The States Role In Economic Development Economics Essay Example

recommendations, the World Bank suggested that countries should adopt market-oriented development plans and establish connections with international bodies like the International Monetary Fund.

The narrative of East Asian development emphasizes the significance of market forces, as discussed by Little (1981), Balassa (1982), and Balassa et.al. (1988). Rather than being the dominant theoretical model, the state's role is limited to acting as an accelerator and corrector of market failure. According to Little (1981), emphasis is placed on the success of exports in East Asia NIEs due to the positive impact of free trade conditions. During this period, East Asian NIEs such as Korea, Taiwan, and Hong Kong have transitioned into industrial capitalism. In this scenario, government stability plays a crucial role in providing stable conditions for long-term business operations, along with regulatory framework and infrastructure capacity.

According to Balassa (1988), the primary contribution of authorities in the Far Eastern NIEs (Newly Industrialized Economies) has been to establish a modern infrastructure, create a stable incentive system, and ensure that government bureaucracy supports exports instead of hindering them. In comparison to other developing regions, East Asia has relied less on government regulation and bureaucratic controls. Additionally, there have been fewer distortions imposed by policies in labor and capital markets, with greater reliance placed on private enterprise (Balassa, 1988; .286-8). This viewpoint contrasts with that of Paul W.

Kuznets and Balassa have different positions on the economic development strategies of various countries. According to Kuznets, in Japan, Taiwan, and South Korea, government intervention has played a limited but important role in maintaining competitive exports. Kuznets suggests that this intervention has been effective in these countries (Kuznets, 1988; 36).

In contrast, Balassa argues

that the East Asian Newly Industrialized Economies (NIEs), including Hong Kong, have followed the first stage of import-replacing industrialization. This involves replacing imported consumer goods with locally produced ones, thus focusing on the domestic market. On the other hand, Latin America NIEs have pursued the second stage of import-substituting industrialization, where they aim to become manufacturers of capital-intensive goods. Balassa notes that the East Asian NIEs have achieved impressive GDP growth rates by focusing on exporting goods based on their comparative advantage and effectively allocating resources (Balassa, 1988; 271-288).

The new and improved efficiency of each industry and the state concerned is an advantage in this status. East Asia NIEs exports use resources to the maximum and benefit from large-scale production in order to overcome the limitations of the domestic market. Import substitution and protection often monopolize, while export-oriented industrialization focuses more on competition and adopting modern technology to improve their position in global markets. According to Balassa (1988; 268-8), four determinants of the economic performance of East Asian NIEs are stability of the incentive system.

The East Asiatic states have a history that shows their system is designed to boost exports. They achieve this by offering incentives, eliminating administrative barriers, and creating a favorable environment for exporters. In comparison to the Latin America NIEs, the East Asia NIEs are more cautious when it comes to changes in exchange rates. Exporters in East Asia can generally expect the incentives they receive to remain unchanged over time. On the other hand, Latin American NIEs face fluctuating exchange rates and extra expenses for exports, which decreases profitability for exporters. Moreover, the administrative system in East Asia is less extensive

than that of Latin America.

This statement discusses the efforts made by East Asian countries to create a favorable environment for economic growth through the implementation of policies that support free markets. However, these policies have resulted in distortions within both labor and capital markets. While labor markets in East Asia are generally unrestricted, they differ in terms of regulation compared to Latin American NIEs. Furthermore, East Asian NIEs exhibit more open capital markets than their Latin American counterparts. Another distinction is the utilization of market interest rates to incentivize domestic savings and prevent capital flight in East Asian NIEs, whereas artificially low interest rates in Latin America NIEs negatively impact currency values and encourage foreign investment. Lastly, the private sector relies more heavily on East Asia NIEs than it does on Latin America NIEs.

In East Asia NIEs, private companies play an important role in making necessary investments and achieving efficiency and profitability through international competition. On the other hand, in Latin American NIEs, public companies tend to have a more significant role compared to East Asian NIEs.

