Journal Article

Gravity and friction in growing East Asia

Indermit Gill and Homi Kharas

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 25, issue 2, pages 190-204
Published in print January 2009 | ISSN: 0266-903X
Published online January 2009 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grp019
Gravity and friction in growing East Asia

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  • Economic Development and Growth
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Without the advantages of low wages or high skills, East Asian economies are following a new path of regional integration, led by China. Along this path, policy-makers must manage a migration of 2m people a month to East Asia's cities, a sharp and unprecedented increase in income inequality, and a growing discontent with corruption as governance structures have been decentralized. Having successfully integrated globally before the financial meltdown of the 1990s, and integrating regionally at an even faster pace since then, East Asia's middle-income countries must now accelerate a third integration, this time at home. Growth based on scale economies and specialization requires managing both gravity and friction. This article outlines what East Asian nations must do to manage these forces even as another financial meltdown is taking place. How well they can do this will determine whether they will grow through middle income to join the ranks of developed economies or not escape the ‘middle-income trap’.

Keywords: East Asian economic growth; regional integration; scale economies; agglomeration; specialization; migration; corruption; inequality; F15; F43; O12; O43; R11

Journal Article.  6757 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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