ABSTRACT

DWHGWRH[SODLQLWVHDUOLHUVXFFHVVHVDVZHOODVWKRVHRI6RXWK.RUHDDQG7DLZDQ DWDPLQLPXPLVZRUWK\RIUHWHQWLRQDOEHLWZLWKVRPHUHDVVHVVPHQW,QGHHGDV ZLOOEHDUJXHGEHORZPDQ\RI-DSDQ·VFXUUHQWHFRQRPLFSUREOHPVDULVHIURPWKH GLIÀFXOWLHV DVVRFLDWHGZLWK GLVHVWDEOLVKLQJ WKH LQVWLWXWLRQV DQG SROLFLHV FUHDWHG XQGHUWKHHDUOLHUPRGHORIGHYHORSPHQWDOLVPDQGZKLFKKDYHEHFRPHSUREOHPDWLF LQDZRUOGGRPLQDWHGE\HFRQRPLFOLEHUDOL]DWLRQ2QO\E\H[DPLQLQJWKH-DSDQHVH HFRQRP\LQERWKLWVEORRPLQJDQGLWVIDOORZSHULRGVFDQWKHFRPSOH[LW\RIIDFWRUV FULWLFDOWRERWKSKDVHVEHFRPHFOHDU$Q\XVHIXOPRGHORI-DSDQHVHGHYHORSPHQW PXVWEHDEOH WR LGHQWLI\QRWRQO\ WKHFDXVHVRI UDSLGJURZWKEXWDOVR WKRVHRI VXEVHTXHQWVORZGRZQ

7ZRDGGLWLRQDOUHDVRQVIRUVXFKDQLQYHVWLJDWLRQVWDQGRXW)LUVWGHVSLWHDQ\ VXEVHTXHQW HFRQRPLF SUREOHPV WKDW DURVH WKH -DSDQHVH VXFFHVV VWRU\ UHPDLQV PDUNHGE\YDVWO\PRUHVRSKLVWLFDWHGHQJLQHVRISURGXFWLRQDQGLWVFLWL]HQVEHQHÀWIURPLPPHQVHO\KLJKHUVWDQGDUGVRI OLYLQJ WKDQ LV WKHFDVH LQFRXQWULHV WR ZKLFK -DSDQZDVFRPSDUDEOH WKUHHRU IRXUGHFDGHVHDUOLHU:KHWKHU LWGRHV VR VXFFHVVIXOO\VWUDWHJLFDOO\RUXQZLOOLQJO\DVGLVFXVVHGLQWKHRWKHU-DSDQFKDSWHUV WRWKLVYROXPHWKHIDFWLVWKDW-DSDQDWWKHEHJLQQLQJRIWKHWZHQW\ÀUVWFHQWXU\LV IDUEHWWHUSRLVHGHFRQRPLFDOO\WRGHDOZLWKWKHQHZZRUOGSDUDGLJPRIOLEHUDOL]DWLRQWKDQLWZDVLQWKHVRUV1RUVKRXOGRQHGLVFRXQWWKHLPSRUWDQFH RI-DSDQHVHHFRQRPLFVXFFHVVIRUWKHUHVWRI$VLDPDQ\RIZKRVHJRYHUQPHQWV H[SOLFLWO\ VRXJKW WR HPXODWH -DSDQHVH GHYHORSPHQWDO SDWWHUQV 'XULQJ WKH ODVW TXDUWHUFHQWXU\DPRQJDOO WKHZRUOG·VPDMRUUHJLRQVRQO\$VLDKDVDFKLHYHGD VXEVWDQWLDO LQFUHDVH LQ WKH VKDUHRIZRUOG*13DQGZRUOG LQFRPHVHQMR\HGE\ LWVSRSXODWLRQV&XUUHQWGRZQWXUQVVKRXOGQRWREVFXUHWKHORQJHUWHUPHFRQRPLF UHVWUXFWXULQJV WKDW WRRNSODFH DFURVV$VLD GXULQJ WKH V DQGV DQG WKH SHUPDQHQWJDLQVWKHVHJHQHUDWHGQRUWKHHQKDQFHGDELOLWLHVRIHFRQRPLHVDFURVV WKH UHVWRI$VLD WR DGMXVW WRQHZZRUOGFRQGLWLRQV IURPSRVLWLRQVRI HFRQRPLF VWUHQJWK

6HFRQGGHVSLWH WKH UHFHQW WULXPSKDOLVPRIQHROLEHUDO HFRQRPLVWV WKH HFRQRPLFSUREOHPVIDFHGE\-DSDQDQGRWKHUSDUWVRI1RUWKHDVW$VLDSURYLGHOLWWOH FRQYLQFLQJHYLGHQFHRIDQ\LQKHUHQWÁDZVLQWKHLUDSSURDFKHVWRJURZWK-DSDQHVH WURXEOHVGRQRWDVLVWRRRIWHQFRQWHQGHGSURYLGHLQFRQWURYHUWLEOHHYLGHQFHWKDW FHUWDLQDOOHJHGO\XQGHUO\LQJSULQFLSOHVRI´PDUNHWHFRQRPLFVµ WUDQVFHQGJHRJUDSK\DQGDGPLWRIQRORQJODVWLQJH[FHSWLRQV1HLWKHU-DSDQQRU$VLDJHQHUDOO\ VKRXOG VHUYHDVDZDUQLQJ WRRWKHUVDERXW WKHGDQJHUVRI WU\LQJ WRÁRXW$GDP 6PLWK DQG RI LQWHUIHULQJZLWK ´IUHHPDUNHWVµ LQ FDSLWDO ÁRZV DQG WKH SURGXFWLRQ RI JRRGV ,I -DSDQ OLNH RWKHU FRXQWULHV RI WKHZRUOGPXVW QRZ DGMXVW WR WKHSUHYDLOLQJHFRQRPLFSDUDGLJPRIOLEHUDOL]DWLRQLWLVKLJKO\XQOLNHO\WRDGMXVW WKURXJKEOLQGHPXODWLRQ5DWKHUDJDLQDVWKHLQGLYLGXDOFKDSWHUVE\3HNNDQHQ 6ROLV.DWDGDDQG$QFKRUGRJX\VKRZWKHDGDSWDWLRQRI-DSDQ·VIXWXUHHFRQRPLF PL[LVDOPRVWFHUWDLQWRLQYROYHUHVLGXHVRI´GHYHORSPHQWDOLVPµRQWRZKLFKZLOO FRPHQHZJUDIWLQJVRIQHROLEHUDOLVP -XVW DVHDUOLHUGHFDGHVRI -DSDQHVH VXFFHVVZHUHQRWHDVLO\H[SODLQHGWKURXJKQHRFODVVLFDOHFRQRPLFVVRWRRWKHUHFHQW SUREOHPVE\WKHPVHOYHVVD\OLWWOHDERXWWKHUHODWLYHVWUHQJWKVRUZHDNQHVVHVRIWKH GLVFLSOLQHRIHFRQRPLFVRURIWKHLQHYLWDELOLW\RIZRUOGZLGHOLEHUDOL]DWLRQ5DWKHU

WKHPL[RI-DSDQ·VVXFFHVVHVSOXVGRZQWXUQVVKHGVYDOXDEOHOLJKWQRWRQO\RQWKH OLPLWDWLRQVHQGHPLFWRHDUO\WKHRUL]LQJDERXWWKHVRXUFHVRI-DSDQHVHJURZWKEXW RQWKDWPRGHO·V LQKHUHQWSURPLVHVDVZHOO$QGPDQ\RI WKHSOXVHVHQGHPLFLQ GHYHORSPHQWDOLVPDUHOLNHO\WRVXUYLYHDQ\RQVODXJKWRIOLEHUDOL]DWLRQ

7KLVFKDSWHULVRUJDQL]HGLQWRWKUHHPDLQVHFWLRQV7KHÀUVWUHFDSLWXODWHVZKDW , VHHDV WKHPDMRUFRPSRQHQWVRI WKHYDULRXV -DSDQHVHGHYHORSPHQWDOPRGHOV 7KHVHFRQGWKHQH[DPLQHVKRZVHYHUDORIWKHVHFRPSRQHQWVFRQWULEXWHGWRVXEVHTXHQWHFRQRPLFSUREOHPVIDFHGE\-DSDQDVZHOODVPDQ\RIWKHRWKHU(DVW$VLDQ QDWLRQDOHFRQRPLHV)LQDOO\DWKLUGVHFWLRQVXJJHVWVOHVVRQVWKDWPLJKWEHFXOOHG IURP WKH FRPELQDWLRQ RI VXFFHVVHV DQG OLPLWDWLRQV RI WKHPRGHOV RI -DSDQHVH GHYHORSPHQWHVSHFLDOO\DVFDOOVIRUOLEHUDOL]DWLRQFRQWLQXHXQDEDWHGZRUOGZLGH

Key components of Japanese development models 2QHRIWKHJUHDWSX]]OHVRIFRPSDUDWLYHSROLWLFDOHFRQRP\FRQFHUQVKRZQDWLRQ VWDWHV FDQ LPSURYH ERWK WKHLU UHODWLYH DQG WKHLU DEVROXWH ZHOOEHLQJ +RZ GR QDWLRQDOHFRQRPLHVWKDWDUHUHODWLYHO\XQGHUGHYHORSHGDWRQHSRLQWLQWLPH´FDWFK XSµWRWKRVHWKDWDUHPRUHDGYDQFHG")RUWKHPRVWSDUWWKH\KDYHQRW6LQFHWKH VIRUH[DPSOHWKHUHODWLYHVKDUHRIZRUOG*13KHOGE\WKHULFKHVWSHUFHQW RIWKHZRUOG·VSRSXODWLRQKDVLQFUHDVHGGUDPDWLFDOO\ZKLOHWKDWDFFRXQWHGIRUE\ WKHERWWRPSHUFHQWKDVVKUXQN7KHUDWLRZDVLQLQDQG PRUHWKDQE\WKHWXUQRIWKHFHQWXU\)ULHGHQDQG/DNH