The State-led models

The state-led model is in direct opposition to the neo-classical view. The transition from the East Asian perspective of market-led development to a state-led model has been described by Johnson (1987), Castell (1992), and Gerscenkron (1962) as the transformation where the state acts as the main driving force in industrialization in late-developing countries. Wade and White note that in Japan, South Korea, and Taiwan, which are among the most successful cases of capitalist development, aggressive government intervention has accompanied industrialization. Governments in these countries have guided markets and moderated the competitive process in a way that contradicts

the beliefs of neoclassical economists who argue against significant government involvement.

According to Wade and White (1984; 1), other scholars such as Deyo have also discussed the proposed capacity model strategically, highlighting the commitment of the state to economic growth and its ability to implement successful development strategies. These characteristics differentiate the Newly Industrialized Economies (NIEs) of East Asia from other developing countries that may have a greater abundance of natural resources, larger domestic markets, and other economic assets (Deyo, 1987; 228).

Taking the viewpoint of state intervention, Stephen W.K. Chiu and Tai-Lok Lui (1998; 144) argue that successful late industrialization requires government involvement. This aligns with Gerschenkron's perspective on the importance of a strong state to overcome market failures and ensure smooth industrial development (Gerschenkron, 1962; Rueschemeyer and Evans, 1985). Amsden (1989) further supports Gerschenkron's ideology by stating that the industrialization of East Asia is characterized by its "Late" development rather than "Newly" emerging industries.

1992). This means that as a newcomer company in East Asia, one must be able to compete with Western companies in terms of technology. Wade (1992) states that the challenge faced by companies in East Asia is to overcome weaknesses and transfer their industrial structure to a more dynamic technological activity in order to compete internationally. The concept of the capitalist developmental state, as explained by Johnson (1987), does not aim to replace the market mechanism and private decision-making, but also doesn't reject profit-seeking behaviors. According to Johnson, capitalist development involves the interaction of two subsystems: one public and focused on development goals, and the private sector, aiming to maximize profits.According to Johnson (1987), the state of development can be characterized by

the following traits: a desire to overcome dependency and stagnation, recognition of the need for efficient marketing to maintain success, long-term motivation of the people, and the role of a check on institutionalized corruption in combating underdevelopment (Johnson, 1987;140). Development in a non-socialist country like this is driven by a commitment to private property and markets.

The market system works closely with the authorities to clarify a strategic industrial policy for promoting development. The development of each province's economy relies not only on the market alone. Within the provincial bureaucracy, pilot bureaus (such as MITI in Japan) have a significant role in formulating and implementing strategic policies. These bureaus are given enough authority to take initiative and operate efficiently, as well as attract and manage talented individuals.

Johnson demonstrated that enlisting competent individuals in the civil bureaucracy not only yields positive outcomes but also cultivates a sense of integrity and collective identity within the chosen bureaucracy. Amsden (1989) presents another perspective on how the state facilitates late industrialization, highlighting Korea's emphasis on subsidizing and protecting the emerging industry through disciplined policies. Subsidies were provided to Korean entrepreneurs as they struggled to compete with Japanese companies, leading to the development of a thriving industrial sector. The Korean government implemented a strict policy wherein well-performing companies received managerial support, while those with poor performance faced penalties. Consequently, Korea emerged as one of the major industrialized nations in the future.

This suggests that intercession by the province is necessary when Korea experiences an industry slowdown. It is essential for province officials who have been selected based on meritocracy to possess the skills and competence needed in governing and regulating the authorities,

both in terms of policy and regulation. According to Stephen W.K. Chiu and Tai-Lok Lui (1998; 147), the politicization of major economic decisions also safeguards bureaucratic autonomy, or what Johnson refers to as the separation between "reigning and governing." In other words, politicians establish broad goals, protect the technocratic bureaucracy from political pressures, serve as a "safety valve" when mistakes occur within the bureaucracy, and take responsibility during corruption scandals...the official bureaucracy actually conducts planning, intervention, and guidance of the economy (Johnson, 1987; 152). All of this highlights the significance of the relationship between provincial development, private sector firms, banks, and other institutions in economic development.

The text emphasizes the cooperation between bureaucratic and public-private sectors to enhance the development aims of independent provinces. It states that these provinces should not only focus on their own strategic goals but also implement effective policies to promote industrialization in East Asia. The authors suggest a state-business mutuality, whereby states have the freedom to make decisions and dominate the market. However, they criticize state-centred theorists for overlooking the relationship between the state and society. They argue that these theorists oversimplify social forces and ignore class struggle within and beyond the state.

