Stages of diversification in high performing Asian economies

The purpose of this paper is to determine whether the evolution of industry structure in the World Bank’s eight high performing Asian economies (HPAEs) displays the U-shaped relationship between manufacturing concentration and per capita income widely held to foster economic development. Increasingly prosperous HPAEs have long been hailed as models for success by other emerging economies. Focusing on a regional group of high performing economies enables us to relate policies used by successful HPAEs directly to observed patterns of manufacturing diversification and provide policy guidance to emerging economies.

A robust locally weighted scatterplot smoothing procedure is employed to generate the U-shaped relationship between manufacturing concentration and level of economic development. Policies used by the most successful HPAEs are discussed.

The relationship between manufacturing concentration and level of economic development is found to be U-shaped. Diversification of manufacturing is a prerequisite for successful economic development. Countries further along the economic development path such as Japan, South Korea, and Taiwan made extensive use of active and selective interventionist policies to diversify manufacturing before eventually specializing in a narrower range of export activities.

Emerging economies should follow examples set by the most successful HPAEs that demonstrated significant government assistance is required to foster economic development.

The paper is the first to investigate the evolution of manufacturing concentration over the economic development path HPAEs. Success enjoyed by HPAEs holds important lessons for developing and emerging economies.