$KRVWRIUDWKHUSHVVLPLVWLFVFKRODUVKLSKDVGHYHORSHGDURXQGZRUOGV\VWHPV WKHRU\DQGGHSHQGHQF\WKHRU\DUJXLQJWRYDU\LQJGHJUHHVWKDWWKHUHODWLYHLQWHUQDWLRQDOSHFNLQJRUGHUUHPDLQVHVVHQWLDOO\À[HGRYHUWLPH<HW$VLDFDUULHGRXWD VWULNLQJFROOHFWLYHEUHDNRXWIURPWKDWSDWWHUQ,Q-DSDQDQGWKHUHVWRI$VLD DFFRXQWHGIRUDERXWSHUFHQWRIZRUOG*13FRPSDUHGZLWKSHUFHQWIRU1RUWK $PHULFD%\ WKH HDUO\ V WKH\ DFFRXQWHG IRU URXJKO\ SHUFHQW RIZRUOG *13DERXWWKHVDPHVKDUHDV1RUWK$PHULFDDQG:HVWHUQ(XURSH7KHHDUO\OHDGHUVRI$VLD·VGHYHORSPHQWZHUH-DSDQ6RXWK.RUHDDQG7DLZDQIROORZHGODWHU E\VHYHUDOVXFFHVVHVLQ6RXWKHDVW$VLDDQGHYHQWXDOO\*UHDWHU&KLQD&ROOHFWLYHO\ $VLDQGHYHORSPHQWPDNHVLWFOHDUWKDWRQHQHHGQRWDFFHSWDVSHUPDQHQWDQ\UHODWLYHGLYLVLRQRIHFRQRPLFSRZHU1RWRQO\LVFDWFKXSSRVVLEOHLQWKHDEVWUDFWLW KDVEHHQGHPRQVWUDWHGDFURVV$VLDDVDKLVWRULFDOUHDOLW\

2YHUWKHSRVWZDUSHULRGWKHQDWLRQDOHFRQRPLHVRI-DSDQDQGWKHQODWHU6RXWK .RUHD DQG7DLZDQ XVLQJ VLPLODUPRGHOV RI GHYHORSPHQWPRYHG VXEVWDQWLDOO\ DKHDGRIWKRVHLQFRXQWULHVWKDWLQLWLDOO\HQMR\HGKLJKHU*13VDQGEHWWHUVWDQGDUGV RIOLYLQJ-DSDQ·V*13JUHZDWUDWHVGRXEOHWKRVHRIWKHRWKHU2(&'FRXQWULHV IURPWKHHDUO\VXQWLOWKHEHJLQQLQJRIWKHV,WVVKDUHRIZRUOGH[SRUWV TXDGUXSOHGDQGLWZHQWIURPWKHWZHQWLHWKWRWKHVHFRQGODUJHVWHFRQRP\LQWKH ZRUOG)RUIXOO\IRXUGHFDGHV7DLZDQ·V*13JUHZDWDQDYHUDJHRISHUFHQWSHU \HDUH[SRUWVH[SDQGHGDWSHUFHQWSHU\HDUDQGWKHLQGXVWULDOVKDUHRISURGXFWLRQLQFUHDVHGIURPSHUFHQWWRSHUFHQW7-&KHQJ.RUHD·VJURZWK ZDVVORZHUWRVWDUWEXWRYHUWKHDSSUR[LPDWHO\WKLUW\\HDUSHULRG²LWURVH E\SHUFHQWSHU\HDU%\DVQRWHG LW UDQNHGQLQWK LQZRUOG*13DQG

KDGEHHQZHOFRPHGLQWRWKH2(&'DVDPHPEHURIWKHLQGXVWULDOL]HGEORF%RWK FRXQWULHVURDUHGSDVWRWKHUVWKDWZHUHRQFHWKHLUHFRQRPLFSHHUV7REHVXUHDOO WKUHHFRXQWULHVSURYLGHGH[FHOOHQWH[DPSOHVWKDWDQ\GLYLVLRQRIZRUOGHFRQRPLF SRZHULVPRUHYDULDEOHWKDQFRQVWDQW$FRXQWU\´ GRZQµDWRQHSRLQWLQWLPHFRXOG ORRNWRWKHFRXQWULHVRI1RUWKHDVW$VLDGXULQJWKHSRVWZDUSHULRGDQGVHHSURRI WKDWPRYLQJ´XSµZDVQRWLPSRVVLEOH

9LUWXDOO\DOOVWXGLHVRI-DSDQDJUHHWKDWHFRQRPLFGHYHORSPHQWLVSRVVLEOHERWK DEVROXWHO\DQGUHODWLYHO\<HWQRWDOODJUHHRQWKHFDXVHVRUWKHUHSOLFDELOLW\RIWKH -DSDQHVHPRGHO,QGLYLGXDOVWXGLHVGLIIHURQWKHSDUWLFXODUFRQWULEXWLRQRI$VLDQ FXOWXUHRUYDOXHVIRUH[DPSOHWRPDFURHFRQRPLFJURZWKDQGLQGXVWULDOWUDQVIRUPDWLRQ<HWUHJDUGOHVVRIVSHFLÀFVVWXGLHVRI-DSDQHVHDQG$VLDQGHYHORSPHQW ORQJSURYLGHGDEURDGO\RSWLPLVWLFSLFWXUHIRUFRXQWULHVIDFLQJWKHDUGXRXVXSKLOO WUHNRIHFRQRPLFGHYHORSPHQW7KH-DSDQHVHGHYHORSPHQWDOH[SHULHQFHDSSHDUHG WRRIIHUDZHOFRPHH[DPSOHRIVXFFHVVIXOFOLPEV

$VHFRQGLPSRUWDQWFRPPRQDOLW\²WKRXJKQRWDOZD\VDVYLJRURXVO\VWUHVVHG ²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ÀJXUHVDURXQG 7DLZDQ·VZDVDOZD\VORZDQGIDOOLQJZLWKDÀJXUHRIMXVWEHORZ6RXWK .RUHD·VKDVJHQHUDOO\EHHQ LQ WKH UDQJHRI² VLQFH WKHPLGV In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

,QWKLVUHJDUGWRRWKHFRPSDUDWLYHSLFWXUHIRUVWXGHQWVRIGHYHORSPHQWLVIDU PRUHVDQJXLQHWKDQWKDWSURSRVHGE\ZRUOGV\VWHPVWKHRULVWVRUGHSHQGHQFLVWDV (DVW$VLDDSSHDUHGWRRIIHUDPL[WXUHRIKLJKJURZWKZLWKVRFLDOHTXDOLW\ WKXV XQGHUFXWWLQJDQ\FODLPVWKDWWKHWZRZHUHLQFRPSDWLEOH(DVW$VLDGHYHORSPHQWDOLVWV DUJXHG GHPRQVWUDWHG TXLWH WR WKH FRQWUDU\ WKDW WKH WZR QRW RQO\ZHUH PXWXDOO\DFKLHYDEOHEXWPLJKWLQGHHGEHPXWXDOO\LQWHUGHSHQGHQW

7ZR PDMRU PRGHOV KDYH GRPLQDWHG GLVFXVVLRQV RI -DSDQHVH GHYHORSPHQW 7KHVHUHSUHVHQWWKHFODVVLFGLFKRWRP\EHWZHHQ´VWDWHVµDQG´PDUNHWVµ7KHÀUVW

LVKLJKO\SROLWLFDOWKHVHFRQGLVHFRQRPLF7KH\VKDUHWKHYLHZWKDWQDWLRQVFDQ DFKLHYH VLJQLÀFDQW LPSURYHPHQWV LQ WKHLU HFRQRPLHVZLWKRXW WKHZLGHGLVSDULWLHVEHWZHHQULFKDQGSRRUIRXQGLQVRPDQ\GHYHORSLQJFRXQWULHV'HVSLWHVXFK DJUHHPHQWKRZHYHUWKHWZRPRGHOVLGHQWLI\TXLWHGLIIHUHQWFDXVHVIRU-DSDQHVH DGYDQFHVUHÁHFWLQJWKHYHU\GLIIHUHQWDSSURDFKHVWRSROLWLFDOHFRQRP\WDNHQE\ SROLWLFDOVFLHQWLVWVDQGHFRQRPLVWV

7KHÀUVWPRGHOFRQFHQWUDWHVSULPDULO\RQWKHVWHHULQJUROHSOD\HGE\DKLJKO\ PHULWRFUDWLF QDWLRQDO EXUHDXFUDF\ %\ IDU WKH EHVW NQRZQ RI WKHVH LV WKDW RI &KDOPHUV-RKQVRQDUWLFXODWHGÀUVWLQKLVYROXPHMITI and the Japanese Miracle-RKQVRQ·VDUJXPHQWFHQWHUVRQWKHFRQFHSWRIWKH´GHYHORSPHQWDOVWDWHµ DQGKLVQRWLRQLVUHÁ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ÀFLQGXVWULDO SURMHFWVXVLQJVSHFLÀFFULWHULDIRUVHOHFWLRQUHVLVWSROLWLFDOSUHVVXUHVIURPSRSXODU IRUFHVVXFKDVFRQVXPHUVDQGRUJDQL]HGODERULQVXODWHWKHLUGRPHVWLFHFRQRPLHV IURPH[WHQVLYH IRUHLJQ FDSLWDO SHQHWUDWLRQ DQGPRVW HVSHFLDOO\ FDUU\ WKURXJK DVXVWDLQHGSURMHFWRIHYHULPSURYLQJSURGXFWLYLW\ WHFKQRORJLFDOVRSKLVWLFDWLRQ DQGLQFUHDVLQJZRUOGPDUNHWVKDUHV,QLWLDOO\DQGPRVWIRUFHIXOO\DUWLFXODWHGZLWK VSHFLÀFUHIHUHQFHWR-DSDQWKHGHYHORSPHQWDOVWDWHPRGHOKDVDOVREHHQZLGHO\ DSSOLHGWR6RXWK.RUHDDQG7DLZDQ

