Industrial Policy in Asia

This paper examines three types of industrialization that have occurred in East Asia: the Japanese, Chinese and generic Asian models. Industrial policies in Japan and the Republic of Korea (ROK) initially protected local companies from foreign investors by imposing high tariffs on foreign investors. But Japan began introducing liberalization policies to attract foreign direct investment (FDI) in the 1960s, and the ROK began to welcome foreign technology in the 1970s. Meanwhile, the governments of the ASEAN countries and Taiwan established export-processing zones (EPZ) to invite FDI by offering preferential treatment, such as tax deductions and exemptions. China adopted similar industrial policies and also established EPZs, attracting the capital and know-how of multinationals and thereby strengthening the international competitiveness of local enterprises. This paper reaches the following three conclusions. First, it would have been difficult for East Asian countries to grow without FDI. Second, central governments were a crucial factor in these countries' growth strategies. Third, EPZs offering preferential treatment can effectively enhance aggregate growth in developing countries, and the Asian experience shows that this strategy can be applied to other countries that satisfy certain preconditions.