June, 2003

State Development Planning: Did it Create an Asian Miracle? - Working Paper

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East Asian countries recorded large increases in per capita GDP over the last fifty years. This led some observers to refer to the growth as an "East Asian Miracle." One popular explanation attributes the source of the rapid growth to state-led industrial development planning. This working paper critically assesses the arguments surrounding state development planning and East Asia’s growth. Whether the state can acquire the knowledge necessary to calculate which industries it should promote and how state development planning can deal with political incentive problems faced by planners are both examined. When one looks at the development record of East Asian countries one finds that to the extent development planning did exist, it could not calculate which industries would promote development, so it instead promoted industrialization. One also finds that what rapid growth in living standards did occur can be better explained by free markets than state planning because, as measured in economic freedom indexes, these countries were some of the most free market in the world.