7KLV VWDWHFHQWULF SROLWLFDOPRGHO FRQFHQWUDWHV DWWHQWLRQ RQ VHYHUDO YDOXDEOH HOHPHQWVZKLFKDJDLQQHHGWREHFHQWHUVWDJHLQGHEDWHVRYHUODWHOLEHUDOL]DWLRQ )LUVWDXWKRUVVWUHVVLQJRQHRUDQRWKHUYDULDQWRIWKH´GHYHORSPHQWDOVWDWHµW\SLFDOO\JLYHSULPDF\WRWKHLPSRUWDQFHRISROLWLFDOFKRLFHLQWKHVHWWLQJRIHFRQRPLF SULRULWLHVDQG LQFUHDWLQJHFRQRPLF LQVWLWXWLRQV0DUNHWV VXFKDXWKRUVDVVXPH RSHUDWHQHLWKHULQSROLWLFDOYDFXXPVQRUDV´LQYLVLEOHKDQGVµ5DWKHUWKH\IXQFWLRQZLWKLQVSHFLÀFERXQGDULHVVHWIRUWKHPE\WKHSROLWLFDOO\SRZHUIXO6WDWHRIÀFLDOVLQSDUWLFXODUVHQLRUEXUHDXFUDWVDUHVHHQWREHFULWLFDOWRWKHVWUXFWXULQJRI SROLWLFDOFKRLFHVDQGSXEOLFSROLFLHVFRQGXFLYHWRJURZWK$VVXFKWKHVHPRGHOV VWDUWZLWKDSUHVXPSWLRQWKDWWKHNH\WRXQGHUVWDQGLQJHFRQRPLFGHYHORSPHQWLV DQDWLRQDOJRYHUQPHQWH[HUFLVLQJVWDWHSRZHUUDWKHUWKDQDQXQVWUXFWXUHGPDVV RIHFRQRPLFPD[LPL]HUV,QGHHGLQRQHRIWKHPRVWH[SOLFLWO\DQWLPDUNHWDSKRULVPV WR HPHUJH IURP WKHGHYHORSPHQWDO VWDWH OLWHUDWXUH$OLFH$PVGHQ DUJXHVWKDWWKH6RXWK.RUHDQHFRQRP\GLGVRZHOOSUHFLVHO\EHFDXVHJRYHUQPHQW RIÀFLDOV´GHOLEHUDWHO\JRWSULFHVZURQJµ

,QDGGLWLRQVWDWHFHQWULFPRGHOVIRFXVKHDYLO\RQWKHLPSRUWDQFHRIJRYHUQPHQWGLUHFWHG LQGXVWULDO SROLFLHV WKDW WUDQVIHU UHVRXUFHV WR LQFUHDVLQJO\ KLJKHU YDOXHDGGHGVHFWRUVRIWKHHFRQRP\7KXVLQYHVWPHQWVDQGSURGXFWLRQPRYHIURP ELF\FOHVWRPRWRUF\FOHVWRFDUVDQGIURPUDGLRVWRWHOHYLVLRQVWRFRPSXWHUV(YHQ PRUHLPSRUWDQWO\VXFKLQGXVWULDOSROLFLHVDUHH[SOLFLWO\OLQNHGWRWKHSURGXFWLRQ

RILQWHUQDWLRQDOO\FRPSHWLWLYHJRRGVPDNLQJIRUDGHYHORSPHQWVWUDWHJ\EDVHGRQ H[SRUWOHGJURZWKUDWKHUWKDQLPSRUWVXEVWLWXWLRQ

$ÀQDOHOHPHQWWKDWGHPDQGVDWWHQWLRQLVRSHQQHVVRUFORVHGQHVVWRWKHRXWVLGH ZRUOGZKLFKLVFULWLFDOIRUGHEDWHVRYHUOLEHUDOL]DWLRQ:KLOHLQGLYLGXDOVWXGLHV GLIIHURQVSHFLÀFVPRVWGHYHORSPHQWDOVWDWHUHVHDUFKXQGHUVFRUHVWKHH[WHQWWR ZKLFKGHYHORSPHQWRSHUDWHVDVD]HURVXPXVDJDLQVWWKHPQDWLRQDOSURMHFWRI ´FDWFKXSµ*RYHUQPHQWVDFWWRHQKDQFHWKHLULQWHUSUHWDWLRQRIWKH´ QDWLRQDOLQWHUHVWµGHÀQHGDOPRVWLQYDULDEO\DVUDSLGJURZWKLQWKHLQWHUHVWVRIGRPHVWLFUDWKHU WKDQIRUHLJQRZQHUVDQGSURGXFHUV*RYHUQPHQWVDQGGRPHVWLFEXVLQHVVHVDUH SUHVXPDEO\ FORVHO\ HQPHVKHGZLWKRQH DQRWKHU GXULQJ WKHLU TXHVW IRU QDWLRQDO HFRQRPLFLPSURYHPHQW7KHFRPPRQLQWHUHVWVRIWKHVHWZRDUHSUHVXPHGWRRXWZHLJKDQ\VSHFLÀFGLVDJUHHPHQWVWKH\PLJKWKDYH0RVWW\SLFDOO\WKHGRPHVWLF HFRQRP\LVNHSWLQVXODWHGIURPSHQHWUDWLRQE\IRUHLJQFDSLWDOSURGXFWVDQGPDQDJHUV5HODWHGO\ZKLOHQDWLRQDOFRQVXPHUVPD\QRWEHLJQRUHGLQWKHSXUVXLWRI QDWLRQDOHFRQRPLFLPSURYHPHQWWKHLUVSHFLÀFLQWHUHVWVDVFRQVXPHUVDUHXQTXHVWLRQDEO\VHFRQGDU\WRWKRVHRISURGXFHUV+HQFHLIFKHDSHUSULFHVIRUFRQVXPHUV UHTXLUHWKHRSHQLQJRIWKHQDWLRQDOHFRQRP\WRIRUHLJQLPSRUWVRUSURGXFWVWKHQ WUXO\ IUHH WUDGH DQG LQYHVWPHQWPXVW EH NHSW VHFRQGDU\ WRPHUFDQWLOLVW SURWHFWLRQLVP,QWKLVUHJDUGGHYHORSPHQWDOVWDWLVWVDUHIUHTXHQWO\DVVRFLDWHGZLWKJOLE FOLFKpVDERXW´-DSDQ,QFµRU´.RUHD,QFµ

,QDOORIWKHVHZD\VWKHGHYHORSPHQWDOVWDWHPRGHOFRQFHQWUDWHVLWVH[SODQDWRU\SRZHURQKRZJRYHUQPHQWVVKDSHHFRQRPLFVLQZD\VGHVLJQHGWRHQKDQFH WKHORQJWHUPQDWLRQDOZHOOEHLQJRINH\QDWLRQDOFRUSRUDWLRQVDQGLQGXVWULHVDW WKHUHODWLYHH[SHQVHRIRWKHUQDWLRQVWDWHV,QWKHVHZD\VWKHGHYHORSPHQWDOVWDWH LVH[SOLFLWO\DQWLWKHWLFDOWROLEHUDOL]DWLRQDQGJLYHQLWVFHQWUDOLW\LQ-DSDQFDQQRW EHLJQRUHGLQGHEDWHVRYHUOLEHUDOL]DWLRQ1RWVXUSULVLQJO\HFRQRPLFPRGHOVOD\ VWUHVVHVHOVHZKHUH

$ OLPLWHG QXPEHU RI HFRQRPLVWV VWXG\LQJ -DSDQHVH GHYHORSPHQW KDYH SXW IRUZDUGFODLPVWKDWQRWKLQJDERXWLWVGHYHORSPHQWQHHGEHH[DPLQHGEH\RQGWKH VWDQGDUGSULQFLSOHVRIHFRQRPLFVHJ6D[RQKRXVH0RUHIUHTXHQWKRZHYHU LV WKHDUJXPHQWWKDWSDUWLFXODUJRYHUQPHQWSROLFLHVFRQWULEXWHGDQLPSRUWDQWEXWODUJHO\HQYLURQPHQWDOFOLPDWHIRUWKHWUXHHQJLQHVRIJURZWKQDPHO\WKH SULYDWHVHFWRU2QHRIWKHHDUOLHVWHFRQRPLFDSSURDFKHVWRXQGHUVWDQGLQJ-DSDQ·V UDSLGJURZWKZDVWKHVWXG\HGLWHGE\3DWULFNDQG5RVRYVN\HQWLWOHG Asia’s New Giant: How the Japanese Economy Works3DWULFNDQG5RVRYVN\HVS $V D VXPPDU\ RI WKHLU SRVLWLRQ WKH\ VWDWHG ´2XU YLHZ LV WKDWZKLOH WKH >-DSDQHVH@JRYHUQPHQWKDVFHUWDLQO\SURYLGHGDIDYRUDEOHHQYLURQPHQWWKHPDLQ LPSHWXVWRJURZWKKDVEHHQSULYDWH²EXVLQHVVLQYHVWPHQWGHPDQGSULYDWHVDYLQJ DQGLQGXVWULRXVDQGVNLOOHGODERURSHUDWLQJLQDPDUNHWRULHQWHGHQYLURQPHQWRI UHODWLYHSULFHVµ$QHYHQPRUHUHFHQWPDUNHWIRFXVHGVWXG\ZDVWKHVWXG\RI WKH:RUOG%DQNHQWLWOHGThe East Asian Miracle:RUOG%DQNHVS² ²7KLVERRNSURPSWHGE\WKH-DSDQHVHJRYHUQPHQWDVDZD\WRHQFRXUDJH JUHDWHUXQGHUVWDQGLQJDPRQJHFRQRPLVWVRIWKHZD\VLQZKLFK-DSDQDQGRWKHU FRXQWULHVLQ$VLDKDGGHYHORSHGDFWXDOO\WRRNDQDSSURDFKGUDPDWLFDOO\GLIIHUHQW IURPWKDWRIWKHGHYHORSPHQWDOVWDWLVWV:KLOHVHQVLWLYHWRWKHSRVVLEOHFRQWULEX-

