Thename of the “Four Asian Tigers”, sometimes also referred to as the “Four AsianDragons” was given to Hong Kong, Singapore, South Korea and Taiwan, or rather totheir economies. These nations saw rapid industrialization and had a steadygrowth during the 1960s throughout the 1990s. The average growth rates in theseyears were 6% for Hong Kong, Singapore, and Taiwan, and 7% for South Korea.
Theimages below show the evolution of Real GDP per capita for each country between1960 and 2011. The average growth rates between these years are 5% for HongKong and Singapore, and 6% for South Korea and Taiwan. Through theseestimations, we see the incredible rates at which these countries have grown.Except for some isolated falls in their growth rates during the second half ofthe 1970s, we notice that they have all experienced an almost continuous andpositive growth up until 1995. In 1996, the countries were hit by the AsianFinancial Crisis, and by looking at the images we can see that this eventlowered their annual growth rates. Nonetheless, it is still impressive how fastthe countries’ economies bounced back, a recovery many economists refer to as”the Asian Miracle”.
In the images below we can see another period of time whenthe growth rates had a considerable decrease, which is when the FinancialCrisis of 2007-2008 hit the entire world and had repercussions on everycountry.Beforetalking about each country in particular or how they developed, it is relevantto discuss about their historical background. The effects of World War II andof the Korean War (1950-1953) were still felt in the early 1960s. All countrieshad a similar development pattern starting with that time. Besides new importsand exports policies, they all pursued education as a way of ensuring skilledlabor force, which was obviously able to produce more output than less-skilledlabor force. Some studies show that the average years of schooling in 1965 inthese four countries was 1.5 years. If we measure human capital based on theexpected years of schooling, we notice that it is a factor influencing theeconomic growth.
This may be one of the reasons why the Four Asian Tigersdecided to make primary and secondary school attendance mandatory, while at thesame time investing in universities and making it easier for Asian students toattend universities abroad. All four countries had a fairly wellestablished post-colonial infrastructure, Singapore having been a Britishcolony in the past, Hong Kong still being one, South Korea having an Americaninfluence, and respectively Taiwan a Chinese influence. The first twomentioned, Singapore and Hong Kong were able to sustain great rates of growthalso due to their importance as trade centers. The story ofeach TigerHongKongManufacturingindustries, textile exports and re-exports of goods to China are the mainfactors that caused Hong Kong to have a rapid industrialization, making it thefirst out of the four economies to take off. The population started to grow,while the labor costs remained cheap, meaning the standards of living began torise. This, and favorable tax incentives are what attracted investors and manycorporations to the city. Employing large sections of the population during the1960s meant that the manufacturing industry moved to a new stage.
The followingyears (i.e. 1970s and 1980s) brought a period of high development due to thecountry’s new-found wealth. Hong Kong now had city-wide constructions,skyscrapers, public housing and commuter train lines. The GDP grew 180 timesbetween 1961 and 1997, making Hong Kong one of the wealthiest countries in theworld.
SingaporeWorldWar II left Singapore into a state of violence and disorder. Much of itsinfrastructure suffered during the war, including harbor facilities at the Portof Singapore. Crude oil, rubber and tin were the main materials that weretransported from the Malay Peninsula to Singapore, in order to be shipped afterwardsto Britain or other international markets. This was the main function of theport of Singapore during the colonial period.
The lack of food that causedmalnutrition, disease, crimes and violence throughout Singapore, combined with thehigh level of food prices and unemployment led to a series of strikes in 1947,causing interruptions in public transport and other services. Thepopulation of Singapore faced increased levels of unemployment and poverty in1965 as well, when it became independent from Malaysia. As a response to thisproblem, the government set to make Singapore an attractive destination forForeign Direct Investments by establishing the Economic Development Board.
Inthe years that followed, FDI had a great increase, and by 2001 foreign companiesaccounted for 75% of manufactured output and 85% of manufactured exports. As ofnow, Singapore is one of the world’s leading currency exchange countries. Itmanaged to capitalize on its reputation as a trade center and it now possessesa vast expat community, evidence of the high volumes of foreign investmentreceived over the years. Singapore currently has the highest GDP of all FourAsian Tigers.SouthKoreaTheKorean War started in June 1950, when North Korea invaded South Korea, andcontinued until 1953. Because of huge losses among civilians in both the northand the south, the war reached somewhat of a dead end. The two countriesremained technically still at war, since no peace treaty was signed.
