Over the past decade, there has been rapid long-term economic growth for East Asian countries. These newly industrialising countries are experiencing growth rates in GDP per head at around 6% to 7% compared to the 2% to 3% for most industrial economies. If this growth continues, South Korea and Taiwan might take away Americas distinction as the worlds richest country.This rapid economic growth is a result of several economic and political factors. The pace of economic development, growth in world trade and communications, and the investment in physical capital and education have all played a role in the sudden rise of the East Asian economies.
One factor which has helped the long-term economic growth of South Korea and Taiwan is the pace of economic development. The pace has accelerated over time. As time progresses, countries seem to be able to grow at a much more rapid rate. From 1780, it took Great Britain 58 years to double its real income per head. It took America 47 years to double in the 1800s while Japan took 34 years from the late 19th century. Finally, South Korea was able to double its real income per head in an amazing 11 years from 1966. It would seem that the later a country has industrialised, the faster it has been able to do so.Another important factor is the degree to which a country is behind the industrial leaders. In the case of the East Asian countries, South Korea and Taiwan, both started out with an extremely low income per head. This allowed much faster growth when copying the leaders. It is important to realize that these growth rates should slow as the countries catch up.
An area in which East Asia is investing much of its GDP is in physical capital and education. Compared to the industrial leaders, the East Asian countries have sustained a much higher investment in these areas. South Korea invests 35% of its GDP which is more than double Americas capital spending.The East Asian countries have placed much emphasis upon education. Education is the key to mastering the technologies which they have been borrowing from the economic leaders of the world. The standards of education for these countries have improved as rapidly as their economies.
Another factor which has helped the long-term economic growth of these East Asian countries is the global market. No longer is a countrys economy hurt by a small domestic market. World trade has grown tremendously over the past few decades. Exports account for about 30% of South Koreas GDP and 40% of Taiwans. This growth in world trade has allowed technology to become more available today than in the past. The growth in international communications has helped spread new technology throughout the world.
South Korea and Taiwan should continue to experience long-term economic growth in the next several years. Both countries are investing heavily in education and physical capital; areas which are key for economic development. They also are benefiting from world trade and the diffusion of new technologies. All of these factors should help continue their recent economic success.