WLRQVRIJRYHUQPHQWSROLFLHVWRJURZWKLWFRQFOXGHGWKDW´,QODUJHPHDVXUHWKH +3$(V>KLJKSHUIRUPLQJ$VLDQHFRQRPLHV@DFKLHYHGKLJKJURZWKE\JHWWLQJWKH EDVLFVULJKW3ULYDWHGRPHVWLFLQYHVWPHQWDQGUDSLGO\JURZLQJKXPDQFDSLWDOZHUH WKHSULQFLSDOHQJLQHVRIJURZWKµ

,QWKLVFRQWH[WPRVWHFRQRPLFPRGHOVDUHTXLFNWRDFNQRZOHGJHWKDWGLUHFWHG FUHGLW PD\ KDYH FRQWULEXWHG WR -DSDQ·V DQG$VLD·V LPSURYHPHQWV EXW ODUJHO\ LQVRIDUDVÀ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´OHWPDUNHWV ZRUNµ

7KHWZRFDPSV·FODLPVPLUURUWKHSHUHQQLDOGLVSXWHVEHWZHHQWKHWZRGLVFLSOLQHVIURPZKLFKWKH\HPHUJH:KHQDQGKRZGRSROLWLFDOVWUXFWXUHVDQGSROLFLHVVKDSHHFRQRPLFFKRLFHV":KHQDQGKRZDUHWKH\LQVWHDGWKHRXWJURZWKRI XQGHUO\LQJ HFRQRPLF ORJLF"7KLV TXHVWLRQ LV DV UHOHYDQW WR WKHSDVW RI -DSDQ·V HFRQRPLFPRGHODVLWLVWRWKHIXWXUHRI-DSDQ·VOLEHUDOL]DWLRQHIIRUWV+LQGVLJKW VXJJHVWVWKDWHDFKVHWRIFODLPVFRQWULEXWHGVLJQLÀFDQWEXWSDUWLDOLQVLJKWVLQWR ZK\WKHHFRQRP\RI-DSDQJUHZDVTXLFNO\DQGZLWKWKHSDUWLFXODUFKDUDFWHUWKDW LWGLG&OHDUO\-DSDQ·VSROLWLFDO LQVWLWXWLRQVDQG LWVSUHYDLOLQJSROLF\SURÀOHVHW FRQGLWLRQVXQGHUZKLFKLWZDVSRVVLEOHIRU-DSDQHVHRZQHGFRPSDQLHVWRGHYHORS DQGWKULYHDWKRPH7KH\DOVRHQFRXUDJHGUDSLGLPSURYHPHQWVLQSURGXFWLYLW\DQG LQWKHWHFKQRORJLFDOVRSKLVWLFDWLRQRISURGXFWV$QGZLWKGRPHVWLFPDUNHWVZHOO SURWHFWHGDQGRIWHQZLWKGRPHVWLFFRQVXPHUVXQGHUJLUGLQJSURÀWPDUJLQVDQXPEHURI-DSDQ·VPRVWLQWHUQDWLRQDOO\RULHQWHGFRPSDQLHVZHUHDEOHWRH[SRUWWKHLU LQFUHDVLQJO\FRPSHWLWLYHSURGXFWVWRJOREDOPDUNHWV,WLVLPSRVVLEOHWRLPDJLQH WKDWWKHVHFRPSDQLHVDWWKHPLFUROHYHODQGWKH-DSDQHVHHFRQRP\DWWKHPDFUR OHYHOFRXOGKDYHDFKLHYHGWKHVXFFHVVHVWKH\GLGZLWKRXWWKHSROLWLFDOVWUXFWXUHVDQG SROLFLHVWKDWSUHYDLOHGLQ-DSDQIURPWKHHDUO\VXQWLOWKHV$WWKHVDPH WLPHRQO\E\H[SORLWLQJJOREDOPDUNHWRSSRUWXQLWLHVWKURXJKSULFHDQGSURGXFW TXDOLW\FRXOGVRPDQ\RI-DSDQ·VJOREDOFRPSDQLHVJDLQPDUNHWVKDUHVDVUDSLGO\ DVWKH\GLG1RWDWDOOLQFLGHQWDOO\KRZHYHUE\JXDUDQWHHLQJGRPHVWLFSURWHFWLRQ WRSRWHQWLDOO\GHFOLQLQJVHFWRUVWKHGHYHORSPHQWDOVWDWHFUHDWHGDFRQVWLWXHQF\IRU HFRQRPLFGHYHORSPHQWDQGUHGXFHGWKHSRWHQWLDOSROLWLFDORSSRVLWLRQIURPVORZ PRYLQJRUGRPHVWLFDOO\EDVHGÀUPVDQGVHFWRUVWRWKHEURDGHUDJHQGDRIUDSLG LQGXVWULDOL]DWLRQ:LWKDVWURQJVWDWHFRPPLWPHQWWRJLYLQJWKHPVHPLJXDUDQWHHG VOLFHVRIWKHGRPHVWLFPDUNHWVXFKFRQVWLWXHQFLHVKDGOLWWOHLQFHQWLYHWRUHVLVWWKH JOREDOPDUNHWRULHQWDWLRQVRIRWKHUJRYHUQPHQWSROLFLHV

<HWPLVVLQJIURPPRVW WUHDWPHQWVRIERWKPRGHOV\HWHTXDOO\ LPSRUWDQW WR XQGHUVWDQGLQJ-DSDQ·VGHYHORSPHQWLVWKHIDFWWKDWPDQ\RIWKHSROLFLHVSXUVXHG LQ-DSDQZHUHVWURQJO\´DQWLPDUNHWµDWKRPHLQVXODWLQJQXPHURXVVHFWRUVIURP LQWHUQDWLRQDO FRPSHWLWLRQ DQG SURWHFWLQJ DQ LQFUHDVLQJ QXPEHU RI JOREDO QRQ

FRPSHWLWLYH ÀUPV DW KLJK FRVWV WR GRPHVWLF FRQVXPHUV7KHPRGHO WKDW OHG WR VXFFHVVDOVREXLOWLQPDQ\LPSRUWDQWEXWOHVVWKDQIXOO\H[DPLQHGHOHPHQWVWKDW VXEVHTXHQWO\OHGWRLWVHYHQWXDOVWDJQDWLRQDQGWKDWFRQWLQXHWREHLPSRUWDQWHOHPHQWVLQFRQFHUQVRYHU-DSDQ·VODWHOLEHUDOL]DWLRQ)XUWKHUPRUHSHULRGVRIUDSLG JURZWK REVFXUHG VRPH RI WKHVHPRUH YLWDO FRPSRQHQWV RI SDVW HFRQRPLF VXFFHVVHV3DUWLFXODUO\DIWHUUHFHQWHFRQRPLFGLIÀFXOWLHV LQ-DSDQDQGPXFKRI WKH UHVWRI$VLD LW LV WKXVFULWLFDO WRH[SORUHWKHOLPLWDWLRQVWKDWZHUHEXLOW LQWRWKH -DSDQHVH GHYHORSPHQWPRGHOV DQG WR UHH[DPLQH WKHVHPRGHOV IURP WKHPRUH FRQWHPSRUDU\YDQWDJHSRLQWRIOLEHUDOL]DWLRQ

Limitations on the Japanese economic development model $V WKH EORRP IDGHG IURP WKH URVH RI -DSDQHVH HFRQRPLF JURZWK LW EHFDPH LQFUHDVLQJO\FOHDU WKDW WKHYDULRXVGHYHORSPHQWPRGHOVGLG OLWWOH WRSUHGLFW WKH VXEVHTXHQW-DSDQHVHÀ]]OH1HYHUWKHOHVVSRVWGHYHORSPHQWDOSUREOHPVLQ-DSDQ DQGDFURVV$VLDVKRXOGHQFRXUDJHXVQRWWRGLVFDUGWKHPRGHOVFRPSOHWHO\EXW UDWKHU WR VHDUFK IRU WKRVH RI WKHLU HOHPHQWV WKDW ZHUH XQGHUWKHRUL]HG DQG WR H[DPLQHKRZWKHVHLQWXUQFRQWULEXWHGWRODWHUHFRQRPLFSUREOHPV

%RWKRIWKHPRGHOVDGYDQFHGWRH[SODLQ-DSDQHVHGHYHORSPHQWLQP\YLHZ SDLG LQDGHTXDWH DWWHQWLRQ WR WZRYLWDO IDFWRUV7KURXJK WLPH·V UHDUYLHZPLUURU LWLVSRVVLEOHWRVHHKRZFHUWDLQHOHPHQWVUDUHO\HPSKDVL]HGZHUHLQIDFWFULWLFDO WR LWV GHYHORSPHQWGXULQJ WKHERRP\HDUV² DQG HTXDOO\ FHQWUDO WR VXEVHTXHQW VORZGRZQVDQGSUREOHPV