Aneconomic growth based on exports was met while Park Chung-hee was president.During this time, a nationwide expressway system and the Seoul subway systemwere developed by the government, and the basis for economic progress was laid.SouthKorea made up for the shortage in resources by having cheap and flexibleworkforce. The country focused on drawing large Transnational Companies, likeSony from Japan, and on stimulating Foreign Direct Investments from the UnitedStates, since agricultural production was not the right way towards economicgrowth.
South Korea’s strategy was to improve on modern industries such aselectronics, robotics and software development, which is what they did most ofthe 20th century. This paid off, because the GDP increased by anaverage of 10% each year between 1962 and 1995, making South Korea one ofAsia’s most advanced economies.Taiwan After Japan surrendered at the endof World War II, Taiwan was placed under the governance of the Republic ofChina, starting with October 25th 1945. On February 28th 1947,there was an anti-government movement happening in Taiwan that was suppressedin a violent manner by the Republic of China’s government. The number ofTaiwanese deaths was estimated to be around 10,000. The massacre, also known asthe “February 28 Incident”, or the “February 28 Massacre” indicated thebeginning of the White Terror – the suppression of political dissidents followingthe February 28 Incident – in which tens of thousands of people went missing,died or were imprisoned. Things were not looking good for Taiwanduring the post-war period: the island was short on goods and materials, theeconomy was depressed and inflation was severe. Agriculture was the first togrow, helping Taiwan’s economy go back to its level before the war.
After 1953,a policy of “Nurture industry with agriculture” was pursued, and with thecapital, manpower and skilled labor that Taiwan had at the time, and some otherfactors, the island’s economy had a rapid growth. The government increasedtaxes, controlled foreign exchange and put a limit on imports, all with thepurpose of protecting domestic industry. In1960, the government established the “Regulations for Encouraging Investment”,competing for foreign business in Taiwan. Just like South Korea, Taiwan wasalso a target for Transnational Companies. For example, the American toycompany Mattel decided to move the main factory from Japan to the island, inorder to lower its labor costs. Fulfilling the role of a manufacturing station,Taiwan became a link in the international system of division of labor. Thecountry’s proximity to China did not only allow it to grow at the side of it,but the Chinese investments also provided them the opportunity to have afuturistic city with skyscrapers, high speed trains, and a strong educationsystem. Foreign investments played an important role as well, helping Taiwan becomehome to impressive headquarters, such as Foxconn, where Apple products aremade.
Some studies show that in the 1960s, Taiwan’s GDP per capita was $170,whilst in 2015 it grew up to $22,469. Variables thatpermitted a fast and sustainable growth When we talk about the variablesthat permitted the fast and sustainable growth of the Four Asian Tigers, we candivide them into three categories: the initial conditions of each countryregarding the natural resources and their geography, government policies anddemographic variables. The first category, naturalresources and geography can be split into four other sub-categories thatinfluence economic on different levels: the initial abundance of naturalresources, the proximity to the sea, the percentage of people living in thecoastal area and the location in the tropics.
Studies have shown that countrieswith plenty of natural resources performed worse than countries with a lowerlevel of natural resources. The cause for this inverse relation is not exact,but one idea that had many people agreeing on is the “Dutch disease”, whichconsists in the appreciation of the real exchange rate which makes themanufacturing industry aimed at exporting profitable. The Four Asian Tigers,which mostly lacked natural resources, invested a lot in the manufacturingindustry and they had high returns in exporting said manufactured goods. Thiswas the first step towards industrialization. Regarding another sub-category,namely the countries’ proximity to the sea, they are all in convenientpositions, meaning the costs for transport and shipping are relatively small.
In regards to the third sub-category, the ratio between people living in thecoastal area and those living near the land, it is one of the highest in theworld. Even though their tropic position might have caused them trouble, HongKong and Singapore were not affected by it, thanks to their characteristics ascity-states. Their GDP had to suffer mostly because of the manufacturing sectorrather than the agricultural one. This helped them avoid converting anagricultural-based economy into and industry-based one. Openness to trade is a factor thatinfluences economic growth the most. So far we saw that the Four Asian Tigerswere some of the most open to trade countries in the world, between 1965 and1990. The main economic policies initiated to allow international trade werethe reduction of taxes for imported and exported goods, and the decrease ofrestrictions concerning trade and the barriers for international inflows ofcapital.
