The Role of Government in East Asian Development : Lessons for Ethiopia

Abstract:

Abstract

This paper examines the lessons Ethiopia can learn from East Asia’s growth to sustain its recent economic growth. By an in-depth analysis of the role of government in East Asian’s development it provides recommendations for Ethiopia. The study is based on the experiences of South Korea, Taiwan and Japan in the context of three issues: selective intervention policies, coordination problem and export orientation. Results of the study show that governments in East Asia have used phased selective intervention mechanism to nurture their industries and coordinated private investment to ensure national development. They have also targeted export markets to make their firms competitive and upgrade exports from primary products to higher value goods. The selective intervention suggests a greater role for government, however targeting of exports and the efficiency from international competition indicates the virtue of market mechanisms as well. Government intervention however must be phased, moving from targeting primary products to higher value goods. This paper suggests that government intervention has to be supplemented by a government-firm relationship that avoids too much government autonomy, which is meant to solve rent-seeking problem. Rent-seeking problem can instead be solved through performance requirement and time limits on protection.