)LUVWWKHPRGHOVZHUHFRQVWUXFWHGSUHGRPLQDQWO\WRVWUHVVGRPHVWLFUDWKHUWKDQ LQWHUQDWLRQDOFRQGLWLRQV7RWKHH[WHQWWKDWWKH\GHYRWHGPXFKDWWHQWLRQWRLQWHUQDWLRQDOFRQGLWLRQVWKHSUHVXPSWLRQZDVWKDWWKHVHSURYLGHGDUHQDVZLWKLQZKLFK GRPHVWLFQDWLRQDOHFRQRPLHVFRPSHWHGZLWKRQHDQRWKHUIRUUHODWLYHLPSURYHPHQW LQQDWLRQDOZHOOEHLQJ$OWHUQDWLYHO\WKHLQWHUQDWLRQDOFRQWH[WZDVSUHVXPHGWREH LQKHUHQWO\EHQLJQRUHOVHZDVWDNHQWREHIDUOHVVUHOHYDQWWKDQGRPHVWLFDFWLRQV :LWKRXWTXHVWLRQLQWHUQDWLRQDOFRQGLWLRQVIRUWKHÀUVWIRUW\\HDUVRUVRDIWHUWKH HQGRI:RUOG:DU,,ZHUHODUJHO\FRQGXFLYHWR-DSDQHVHJURZWK+RZHYHUVXFK EHQHYROHQWFRQGLWLRQVZHUHIDUIURPLUUHOHYDQWWRWKHVXFFHVVHVDFKLHYHGGXULQJ WKRVH\HDUV$QGZKHQWKHVHFRQGLWLRQVFKDQJHGLQVHYHUDOFULWLFDOZD\VE\WKH PLGGOHRIWKHVWKHLULQÁXHQFHPRYHGIURPEHQLJQO\VXSSRUWLYHRIJURZWK WRPDOLJQO\LQWHUUXSWLYH7KHHPSKDVLVRQWKHLQWHUQDWLRQDODVWKHHGLWRUVKDYH VXJJHVWHGKDVQRZEHFRPHFULWLFDODV-DSDQIDFHVDQH[WHUQDOHQYLURQPHQWZLWK RYHUZKHOPLQJSUHVVXUHVIRUZKROHVDOHOLEHUDOL]DWLRQ

6HFRQG WKHPRGHOV SDUWLFXODUO\ DV WKH\ DSSOLHG WR -DSDQZHUH SUHSRQGHUDQWO\VWDWLF$KRVWRIGHPRJUDSKLFDOO\JHQHUDWHGDGYDQWDJHVZHUHSUHVXPHGWR EHRQJRLQJ UDWKHU WKDQ WHPSRUDU\)XUWKHUPRUH GRPHVWLFSRZHUEDODQFHV DQG VRFLRHFRQRPLFFRQGLWLRQVZHUHWDNHQODUJHO\DVDJLYHQDQGSUHVXPHGWREHSRVLWLYHFRQWULEXWRUVWRHFRQRPLFJURZWK$VDUHVXOWWKHPRGHOVIDLOHGDGHTXDWHO\ WRDGGUHVVLVVXHVRIFKDQJHÁH[LELOLW\DQGLQVWLWXWLRQDOVWLFNLQHVV1RUGLGWKH\ DGGUHVVWKHZD\VLQZKLFKGHPRJUDSKLFDQGHFRQRPLFFRQGLWLRQVHQGHPLFWRWKH PRGHOZHUHDOPRVWJXDUDQWHHGWRFKDQJHLQZD\VWKDWZRXOGUHYHUVHWKHLUHDUOLHU

FRQVHTXHQFHVEXWVHH(YDQV+DJJDUG)RUERWKUHDVRQVIDFWRUVWKDW FRQWULEXWHGWRUDSLG-DSDQHVHJURZWKDWHDUOLHU WLPHVZHUHRIWHQ WKHVRXUFHVRI SUREOHPVDQGGHWHULRUDWLRQDWVXEVHTXHQWVWDJHV

&RQVLGHUÀUVW WKH LQWHUQDWLRQDOFRQGLWLRQV)HZ LI DQ\RI WKHGHYHORSPHQWDO PRGHOV IRFXVHG RQ -DSDQJLYH H[SOLFLW DWWHQWLRQ WR WKH LQGLVSHQVDEOH FRQWULEXWLRQPDGHE\SRVLWLYHLQWHUQDWLRQDOFRQGLWLRQVWR-DSDQHVHDQG1RUWKHDVW$VLDQ HFRQRPLFGHYHORSPHQW7KLVLVKLJKO\LURQLFVLQFHRQHRIWKHIXQGDPHQWDOJRDOV VKDUHGE\ -DSDQ6RXWK.RUHD DQG7DLZDQZDV WKH LPSURYHPHQWRI WKHLU HFRQRPLFFRQGLWLRQVrelative to other states$VDFRQVHTXHQFHDOOWKUHHKDGWRDFW ZLWKVHQVLWLYLW\WRUHJLRQDODQGLQWHUQDWLRQDOSRZHUEDODQFHVDQGWKHRSSRUWXQLWLHVWKHVHSURYLGHG<HWVXFKH[WHUQDOFRQGLWLRQVDUHFRQVWDQWO\LQÁX[DWVRPH WLPHVRIIHULQJIDUJUHDWHURSSRUWXQLWLHVIRUPDUJLQDORULQGXVWULDOL]LQJFRXQWULHV WKDQDWRWKHUV(FRQRPLFRSWLRQVDUHKLJKO\FRQWLQJHQWRQWKHEURDGHUH[WHUQDO DUHQDVXFKDVWKHSUROLEHUDOL]DWLRQRQHWRGD\ZLWKLQZKLFKDQ\LQGXVWULDOL]LQJ QDWLRQ·VOHDGHUVPXVWRSHUDWH)RUDOOWKUHHFRXQWULHVGXULQJWKHKLJKSRLQWVRIWKHLU SRVWZDUGHYHORSPHQWEHQLJQLQWHUQDWLRQDOFRQGLWLRQVFRQWULEXWHGJUHDWO\WRWKHLU VXFFHVVHVMXVWDVWKHLQWHUQDWLRQDORQHVWRGD\FRQVWUDLQWKHLURSWLRQV

0RVWEDVLFDOO\-DSDQEXW.RUHDDQG7DLZDQDVZHOOZHUHLPSRUWDQWFRPSRQHQWVRIWKH86VWUDWHJLFQH[XV)RUPRVWRIWKHSRVWZDUSHULRGWKH8QLWHG6WDWHV JDYHSULPDF\WRPDLQWDLQLQJSRVLWLYHVHFXULW\DQGGHIHQVHUHODWLRQVZLWKDOOWKUHH DVDSDUWRI$PHULFD·VELSRODUFRQIURQWDWLRQZLWKWKH6RYLHW8QLRQDQGLWVDOOLHV 7KLVQHFHVVLWDWHGDYDULHW\RIDFWLRQV WRHQVXUH WKHFRQWLQXHGVWDWLRQLQJRI86 WURRSVLQ-DSDQDQG6RXWK.RUHDDFFHVVWRSRUWVDQGDLUIDFLOLWLHVDFURVVWKH$VLD 3DFLÀF FRRUGLQDWLRQRI VWUDWHJ\ZLWK WKHPLOLWDU\ IRUFHVRI DOO WKUHHFRXQWULHV DQGJXDUDQWHHVWKDWHDFKZRXOGUHPDLQDFORVH86DOO\DQGDYRLGHLWKHUEHFRPLQJ SROLWLFDOO\QHXWUDOLQWKH&ROG:DURUHYHQZRUVHIDOOLQJLQWRDOLJQPHQWZLWKWKH FDPSGRPLQDWHGE\WKHPDMRUFRPPXQLVWSRZHUV²&KLQDDQGWKH6RYLHW8QLRQ

'XULQJWKHÀ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

)RUHLJQDLGZDVDQHDUO\SDUWRI86HFRQRPLFDVVLVWDQFH WR DOO WKUHHFRXQWULHV7KXV6RXWK.RUHD UHFHLYHGVRPH86ELOOLRQ LQ$PHULFDQDVVLVWDQFH 7DLZDQ UHFHLYHG DERXW 86 ELOOLRQ 86 SHU FDSLWD LQ WKH 5HSXEOLF RI .RUHD86SHUFDSLWDLQ7DLZDQ&XPLQJV0RUHWKDQWZRWKLUGVRI -DSDQ·VLPSRUWVLQOZHUHFRYHUHGE\86DLG6XEVHTXHQWO\-DSDQ·VFRUSRUDWLRQVEHQHÀWHGWUHPHQGRXVO\IURPPLOLWDU\SURFXUHPHQWVGXULQJWKH.RUHDQDQG 9LHWQDP:DUVLQGHHGERWKZHUHXQGHQLDEOHFDWDO\VWVWR-DSDQ·VVXEVHTXHQWDQG XQLQWHUUXSWHGJURZWKHJ1DNDPXUD.RVDLDQG2JLQR,QDGGLWLRQ 86WURRSVZHUHXVHGLQWKHHDUO\SRVWZDU\HDUVLQERWK-DSDQDQG6RXWK.RUHDWR VXSSUHVVDQWLJRYHUQPHQWSURWHVWVDQGWRSURYLGHDUPHGVXSSRUWIRUSUR8QLWHG

6WDWHVJRYHUQPHQWV6HFUHWSD\PHQWVIURPWKH&HQWUDO,QWHOOLJHQFH$JHQF\&,$ DQGRWKHU86DJHQFLHVZHUHDOVROLEHUDOO\VSUHDGDPRQJ86VXSSRUWHUVDQGSUR 8QLWHG6WDWHVLQVWLWXWLRQVLQDOOWKUHHFRXQWULHV

