialfeaturesregardingthe
behavior of economic agents. I am grateful to the Ministry of Education,
Culture,Sports,Science,andTechnology(Monbukagakusho)inJapanfor
thegenerousfinancialsupportduringmygraduatestudy.
Sincere thanks and deep appreciation are extended to Delfin Go at
the World Bank for sending me the programming code for his model, to
Assoc. Prof. Mahinda Siriwardana at the University of New England in
Armidale(Australia)forsendingmehispapers,andtoDrPaulNormanat
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Preface vii
theUniversityofManchesterforhissupportiniterativeproportionalfitting
technique.Last,butnottheleast,furtherthanksgotothestaffofSingapore
DepartmentofStatisticsfortheirtimelyresponsetomydatainquiries.
Parts of this research were presented in academic conferences held in
Middle EastTechnical University (Turkey) and Nihon Fukushi University
(Japan). Comments, in particular, by Professors Shoichi Itoh and Toru
Yanagihara are greatly acknowledged. Finally, I would like to thank four
reviewersoftheEconomicDevelopmentandGrowthSeriesandtheseries
editor,DrLindaYueh,fortheirinsightfulcommentsandcritiques.DrYueh
ofOxfordUniversitymadeveryimportantsuggestionsontheearlierdrafts
ofthebook.Commentsbyfouranonymousreviewershelpedmeaddnew
perspectives. Special thanks and praise are due to Juliet Lee of World
Scientificforhergreateffortduringtheeditingstageofthebook.Iamfor-
tunatetohaveworkedwithsuchaniceeditor.Shemademefullyenjoymy
first experience in writing a book. The editing team checked every word
andcorrectedeventhesmallestmistakes.TheydidanexcellentworkandI
feelindebtedtothem.
Onadifferentnote,Iwouldliketothankfellowresearchersandfriends
at GSID. Further gratitude goes to Prof.Aysit Tansel at METU and Prof.
MeteTuncokuatCanakkaleOnsekizMartUniversity,myteachersduring
my undergraduate years at METU, for their support and encouragement
before and during my studies in Japan. I have accumulated many debts
to a long list of friends for their intellectual and personal support. David
Gregory,NorikoKanazawa,PohWei-Leong(forhisassistanceduringmy
field work in Singapore), Dr Emre Saraoglu, and Semih Sunkar deserve
specialrecognition.Iamespeciallyindebtedtomy“twofamilies”fortheir
encouragementandforbearanceduringmysix-year-longstudyinJapan.My
parents in Turkey always gave me the courage I needed especially during
times when I was in distress living in a foreign country. I received great
spiritualsupportfrommytwosisters,EsenandLatife.Manythanksaredue
tomyin-laws,theNakanishis,inHachioji,Tokyo,whoalwaysencouraged
meduringmystudy,hostedmeintheirhome,andtreatedmeliketheirown
son.Deliciousdishesofmymother-in-law,Emiko(okasan),havebeenthe
most important fuel of my research. GrandmaYukiko (obachan) and my
sister-in-law (Miho) provided me personal encouragement and made my
life in Japan more enjoyable. I learned a lot from them, especially from
myfather-in-law(otosan),Osamu.
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viii IndustrialDevelopmentinEastAsia
My wife, Tomomi, has always been there when I desperately needed
support. I started my doctoral study soon after we got married. She has
been a great wife to me and a wonderful mother to our son, Mert Shouei.
She deserves more than half of the credits for this book. Mert was born
sixmonthsbeforeIreceivedmydoctoraldegree.Duringthestressfulfinal
months of my research where everything surely goes wrong and it takes a
lottimetofixtheerrors,watchinghissmilingcutefacewasenoughforme
to forget about all the trouble and gave me an extra power in completing
myresearch.
In the development economics discipline, there are many theories but
not enough facts. This book is intended to deal with a special topic for
whichtheoriesarecontentious.Ihopethatthisbookmeetstheexpectations
ofpeopleinthefieldandthosewhohavesupportedandencouragedme.
Ankara,September2008
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CONTENTS
Preface v
Acronyms xiii
1. Introduction 1
1.1. EconomicDevelopmentinEastAsia . . . . . . . . . . . . 1
1.2. TheRoleofGovernmentinEastAsia . . . . . . . . . . . 3
1.3. ObjectivesandMethodology . . . . . . . . . . . . . . . . 6
1.4. OrganizationoftheBook . . . . . . . . . . . . . . . . . . 8
2. IndustrialPoliciesinJapan,Korea,andTaiwan 9
2.1. IndustrialPolicy:DefinitionandTheoretical
Underpinnings . . . . . . . . . . . . . . . . . . . . . . . 9
2.2. TheObjectivesofIndustrialPolicy . . . . . . . . . . . . . 13
2.3. InstrumentsofIndustrialPolicy . . . . . . . . . . . . . . 13
2.3.1. Competitionpolicy . . . . . . . . . . . . . . . . . 14
2.3.2. Tradepolicy . . . . . . . . . . . . . . . . . . . . . 16
2.3.3. Taxandfinancialsectorpolicies . . . . . . . . . . 17
2.3.4. Labormarketpolicies . . . . . . . . . . . . . . . . 19
2.3.5. Technologypolicies . . . . . . . . . . . . . . . . . 20
2.3.6. Foreigninvestmentpolicies . . . . . . . . . . . . . 22
2.4. SummaryandConclusion . . . . . . . . . . . . . . . . . 24
3. IndustrialPoliciesinSingapore 27
3.1. SingaporeEconomyataGlance . . . . . . . . . . . . . . 27
3.2. Singapore’sIndustrialPolicies:AHistorical
Perspective . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.2.1. Industrialpoliciesbefore1985 . . . . . . . . . . . 33
3.2.2. Industrialpoliciesaftertherecession . . . . . . . . 47
ix
