Executive summary
Post-WWII, East Asia (Japan, South Korea) successfully closed the development gap with the West, unlike most other developing countries. To understand why, I compare East Asia's approach to that of Latin America (Argentina, Brazil) between 1950 and 1990.
I use GDP per capita to measure development.
The analysis reveals that East Asia's success was built on three core pillars:
- Trade openness: encouraged global competitiveness.
- Strategic state intervention: prioritised long-term capital formation over short-term consumption.
- Monetary discipline: ensured a stable, low-inflation environment for investment.
Latin America's opposite approach of protectionism, internal consumption, and money-printing culminated in a hyperinflationary crisis at the end of the 1980s.
From the 1990s onwards, South Korea outgrew Japan in GDP per capita: Japan's economy plateaued while South Korea's continued on a strong growth trajectory.
An analysis of South Korea's success revealed a commitment to fiscal discipline and a focus on long-term investment, ensuring continued export dominance. Japan plateaued after pivoting to debt-fueled stimulus, which stifled investment and competitiveness.
The key takeaway is that sustained economic success requires a disciplined, long-term focus on investment, especially when adapting to crises.