7KHVWUDWHJLFVXVWHQDQFHJLYHQWRDOOWKUHHUHJLPHVE\WKH86PLOLWDU\ZDVRI JUHDWLPSRUWDQFHWRWKHLUFRQWLQXDWLRQDQGHFRQRPLFZHOOEHLQJ0LOLWDU\REMHFWLYHV LQVXUHG WKDW$PHULFDZRXOGEH WKH H[WHUQDO SDWURQ IRU UHJLPH VXFFHVV LQ 1RUWKHDVW$VLD$PHULFD·VVWUDWHJLFSROLFLHVRSHQHGXSVSDFHIRUWKHVHWKUHHFRXQWULHVWRSXUVXHWKHLURZQHFRQRPLFSROLFLHV-DSDQ·VRYHUDOOLQWHUQDWLRQDOPXVFOH DOORZHG LW VXEVWDQWLDO PHDVXUHV RI LQGHSHQGHQFH IURP WKH 8QLWHG 6WDWHV IURP HDUO\RQEXWDVODWHDVWKHHDUO\V6RXWK.RUHDDQG7DLZDQFRXOGSUREDEO\ QRWKDYHUHPDLQHGLQH[LVWHQFHZLWKRXWWKHLQWHUQDWLRQDOVXSSRUWSURYLGHGE\ERWK WKHPDUNHWVDQGWKHPLOLWDU\RIWKH8QLWHG6WDWHV

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

$VHFRQGVHWRILQWHUQDWLRQDOFRQGLWLRQVZDVDOVRLPSRUWDQWWKDWLVWKHUHODWLYHO\ FRPSOHPHQWDU\QDWXUHRIQDWLRQDOHFRQRPLHVDFURVV$VLD,QWKHÀUVWIHZGHFDGHV IROORZLQJ:RUOG:DU ,, -DSDQ EHQHÀWHG JUHDWO\ IURP WKH LPSRUW RI UHODWLYHO\ LQH[SHQVLYHUDZPDWHULDOVIURPHOVHZKHUHLQ$VLD$V6RXWK.RUHDDQG7DLZDQ DFFHOHUDWHGWKHLULQGXVWULDOSURMHFWVWKH\FRXOGRIWHQUHO\RQPRUHVRSKLVWLFDWHG -DSDQHVH WHFKQRORJLHV DQG EXVLQHVVPRGHOV$OO WKUHH HFRQRPLHV VXEVHTXHQWO\ EHQHÀWHGIURPWKHJURZLQJPDUNHWV IRU WKHLUH[SRUWHGJRRGVDFURVV WKHUHVWRI $VLD7KHUHJLRQ·VQDWLRQDOHFRQRPLHVGHPRQVWUDWHGDFRPSOHPHQWDU\PL[WXUHRI VWUHQJWKVDQGZHDNQHVVHVWKDWFDPHWREHPXWXDOO\EHQHÀFLDODFURVV$VLD

$WKLUGFRQGLWLRQZDVDOVRFULWLFDOWRHDUO\-DSDQHVHDQG1RUWKHDVW$VLDQVXFFHVV QDPHO\ WKH FRQGLWLRQV RI LQWHUQDWLRQDO ÀQDQFH )RUPRVW RI WKH SRVWZDU SHULRGVWDWHEXUHDXFUDFLHV LQDOO WKUHHFRXQWULHVEXIIHUHG WKHLUGRPHVWLFHFRQRPLHVIURPLQWHUQDWLRQDOÀQDQFLDODQGFDSLWDOPDUNHWV$VDUHVXOWHYHQDVODWHDV WKHPLGVDOO WKUHHFRXQWULHVZHUHDEOH WR UHWDLQKLJKGHJUHHVRIGRPHVWLF FRQWURORYHUPRQHWDU\SROLF\DQGH[FKDQJHUDWHV7KLVOHIWWKHPUHODWLYHO\IUHHRI WKHWKUHDWRIOHYHUDJHGEX\RXWVKRVWLOHWDNHRYHUVDQGWKHORVVRIQDWLRQDOFRQWURORYHUNH\LQGXVWULDOVHFWRUV0HUFDQWLOLVWSROLFLHVLQWUDGHZHUHDXJPHQWHGE\ GRPHVWLF LQVXODWLRQ IURP SRWHQWLDOO\ WKUHDWHQLQJ LQWHUQDWLRQDO FDSLWDO ÁRZV ,Q HIIHFWDOOWKUHHFRXOGIXQFWLRQSULPDULO\DVGRPHVWLFDOO\GULYHQHFRQRPLHVZLWK GRPHVWLFVDYHUVFXWRIIIURPDFFHVVWRLQWHUQDWLRQDOO\FRPSHWLWLYHUDWHVRIUHWXUQ DQGZLWKQDWLRQDOVDYLQJVUHFLUFXODWHGEDFNWRGRPHVWLFXVHUVRIFDSLWDODWEHORZ

PDUNHWUDWHV3URÀWVJHQHUDWHGE\QDWLRQDOO\RZQHGFRPSDQLHVUHPDLQHGODUJHO\ ZLWKLQQDWLRQDOPDUNHWV

,QDGGLWLRQWRWKHVKLIWWRDQLQWHUQDWLRQDOFRQWH[WIDUPRUHIDYRUDEOHWRPDUNHW RULHQWHG HFRQRPLFV DOO WKUHH RI WKHVH FRQGLWLRQV FKDQJHG VXEVWDQWLDOO\ E\ WKH PLGWRODWHVLQZD\VWKDWKDGSURIRXQGDIIHFWVRQFRQWLQXHGGHYHORSPHQWDO SRVVLELOLWLHVLQ1RUWKHDVW$VLD:KHQWKH8QLWHG6WDWHVHPHUJHGIURP:RUOG:DU ,,LWVGRPHVWLF*13ZDVURXJKO\VL[WLPHVODUJHUWKDQWKHZRUOG·VVHFRQGODUJHVWHFRQRP\%ULWDLQ0HDQZKLOH-DSDQ6RXWK.RUHDDQG7DLZDQZHUHDOOYHU\ PXFKZHDNHUWKDQWKH\ZHUHE\WKHV$VDFRQVHTXHQFHWKH8QLWHG6WDWHV FRXOGFKHDSO\DQGHDVLO\DIIRUGWREHHFRQRPLFDOO\JHQHURXVWRDOOWKUHHDWOLWWOH FRVWWRLWVRZQGRPHVWLFZHOOEHLQJ&HUWDLQLQGLYLGXDO86ÀUPVRUVHFWRUVGLG VXIIHU DV D FRQVHTXHQFHRI WKHJURZWK LQ H[SRUW FRPSHWLWLYHQHVV DPRQJ$VLDQ ÀUPV%XW86SROLF\PDNHUVZHUH W\SLFDOO\ WROHUDQWRIVXFKVHHPLQJO\QRUPDO PDUNHWVKLIWVLQWKHEURDGHULQWHUHVWRINHHSLQJFORVHVHFXULW\UHODWLRQVZLWK$VLD

)RU URXJKO\ D KXQGUHG \HDUV XQWLO WKH HDUO\ V WKH 8QLWHG 6WDWHV KDG HQMR\HG D IDYRUDEOH EDODQFH RI WUDGHZLWK WKH UHVW RI WKHZRUOG7KLV EDODQFH VZXQJ WR XQIDYRUDEOH ZLWK LQFUHDVLQJ VSHHG IURP WKH 1L[RQ DGPLQLVWUDWLRQ RQZDUG&RQWULEXWLQJPRVWKHDYLO\WRWKLVVKLIWZDVWKHLQFUHDVLQJLPSRUWSHQHWUDWLRQRIGRPHVWLF$PHULFDQPDUNHWVE\-DSDQHVHDQGODWHU.RUHDQDQG7DLZDQHVH SURGXFWV$VDUHVXOW86SROLF\PDNHUVFDPHXQGHUHYHULQWHQVLI\LQJSUHVVXUHWR ´GRVRPHWKLQJµWRSURWHFW$PHULFDQLQGXVWULHVDQGMREVDQGWRUHFWLI\WKHJURZLQJ WUDGHJDS7KHUHVXOWSDUWLFXODUO\ZLWK-DSDQZDVDYDULHW\RIVRFDOOHG´YROXQWDU\H[SRUWDJUHHPHQWVµVHFWRUVSHFLÀFWDUJHWVIRUPDUNHWRSHQLQJVDQGHIIRUWVWR UHPRYHVWUXFWXUDO LPSHGLPHQWV WR LQYHVWPHQWV6XEVHTXHQWO\ WKH8QLWHG6WDWHV VKLIWHGWRPRQHWDU\DJUHHPHQWVLQFOXGLQJWKH3OD]DDQG/RXYUH$FFRUGVRI DQG UHVSHFWLYHO\7KHVH FXUUHQF\ UHDOLJQPHQWV DPRQJ WKHPDMRU SRZHUV LQFOXGLQJ -DSDQ ZHUH GHVLJQHG WR UHFRQÀJXUH HDFK FRXQWU\·V LQFHQWLYHV IRU H[SRUWVDQGLPSRUWV0RUHUHFHQWO\WKH8QLWHG6WDWHVDSSOLHGDKRVWRISUHVVXUHV WRRSHQXSWKHGRPHVWLFPDUNHWVRIDOOWKUHHWR86LQYHVWPHQWDQGH[SRUWV