Government savings is a good indicator for the solidity ofmacroeconomic policies adopted and for the indirect effect of inflation andexchange rate. Some studies have shown estimations for government savings forthe four Tigers of an average of 5.6% of GDP between 1965 and 1990, apercentage higher than any other country in the world. The third and final category, thedemographic variable, is about studying the correlation between the growth rateof the working age population, the growth rate of the total population and lifeexpectancy at birth. It has been confirmed that as the working age populationshows an increase, so will the economic growth rate. Moreover, if the workforcegrowth rate is higher than the increase in the population growth rate, we willsee an increase of income per capita. However, this is true the other way roundas well, meaning that if the workforce growth rate is smaller than thepopulation growth rate, a decrease of income per capita will occur. Regardingthe Four Asian Tigers and the statistics during 1965-1990, data has shown thatthe countries had a workforce growth rate higher with one percent than thepopulation growth rate, meaning they had an increase in the growth rate of GDPper capita.
The other estimate, life expectancy at birth, has an impact on theproductivity of the workers. If a population has a higher life expectancy, thehealthier and more productive they are, meaning they are capable of producingmore output. Life expectancy at birth for the Four Asian Tigers was around 63years in 1965, while for South or Southeast Asia, for example, it was only 49,respectively 52 years. Impact ofexports, exports policies and the Asian MiracleAneconomic miracle is the period of time when a great change is happening, suchas the dramatic growth Hong Kong, Singapore, South Korea and Taiwan wentthrough during 1960s – 1980s. Because the countries were looking to discourageimports so as to help their own primary industries, they placed taxes onimports and focused on exporting to the highly industrialized countries ofEurope and North America. However, the nations approached this issue indifferent ways.
Hong Kong and Singapore chose to introduce trade regimes thatsupported free trade, whilst South Korea and Taiwan went for mixed regimes thatadjusted to their own export industries. Hong Kong and Singapore, because theyhad fairly small domestic markets, domestic prices were associated tointernational prices. The governments of Singapore, South Korea and Taiwan alsohad what was called “export push strategy”, meaning they worked to promotecertain exporting industries. All these policies led these four nations to thestatus of developed countries, by having an average 7.5% growth each year forthree decades. The AsianFinancial CrisisOneof the problems the economic growth of the Four Asian Tigers caused was thattheir economies expanded too fast. The series of currency declines that beganin the summer of 1997 and spread throughout plenty of Asian markets is known asthe “Asian financial crisis”, sometimes also referred to as the “AsianContagion”. Prices of property and shares and stocks started being overvalued.
Thefinancial crisis disturbed all “Tigers”, but South Korea had most to suffer, asits foreign debt burdens enlarged resulting in the country’s currency fallingbetween 35-50%. The stock markets in Hong Kong, Singapore and South Korea sawlosses of at least 60% in dollar terms. Thankfully, the Asian financial crisiswas partially restrained by the intervention of the International Monetary Fundand the World Bank.
Nations like the United States, Russia and countries inEurope saw repercussions of the Asian economies crashed. Nonetheless, the FourAsian Tigers recovered faster than other countries from this crisis thanks todifferent economic advantages, two of them being their high savings rate andtheir openness to trade. Somebelieve that the transformation the Four Asian Tigers went through was due tobeing in the right place at the right time.
The arguments for this are that warwas over, colonialism was coming to an end, and globalization needed at leastone strong Asian trade hub. Nonetheless, many others believe that theirincredible growth happened because of good governance. All four countries madeit their priority to adopt strong regulations and anti-corruption measures,while at the same time avoiding public debt and building large reserves ofcapital and savings by having conservative economic plans. This is the reasonbehind their fast recovery when crisis hit, affecting them only on asuperficial level. More than this, the presence of China helped them immenselybecause by the country undergoing an extraordinary economic transformation overthe past 50 years, the Four Asian Tigers benefitted through the Chineseinvestments.