Working Paper: CEPR ID: DP1305
Authors: Dani Rodrik
Abstract: The export booms in South Korea and Taiwan starting in the early 1960s are anomalous when compared with later export booms in other, non-East Asian countries such as Chile and Turkey. First, these booms have taken place in the context of comparatively small changes in relative prices in favour of exportables. Second, they have been associated from the start with booms in investment. This paper offers an argument and a formal model to suggest that exports in East Asia may have been driven by an increase in the profitability of investment, with outward orientation a consequence of the investment boom rather than its instigator. In economies like South Korea and Taiwan, an increase in investment required an increase in imports of capital goods. Since savings rose alongside the desired investment, the investment boom was accompanied by a boom in both exports and imports. Moreover, this could happen with a relatively small change in the relative price of exportables.
Keywords: trade policy; investment; East Asia
JEL Codes: F14; F43; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased profitability of investment (G31) | increased investment (E22) |
| increased investment (E22) | increased imports of capital goods (E22) |
| increased imports of capital goods (E22) | increased exports (F10) |
| increased investment (E22) | increased exports (F10) |
| government policies (H59) | increased profitability of investment (G31) |
| government policies (H59) | higher savings rates (D14) |
| higher savings rates (D14) | increased investment (E22) |
| increased investment (E22) | simultaneous increase in exports and imports (F10) |