6XFKFKDQJHVLQ86EHKDYLRUPDGHLWLQFUHDVLQJO\SUREOHPDWLFIRUROGSDWWHUQV RI(DVW$VLDQLQVXODULW\WRFRQWLQXHUHTXLULQJVWDWHVWRDGDSWWRQHZUHDOLWLHV(YHU PRUHKROHVZHUHSXQFKHGLQ$VLD·VKRWKRXVHVH[SRVLQJGRPHVWLFPDQXIDFWXUHUV LQWKHFR]LO\LQVXODWHGKRPHPDUNHWVWRWKHFKLOOLQJZLQGVRIIRUHLJQFRPSHWLWLRQ 2ISDUWLFXODULPSRUWDQFHZDVWKHIDFWWKDWWKHFXUUHQF\UHDOLJQPHQWVRI3OD]DDQG /RXYUHDIIHFWHGQRWRQO\WKHYDOXHRIWKH-DSDQHVH\HQEXWDOVRWKURXJKULSSOH HIIHFWVWKHYDOXHVRIERWKWKHZRQDQGWKHQHZ7DLZDQGROODU

$OOWKUHH$VLDQFXUUHQFLHVMXPSHGYLVjYLVWKH86GROODUWKXVXQGHUFXWWLQJ WKHSULFHFRPSHWLWLYHQHVVRIH[SRUWVIURPWKHVHFRXQWULHV0RUHRYHUVWURQJHUFXUUHQF\YDOXHVDOVROHGWRZDYHVRIRXWJRLQJLQYHVWPHQWE\FRPSDQLHVKHDGTXDUWHUHG LQDOO WKUHHFRXQWULHVDVRYHUVHDVSULFHVRI ODQG ODERUDQGSURGXFWLRQEHFDPH LUUHVLVWLEO\FKHDSHUVHHinter alia1DXJKWRQ3HPSHOF&RPSDQLHV WKDWZHUHRQFHODUJHO\GRPHVWLFSURGXFHUVVXEMHFWWRQDWLRQDOPRQHWDU\DQGFDSLWDO DOORFDWLRQSROLFLHVEHFDPHIDUPRUHUHJLRQDORULQWHUQDWLRQDOLQWKHLUSURGXFWLRQ DQGIDUOHVVVXEMHFWWRQDWLRQDOFDSLWDOFRQWUROV$VPDQ\RIWKHVHFRPSDQLHVVHW XSRSHUDWLRQVDEURDGVKDUSGLYLVLRQVEHWZHHQFRPSDQLHVDQGVHFWRUVWKDWZHUH

WUXO\LQWHUQDWLRQDOO\FRPSHWLWLYHDQGWKRVHZKRVHEXVLQHVVHVVXUYLYHGODUJHO\DVD UHVXOWRIDFORVHGGRPHVWLFHFRQRP\DQGJRYHUQPHQWDVVLVWDQFHZHUHH[SRVHG

,Q WKLV FRQWH[W HYHQDVJRYHUQPHQWV FRQWLQXHG WRPHGLDWH WKHSURFHVVHVRI OLEHUDOL]DWLRQ$VLDQ UHJLRQDO VXFFHVVHV FRQWDLQHG FHUWDLQ VHHGV RI GHVWUXFWLRQ $V LQGXVWULDOL]DWLRQVSUHDGDFURVV WKH$VLDQ UHJLRQPRUHDQGPRUHFRPSDQLHV EHJDQ WR DGRSW WKH H[SRUWOHGPRGHO RI JURZWK7KH UHVXOW LQ VHFWRUV VXFK DV VWHHOWH[WLOHVHOHFWURQLFVSHUVRQDOFRPSXWHUVVHPLFRQGXFWRUVDQGVKLSEXLOGLQJ ZDVWKHSUROLIHUDWLRQRILQWHUQDWLRQDOFRPSHWLWLRQDQGLQPDQ\FDVHVWKHJOXWWLQJ RIZRUOGPDUNHWVZLWKDQRYHUVXSSO\RIJRRGV7KHGHYHORSPHQWPRGHOVXFFHVVIXOO\SLRQHHUHGE\-DSDQDQGDGRSWHGZLWKYDULDWLRQVE\6RXWK.RUHDDQG7DLZDQ HYHQWXDOO\KDGLWVDGKHUHQWVLQ0DOD\VLD7KDLODQG6LQJDSRUHDQGHYHQWKH35& $VWKH$VLDQUHJLRQÁRXULVKHG LWVYHU\VXFFHVVFUHDWHGUHJLRQZLGHFRQGLWLRQV WKDWPDGH LW HYHUPRUH GLIÀFXOW WR VXVWDLQ RQ D SHUPDQHQW EDVLV7KLV EHFDPH SDUWLFXODUO\FOHDULQWKH²FXUUHQF\FULVHVZKHQPDQ\$VLDQHFRQRPLHV IRXQGWKHPVHOYHVLQDFRPSHWLWLYHUDFHZLWKRQHDQRWKHUWRH[SDQGWKHLUVKDUHRI ZRUOGPDUNHWVWKURXJKSURGXFWLRQEDVHGRQFKHDSODERU&RPSHWLWLRQZLWKHDFK RWKHUZDVLQKHUHQWO\SUREOHPDWLFRQFHWKH35&ZLWKLWVYLUWXDOO\LQÀQLWHVXSSO\ RIFKHDSODERUDQGWLJKWQDWLRQDOFRQWUROVRYHUFDSLWDOEHJDQDJJUHVVLYHO\SXUVXLQJWKHVDPHJRDOVZKDWKDGRQFHEHHQDUDFHEHWZHHQDIHZ$VLDQFRXQWULHVDQG WKH UHVWRI WKHZRUOGZDV WUDQVIRUPHG LQWRDQ LQWUD$VLDQEORRGOHWWLQJ WKDW OHIW PDQ\RIWKHSDUWLFLSDQWVDVGHYDVWDWHGDVWKH$PHULFDQUXVWEHOWKDGEHHQGHFDGHV HDUOLHU3HPSHOD

7KHIRFXVRQQDWLRQDOHFRQRPLFVXFFHVVDQGSDUWLFXODUO\WKHH[WHQWWRZKLFK WKDWVXFFHVVZDVDFKLHYHGZLWKKLJKOHYHOVRIVRFLDOHTXDOLW\KDGORQJPDGHLW HDV\WRFRQFOXGHWKDWDOORI-DSDQRUDOORI7DLZDQZDVPRYLQJDORQJDFRPPRQ WUDMHFWRU\7KHUHLVDQROGDGDJHDERXWWKHPDQZKRKDGKLVKHDGLQWKHRYHQDQG KLVIHHWLQLFHEXWon averageVKRXOGKDYHEHHQTXLWHFRPIRUWDEOH6LPLODUO\WKH PRGHOVRI-DSDQHVHGHYHORSPHQW WRRHDVLO\REVFXUHGWKHH[WHQW WRZKLFKRYHUDOOJURZWKDQGVXFFHVV LQ WKDWFRXQWU\ZDV WKHSURGXFWRIKLJKO\GLVSDUDWHDQG XQHYHQSHUIRUPDQFHVLQGLIIHUHQWVHFWRUVRIWKHHFRQRP\%\WKHHDUO\VLQ -DSDQDQGWKHODWHVLQ6RXWK.RUHDDQG7DLZDQLWKDGEHFRPHFOHDUWKDW QDWLRQDOHFRQRPLFVXFFHVVKDGORQJPDVNHGUHODWLYHO\ODUJHVZDWKVRIXQDGDSWLYH DQGVFOHURWLFSULYDWHVHFWRUÀUPV7KHFXPXODWLYHGUDJRIVRPDQ\LQZDUGORRNLQJ VHFWRUV DQGÀUPVEHFDPHDQ LQFUHDVLQJO\ LPSRUWDQWSURSRUWLRQRI WKH WRWDO QDWLRQDOHFRQRPLHVSDUWLFXODUO\LQ-DSDQEXWODWHULQ6RXWK.RUHDDVZHOO

7KLVOHDGVXVWRWKHVHFRQGPDMRUÁ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´FDWFKXSµIDFHPDQ\GLIÀFXOWLHVEXWWKH\GRKDYHWKHDGYDQWDJH RI HDUOLHU H[DPSOHV RI GHYHORSPHQW WKDW OHDYH WKHPZLWK FOHDU VLJQSRVWV DV WR

WKHWHFKQRORJLHVDQGLQGXVWULHVWKH\VKRXOGEHWDUJHWLQJ2QFHWKH\KDYHFDXJKW XSKRZHYHUWKHSDWKDKHDGEHFRPHVPXFKPXUNLHU'XULQJFDWFKXSLQGXVWULDO GHYHORSPHQWFDQHIIHFWLYHO\SURFHHGE\UHO\LQJRQWHFKQLTXHVVXFKDVFRS\LQJ UHYHUVHHQJLQHHULQJDQGSURGXFWUHÀQHPHQW&RQWLQXHGVXFFHVVDIWHUDFKLHYLQJ JUHDWHUVRSKLVWLFDWLRQLQWKHHFRQRP\KRZHYHUW\SLFDOO\UHTXLUHVPXFKKHDYLHU LQYHVWPHQWVLQUHVHDUFKDQGGHYHORSPHQWPRUHRULJLQDOGHVLJQDWWHQWLRQWRFUHDWLQJUDWKHUWKDQLQYDGLQJPDUNHWVDQGWKHOLNH7KLVLVQRWWRVXJJHVWWKDW-DSDQ .RUHDDQG7DLZDQDUHLQKHUHQWO\ODFNLQJVXFKDELOLWLHVEXWQDWLRQDOOHDGHUVDQG PDQ\ LQGLYLGXDO FRPSDQLHVZLWKLQ DOO WKUHH KDYH KDG WR FRQIURQW VXFK DGMXVWPHQWVWKURXJKUDSLGVKRFNXQGHUSUHVHQWFRQGLWLRQVLQWKHZRUOGHFRQRP\DQG PDQ\IRXQGWKHWUDQVLWLRQOHVVWKDQVLPSOH

