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IR Working Paper 1993/2
Trevor Matthews and John Ravenhill, ‘Strategic Trade Policy: The East Asian Experience’, IR Working Paper 1993/2, Canberra: Department of International Relations, Research School of Pacific Studies, Australian National University, May 1993.
East Asia has enjoyed spectacular rates of economic growth in the last 30 years. For one school of thought this outstanding performance vindicates liberal prescriptions drawn from neoclassical economics. An alternative perspective asserts that interventionist policies based on what has become known as ‘strategic trade theory’ have made an important contribution to East Asian economic success. This paper examines the strategic use of trade policy by the governments of Japan, South Korea and Taiwan. The first section depicts the range of thinking to be found under the rubric of strategic trade theory. The second section reviews how the East Asian governments have used trade (and industrial) policies strategically and effectively to create competitive advantage for certain targeted industries. The third section considers the political and institutional factors that have allowed these East Asian governments to avoid most of the pitfalls of ‘government failure’, and the implications of the East Asian experience for other countries. The case studies show that the pursuit of strategic trade and industrial policies by governments in all three countries realised externalities, changed technological trajectories, and shaped comparative advantage.