Transport Economics Policy & Planning; Economic Theory & Research; Banks & Banking Reform; Investment and Investment Climate; Public Sector Economics
East Asia and Pacific; Europe and Central Asia; South Asia
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Summary: The debates it fueled, on what governments must do for countries to develop, carry on to this day. But its main conclusion remains largely unchallenged: East Asian countries have been successful because they integrated into the world economy, and they could do this because their own economies were efficient. With neither an abundance of natural resources nor a lot of capital, the instrument of East Asia's integration was labor, the one factor of production that it had in good supply. In 1997 a serious economic crisis led to skepticism about the durability of East Asia's success. But China's progress and the region's quick recovery in the 2000s has left few doubts about the main reason for the biggest reduction of poverty in recorded history: importing capital and knowhow and exporting goods and services that require a great deal of labor (East Asia has a third of the world's supply). Around the same time, with the collapse of communism, the economies of Central Europe rejoined the west, beginning with the association agreements the European Union (EU) signed with Hungary, Poland, and the Czech Republic. The rewards for adopting the policies and institutions of their western neighbors included the largest inflows of foreign capital in history. A potent mix of Western European know-how and finance and Central Europe's capable workers fueled the integration of 100 million people into the global economy, helping them institute modern markets and attain high incomes. The European convergence machine in many ways rivals the East Asian miracle, and reflects the same fundamental forces: efficient integration into the international economy based on trade in goods and services that use Central Europe's relatively abundant asset, this time, though, it was capital. Western Europe had a third of the world's supply of capital, and their deep and comprehensive integration into the EU made capital suddenly abundant in Central European countries such as the Czech Republic, Estonia, and Poland.
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