Growth and Poverty: Lessons from the East Asian Miracle Revisited

In the past four decades, a number of East Asian economies have recorded extremely high rates of economic growth and achieved spectacular improvements in the quality of life. Some, particularly the newly industrialized economies (NIEs) such as Hong Kong, China; Singapore; Taipei,China; and the Republic of Korea (henceforth referred to as Korea), have telescoped into a single generation a process of socioeconomic development that took the advanced economies of Western Europe centuries to achieve. The dramatic improvement in the quality of life that accompanied this miraculous economic transformation has virtually abolished extreme poverty in these societies. A number of Southeast Asian economies, such as Malaysia, Thailand, and Indonesia, have also made impressive strides in economic development that have resulted in a rapid reduction in poverty and brisk social development. Even though the 1997.98 financial crisis undid some of the economic advances these economies had made, their achievements in improving the quality of life of the general populace remain largely unscathed. Growth has by and large resumed in all the crisis economies except Indonesia, albeit more slowly than before. The case of Indonesia is somewhat complex. It has had to cope not only with the rough and tumble of the financial crisis, but also with the difficult process of transition from a stable authoritarian regime to a raucous democracy, intertwined with insurgencies and civil war. While jolted by the crisis, the socioeconomic transformation of these economies.henceforth collectively referred to as the miracle economies.that has unfolded over the last 40 years has been singularly impressive, and has understandably attracted wide academic and policy interest.

However, developing Asia is also home to the majority of the world's poor. When one juxtaposes this fact against the performance of the miracle economies and their enormous strides in poverty reduction, one is struck by the stark contrast that Asia offers. Despite some progress in recent decades, South Asia remains the bastion of poverty in both Asia and the world. One in three Indians still falls below the national poverty line, and almost one in two would be classified as poor based on the US$1 per day international poverty line, and the extent of poverty in Bangladesh and Nepal exceeds that in India.1 This sharp contrast between East Asia and South Asia is also apparent when considering other aspects of the quality of life, not just income poverty.

The spectacular performance of the miracle economies has spawned an extensive economic literature, including a number of well-known, oft-cited studies initiated by the multilateral development institutions such as the World Bank (1993) and the Asian Development Bank (ADB) (1997). One principal purpose of these studies has been to derive lessons about accelerating growth and reducing poverty that might be applicable elsewhere. This study, which compares the social development of the miracle economies and South Asia, seeks to explore whether lessons learned from the experiences of East Asia can be applied to chart a similar path of success for South Asia.