State and society are mutually dependent and must be analyzed together (Gilbert and Howe, 1991; 205). Writers such as Weiss argue for the "governed mutuality theory," which suggests that the ability of East Asian businesses and industries to quickly adapt to economic change is based on a system that shares and coordinates risks across various organizations, both public and private (Weiss, 1995; 594). Weiss also emphasizes that it is not only liberty that matters in a state-led model, but

also the institutional capacity to coordinate with industrialized states through appropriate relationships. He states that in Korea, Taiwan, and Japan, a complex network of institutions has been established between state institutions and the private sector, such as policy networks, which play an important role in obtaining information and fostering cooperation with the private sector - MITI in Japan being an example (Weiss, 1995; 600). This differs from Samuels' view in his study on Japan's energy policy (Samuel, 1987; 8), which argues that it is an iterative process of building confidence among market participants and public officials, working better when agreements are stable and negotiations occur within institutions that ensure their survival.

Samuels proposes that instead of competing with or replacing private entrepreneurship, Nipponese subjects should pursue an energy policy that aims to maintain a stable private market. Similarly, Okimoto argues that the close relationship between the government and business serves as the primary tool for consensus building, information exchange, and public-private communication. It would be difficult to imagine close government-business relations without this connection. The entire Consensus system, which Japan's political economy relies on, would be challenging to sustain without industrial policy as an integrative mechanism (Okimoto, 1989; 231). Calder also emphasizes the public-private hybrid system in the Japanese financial industry and the preparation of the 'strategic capitalist economy,' which advances the market-oriented private sector with active participation of the public sector to promote public engagement and long-term vision (Calder, 1993; 16). Finally, Evans highlights the fact that successful development in countries is not only independent but also rooted in concrete social bonds that connect the state to society and provide institutionalized channels for continuous dialogue

and negotiation of goals and policies (Evans, 1995; 12).

Competitiveness

The ability to compete internationally between industries (not between countries) is known as competitiveness (Krugman, 1996). In order to be successful, companies employ their own strategies, such as lowering costs, improving product quality, and utilizing online marketing. However, government support is sometimes necessary for companies to achieve competitiveness in various contexts. The key elements of a competitiveness strategy include enhancing internal learning, developing skills and technological efforts, increasing access to information, skills, and technology from markets and institutions, and coordinating learning processes across companies in the same industry or related industries (commonly referred to as 'clusters' - both geographically and by activity - see Porter, 1990). Companies often develop their skills in different aspects of the "market" to gain a competitive advantage, such as physical infrastructure, human resources, finance, technology, capital, and the effect of clustering. Competitiveness policies are needed when one aspect of the "market" fails to operate efficiently.

The experience of East Asian states in achieving success showed that a comprehensive and careful policy was necessary from both the government and the company itself. To succeed in international competition, companies need to assess their competitiveness. One method of measuring industrial competitiveness on the international stage is through examining the competitiveness of industrial products in the international market. One frequently used method is the Revealed Comparative Advantage (RCA).

Revealed Comparative Advantage, initially established by David Ricardo, challenged Adam Smith's theory of absolute advantage in The Wealth of Nations. According to Ricardo's theory, a country should produce and export goods and services that are relatively more productive compared to

other countries, while importing goods and services that other countries are relatively more productive in (Mahoney et al. 1998).

This theory examines the productivity of each state based on technological differences. Various techniques are used in the literature to measure a state's competitiveness through comparative advantage. There are several ways to analyze a state's comparative advantage. One popular method is to determine the level of specialization in production, either by using the 'Balassa index' or the revealed comparative advantage index.

This cheque represents a significant portion of manufactured or exported goods and the number of people employed in each industry, when compared to other countries. The concept of "Revealed comparative advantage (RCA)" was developed by Balassa in 1965. RCA is essentially a measure of normalized export proportions, specifically related to the same industrial exports in a reference state. The RCA index is used to determine a country's level of international competitiveness in terms of trade. The RCA Approach, pioneered by Balassa in 1965, 1977, 1979, and 1986, has been widely utilized to assess the excellence of industrial exports in the international market. The RCA index is defined as the ratio of a country's share in world exports of a particular industry divided by the share of overall world trade.

