The Myth Of Asia's Miracle Summary

1) In the article, “The Myth of Asia’s Miracle”, the economist Paul Krugman discusses the rapid growth that Southeast Asian countries experienced after World War II. Many economists at that time predicted these countries could continue growing at that rate. He argues that East Asia is just like the Soviet Union had economic growth that was based on the expansion of inputs, rather than growth in output per unit input. Krugman claims that, since the Asian growth depends on investment rather than technical progress, it will slow down because, according to the law of diminishing returns, if you accumulate capital relative to labour, you get lower returns to capital, the added income you get from more investment is steadily less. So, high rates of investment begin to yield lower income growth. Moreover, like the Soviet
As a result, many observers comfortably predicted that the Soviet economy would, in the long run, outperform the US economy. The Soviet failed to take over the U.S. economy because the growth was entirely based on inputs. It was simply not possible for the Soviet economies to sustain the rate of growth of labor force participation, average education levels and above all the physical capital stock that had prevailed in previous years. Increase in inputs without a correspondingly large increase in productivity, output growth cannot be sustained for long. Sustained economic growth requires more than inputs. It requires efficient organization.
3) Paul krugman was right that the fast growing Asian economies would slow down. As East Asia approaches rich-country levels of capital per worker and educational standards, growth may tend to slow. By looking at their GDP growth rate, we can see that East Asian countries didn’t continue to grow with the same high growth rate they had a few decades ago. For example, the GDP growth rate in Hong Kong in 1987 was 13.4%, in 2010 it was