State Development Planning: Did it Create an East Asian Miracle?

East Asian countries have recorded large increases in per capita GDP over the last fifty years. Some observers have referred to this growth as an “East Asian Miracle.” One popular explanation attributes the rapid growth to state led industrial development planning. This paper critically assesses the arguments surrounding state development planning and East Asia’s growth. Whether the state can acquire the knowledge necessary to calculate which industries it should promote and how state development planning can deal with political incentive problems faced by planners are both examined. When we look at the development record of East Asian countries we find that to the extent development planning did exist, it could not calculate which industries would promote development, so it instead promoted industrialization. We also find that what rapid growth in living standards did occur can be better explained by free markets than state planning because, as measured in economic freedom indexes, these countries were some of the most free market in the world. Copyright Springer Science + Business Media, Inc. 2005