RCA remains a valid measure of comparative advantage in industries throughout the state. This remains true by definition and reflects the comparative export performance in countries, industries, and time periods, making it useful for analyzing the state's situation. Numerous studies have utilized the concept of RCA by examining export and import data. Balassa (1977) conducted an analysis of patterns of comparative advantage in industrialized countries from 1953-1971. Scholars have

also used this method to understand industrial competitiveness in international markets, such as UNIDO (1986), World Bank (1994), Aquino (1981), Crafts and Thomas (1986), van Hulst et al. (1991), and Lim (1997).

The formula for measuring a country's revealed comparative advantage (RCA) is given by:

Index RCA


xiw / xw

Explanation:

• Xij = value exports trade good i state J
• Xj = total value exports state J
• Xiw = value exports trade good i world
• Xw = total value exports world

Revealed Comparative Advantage And Competitiveness: Evidence For Turkey Vis-A-Vis The Eu/15

All seven indices show that Turkey has revealed comparative advantages for seven of the 63 merchandise groups: vesture and vesture accoutrements; veggies and fruit; sugar, sugar readyings, honey; baccy; oil seeds and buttery fruits; rubber industries; fabric narration, cloths and related merchandises. Revealed Comparative Advantage: An Analysis for India and China. The analysis of the degree of competition reveals that there is no correlation between the manufacturing sectors of India and China in the global economy. Changing Revealed Comparative Advantage: a case study of Footwear Industry of Pakistan. The changing revealed comparative advantage in Pakistan's footwear industry, i.e., its shift from disadvantage situation to comparative advantage indicates that there is potential in this sector for higher growth and the industry can become a source of higher export earnings.

Ireland possesses a Revealed Comparative Advantage (RCA) in the food and drinks, chemicals, and IT sectors. On the other

hand, India has a comparative advantage in the exports of Ricardo and Heckscher-Ohlin (HO) goods in the field of merchandise trade.

The class of 'Other goods ' is also increasing its presence on the list of items offering comparative advantage. The production of goods requiring standard engineering is shifting to developing economies like India, as seen in the absence of RCA in imports of HO goods.

Electronicss Industry

The electronics industry is a rapidly growing trade good. In 2005, the global electronics industry reached a production value of U.S. $1.338 trillion, making it the largest manufacturing industry in the world.

The largest share of the global electronics industry is in the Asia Pacific region, accounting for 36.8%, followed by America at 25.54%, Europe at 21.35%, and Japan at 15.11%. From 2002 to 2005, the industry experienced a growth rate of 8.2%. Currently, the electronics industry is striving to transition from high-cost to low-cost production. This has resulted in manufacturing companies from the United States, Canada, Japan, and Western countries relocating and establishing production facilities in Asia Pacific countries. This shift is driven by the desire to reduce costs and maximize profits in manufacturing operations.

Sections by Product Output in 1982 and 2004

The study revealed that the automotive electronics section has been greatly impacted by various electronic constituents and parts, which are widely used in the automotive industry. According to the report, the current industrial electronics industry accounts for approximately 30% of the cost of cars and is expected to continue to rise in the future. In terms of the market size of electronic components, data from figure 2.3 shows

that major Asian countries, excluding Japan, contribute 43%, while the total contribution from Asia now stands at 62% of the overall market. Western countries, such as the Americas and Europe, only contribute 38%. Additionally, over the past few years, Asian countries have also made significant advancements in the Electronics Manufacturing Services (EMS) business globally and are projected to capture 67% of the global EMS revenue by 2009.

Electronic Components Market

The electronics industry can be divided into four parts based on the growth rate trends: primary electronics industry.

( Santiago, 2007 ):

• Consumer Merchandises: Television flat panel, high definition TVs, iPods, digital cameras and set top box.
• Communicationss merchandises: 3G French telephone, Television response on French telephones, nomadic services.
• Electronic Industry: Radio Frequency Identification (RFID), green electronics, optical acknowledgment
• Automotive electronics: merchandises such as planetary placement systems (GPS), intercrossed autos and electronics for safety intents.
• Electronic games for casinos.

