Research Paper 57, November 2014

Globalization, Export-Led Growth and Inequality: The East Asian Story

Over the last three decades, several East Asian economies have grown by leaps and bounds. The success of their export-led growth model is regarded, and copied, by many emerging economies as a sure path to achieve high-income status. But with impressive growth came worsening inequality both in personal income and functional income distribution.

This paper looks at the export-led growth model of five East Asian economies -China (Peoples Republic of), Korea (Republic of), Taiwan (Province of China), Malaysia and Thailand – and identifies the global forces and national policies that led to rising inequality and falling wage share. Export-led growth has been one way to counteract falling domestic consumption and aggregate demand. However, inequality can constrain further grow as export markets, faced with strong global economic headwinds, falter. Some countries turn to domestic debt–led personal consumption to pick up the slack. This is unsustainable. If wage share of GDP has been falling and inequality rising, countries will not be able to depend on domestic market to drive growth unless they also restructure their distributive and redistributive regimes.

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