Indonesia Electronicss Industry
Indonesian electronics industry is one of strategic industries and of import function in the Indonesian economic system. The part of electronics industry in Indonesia's fabrication exports in 2005 reached 8%, the 3rd largest non-oil exports in the industrial sector (figure 2.4). Share of the Electronics Exports of the Entire Manufacturing Exports (in per centum) Period 2005-2009?Note: * ) Time period of January-October Electronics industry in Indonesia is divided into 3 parts (Ministry of Industry, 2007), viz.:

• Consumer electronics industry, which is a map of their aegis of electronic merchandise is intended for family demands, such as wireless, telecasting, picture cassette recording equipments, iceboxs, rinsing machines.

- Industrial electronics concern, also known as the industry of electronics products designed for business or industrial purposes,

includes items like computers, calculators, and medical equipment.
- Industry electronics components are parts of electronic products, such as television tubes, integrated circuits, resistors, capacitors, and motherboards.
- Among these three categories, the consumer electronics industry is relatively more developed in Indonesia. This is because it utilizes technology that is user-friendly and similar to other manufacturing industries, such as injection-molding machines, assembling machines, dipping machines, pressing machines, roll-formed steel equipment, and machine tools.

) Another reason is that engineering is relatively simple, making it easy for companies to relocate from the United States to Indonesia. The industrial electronics industry has experienced significant growth due to advancements in the fields of communications and telecommunications. The weakest aspect of the electronics industry is its constituent industries.

Compared to other electronics industries, the component industry is still developing. As a result, the electronics industry in Indonesia heavily relies on imported constituents. This dependence is due to both a limited local component industry and challenges in terms of product innovation. The majority of domestic component industry focuses on producing low-tech constituents such as plastics, rubber, metal parts, and mechanical parts like speakers, transformers, heat sinks, cable connections, flyback transformers, and printed circuit boards (PCB). When comparing the number of firms, output, and workforce with other industries in Indonesia like the fabric industry, the electronics industry remains relatively small.

According to a study conducted by the Central Bureau of Statistics, the industrial electronics assembly industry is primarily characterized by a lack of innovation and limited production capabilities. Only a small number of companies possess the ability to make significant modifications to basic design and technological advancements. In terms of production structure, most electronics companies heavily

rely on imported components from major countries. A survey conducted by the Ministry of Trade in 2008 discovered that the Indonesian electronics industry is concentrated in specific regions, namely West Java and Banten, Riau Island, Jakarta, and East Java. These regions account for 59.70%, 17.14%, 12.05%, and 8.10% of the industry respectively. Comparatively, the industry's presence in Central Java, DI. Yogyakarta, and North Sumatra is significantly smaller than in the four aforementioned regions. Therefore, it can be concluded that the Indonesian electronics industry is primarily concentrated in these four regions.

These conditions greatly aid in the construction of installations and infrastructure in Indonesia to support Indonesia's efforts in the electronic products industry.

Conclusion: In this study, we analyzed the location choices of businesses within the Malaysian electronics industry using a conditional logit model. Our findings indicate that agglomeration and industrial estates have a positive impact on location choice. Specifically, agglomeration has a significantly larger effect on location-choice behavior by businesses compared to other factors.

Although industrial estates are established by authorities in developing countries to attract new investment, their effectiveness in location selection is limited due to the lack of agglomeration effects. Based on these findings, two policy implications can be drawn. Firstly, establishing industrial estates is not an efficient strategy to overcome regional inequality in the industry of a developing country. Other policy tools should be considered for this purpose. Secondly, expanding existing industrial estates and/or constructing new ones can be a beneficial policy tool to attract firms to regions that already have a sufficient number of firms. This paper has developed important conceptual building-blocks that we need to understand the unique characteristics of Asia's "late innovation"

strategies in the electronics industry.

The paper reports that Asian countries have been able to successfully implement complex technological knowledge in industries, even though they lag behind advanced states in research and development (R) and advanced capabilities. This includes advancements in process technology for electronic components and system architecture design. Empirical findings suggest that, when other variables are controlled for, the productivity growth rates in electronics plants are higher when there is a greater degree of diversification. This indicates that Taiwan's electronics manufacturing plants have effectively utilized their own proprietary production skills, shared technological knowledge, and managerial expertise.

As a result, the range economic system has greatly improved the industry's competitive position globally.