&RQVLGHU DOVR WKH GHPRJUDSKLF FKDQJHV WKDW DFFRPSDQ\ UDSLG HFRQRPLF GHYHORSPHQW$WEDVH WKHQDWLRQDOSRSXODWLRQSURÀOHVRI DOO WKUHHFRXQWULHV LQ ²ZHUH VXEVWDQWLDOO\ GLIIHUHQW WKDQ WKRVH LQ WKH HDUO\ SRVWZDU \HDUV ,PSURYHGKHDOWKFDUHDQGELUWKFRQWUROOHGWRVPDOOHUIDPLOLHVDQGORQJHUOLYHV$OO WKUHHFRXQWULHVKDGEHQHÀ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

)LQDOO\LWLVZRUWKZKLOHH[DPLQLQJWKHZD\VLQZKLFKSRZHURQFHLQVWLWXWLRQDOL]HG WRSURYLGHDVWURQJHQJLQHIRUJURZWKFDQEHFRPHRVVLÀ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²DIDFWRUWKDWZDVDQGLVFULWLFDOWRGHEDWHV RYHU OLEHUDOL]DWLRQ7KLV SUREOHP EHFDPH SDUWLFXODUO\ DFXWH LQ -DSDQZLWK WKH /'3LQFUHDVLQJO\FRQFHQWUDWLQJLWVSROLF\HIIRUWVRQLWVOHDVWLQWHUQDWLRQDOO\FRPSHWLWLYHORQJVWDQGLQJFRQVWLWXHQWVQRWDEO\FRQVWUXFWLRQDJULFXOWXUHGLVWULEXWLRQ DQGVXEVHTXHQWO\EDQNLQJDQGÀQDQFLDOVHUYLFHV7KHUHVXOWVZHUHGHYDVWDWLQJWR WKHQDWLRQDOHFRQRP\

,URQLFDOO\SROLWLFDOGHPRFUDWL]DWLRQDQGFKDQJHVLQWKHUXOHUVLQERWK7DLZDQ DQG6RXWK.RUHD EURNH VRPH ORQJH[LVWLQJ KDPPHUORFNV RQ SRZHU LQ WKH ODWH VLQZD\VWKDWWKH-DSDQHVHV\VWHPDYRLGHG6WLOOIDLOXUHWRUHIRUP.RUHD·V chaebolVWUXFWXUHVFRQWULEXWHGJUHDWO\WRWKHOLTXLGLW\SUREOHPVRI².07 RZQHUVKLSRIPDQ\RI7DLZDQ·VODUJHVWROLJRSROLHVFUHDWHGVLPLODUULJLGLWLHVWKHUH

,QDGGLWLRQWKHORQJVWDQGLQJFRPPLWPHQWVWRDQWLFRPPXQLVPLQERWKFRXQWULHV KDYHPDGHLWSROLWLFDOO\GLIÀFXOWIRUWKHPWRZRUNWRZDUGPRUHQRUPDOL]HGDQG SUHVXPDEO\SRWHQWLDOO\KLJKO\SURÀWDEOH HFRQRPLF UHODWLRQVZLWK1RUWK.RUHD DQGWKH35&

7KHH[DPSOHVFRXOGEHPXOWLSOLHGEXWWKHPDMRUSRLQWVKRXOGEHFOHDU0RVW PRGHOV RI -DSDQHVH GHYHORSPHQW IDLOHG WR DFFRXQW DGHTXDWHO\ IRU WKH LQKHUHQW ZD\VLQZKLFKLQVWUXPHQWVDQGFKDUDFWHULVWLFVFULWLFDOWRVXFFHVVDWRQHSRLQWLQ WLPHPLJKW WKHPVHOYHV EHFRPH LPSHGLPHQWV WR FRQWLQXHG JURZWK RQFH LQLWLDO GHYHORSPHQWDO JRDOV KDG EHHQ DFKLHYHG ,W LV WKLV GLIÀ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

Conclusion 7KHDERYHDQDO\VLVKDVPDGHFOHDUWKDWLQOLJKWRIUHFHQWGRZQWXUQVDFURVV$VLD WKHUHLVIDUPRUHPHULWWRUHH[DPLQLQJWKH-DSDQHVHGHYHORSPHQWDOPRGHOWKDQ LQGLVFDUGLQJLWDVDVLPSOHE\SURGXFWRIDQHDUOLHUDQGPRUHRSWLPLVWLFHUD6XFK D UHH[DPLQDWLRQZLWK DQ H\H WR ERWK VXFFHVVHV DQG VWXPEOHV DOORZV D EHWWHU DSSUHFLDWLRQRIERWKWKHFRQWULEXWLRQVDQGWKHÁDZVLQWKHPRGHOLWVHOIDVZHOODV PDNLQJXVDZDUHRIKRZDQGLQZKDWZD\VLWPD\DGDSWWRWKHRQJRLQJIRUFHVRI OLEHUDOL]DWLRQ

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

$W OHDVWIRXURI WKHVHUHPDLQZRUWK\RIXQGHUVFRULQJUHJDUGOHVVRIZKHWKHU WKHPRGHOV UHWDLQ WKHLU IXOO FUHGLELOLW\0RVW QRWDEO\PRGHOV RI -DSDQHVH DQG 1RUWKHDVW$VLDQ GHYHORSPHQW GUHZ DWWHQWLRQ WR WKHZD\V LQZKLFK HFRQRPLF

JURZWK FRXOG EH VXFFHVVIXOO\ SXUVXHG DV D FDWFKXS VWUDWHJ\ (YHQ DIWHU WKH HFRQRPLFFULVLVRI²WKHFRPSDUDWLYHHFRQRPLFLQIUDVWUXFWXUHVRI-DSDQ 6RXWK.RUHD DQG7DLZDQ DVZHOO DV RI0DOD\VLD 6LQJDSRUH7KDLODQG+RQJ .RQJDQGHYHQ,QGRQHVLDZHUHYDVWO\VXSHULRUWRWKRVHRIFRXQWULHVFRXQWHGDV WKHLUHTXDOVRQO\DGHFDGHRUWZRHDUOLHU6HFRQGWKHGHYHORSPHQWPRGHOVGHPRQVWUDWHGZLWKXQPLVWDNDEOHFODULW\WKDWHFRQRPLFJURZWKFRXOGDGYDQFHDORQJPRUH WKDQRQHSDWK²LQGHHGPRUHVSHFLÀ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´VWDWHµDQG´PDUNHWµ·ZHUHLQFRPSHWLWLRQHOVHZKHUHLQWKHZRUOGLQ-DSDQDQG PXFKRI1RUWKHDVW$VLDWKH\ZHUHIDUPRUHIUHTXHQWO\LQFROODERUDWLRQ

$OORI WKHVH IHDWXUHVGHVHUYH UHFRJQLWLRQ7KH-DSDQHVHGHYHORSPHQWPRGHO GLGDJUHDWGHDO WREULQJWKHPIURQWDQGFHQWHU LQFRPSDUDWLYHDQDO\VLVDVZHOO DV LQ WKH WKLQNLQJRISROLF\PDNHUVFKDUJHGZLWKDGYDQFLQJQDWLRQDOHFRQRPLF GHYHORSPHQW$WWKHVDPHWLPHWKHFXUUHQWHFRQRPLFSUREOHPVLQ-DSDQWUDFHGDV WKH\KDYHEHHQWRVKLIWVLQLQWHUQDWLRQDOSROLWLFDOSRZHUEDODQFHVDQGSDUWLFXODUO\ WRDUHFRQÀJXUDWLRQRILQWHUQDWLRQDOÀQDQFHPDNHLWFOHDUWKDWHFRQRPLFGHYHORSPHQWVWUDWHJLHVFDQQRORQJHUEHQXUWXUHGLQQDWLRQDOO\LQVXODWHGYDFXXPV7KH SUHYDLOLQJRUWKRGR[\RIHFRQRPLFVKDVEHFRPHOLEHUDOL]DWLRQDQGQDWLRQDOOHDGHUV DQ[LRXV WR DFKLHYH VXFFHVV WRGD\PXVW EHZDU\ RI DVVXPLQJ WKDW WKH\ FDQ HPXODWHWKHH[SHULHQFHVRI$VLD·VVXFFHVVVWRULHVWRRGLUHFWO\7KH8QLWHG6WDWHVLV VXUHO\IDUOHVVOLNHO\WRWROHUDWHOHWDORQHHPEUDFHPHUFDQWLOLVWDSSURDFKHVWRGD\ WKDQLWZDVGXULQJWKHKHLJKWVRIWKH&ROG:DU6XFFHVVPD\ZHOOGHSHQGWRRRQ FRPSDWLEOHDQGVXSSRUWLYHHFRQRPLFFRQGLWLRQVWKURXJKRXWLWVUHJLRQDOQHLJKERUKRRG$QGQHZFRQGLWLRQVRIJOREDOFDSLWDOZLOOPDNHSXUHO\GRPHVWLFFRQWURORI FDSLWDOLQYHVWPHQWVKLJKO\SUREOHPDWLF

,QDGGLWLRQGHYHORSPHQWDOLVWVVKRXOGOHDUQIURP-DSDQDQG1RUWKHDVW$VLDWKH YDOXHRIÁH[LELOLW\DQGWKHGDQJHUVRIHQWUHQFKHGSRZHUWZLQHOHPHQWVRIDGGHG LPSRUWDQFHLQWKHFRQWHPSRUDU\SUROLEHUDOL]DWLRQFRQWH[W8QVKDNDEOHFRPPLWPHQWVDQGFRPSHQVDWLRQVWRFRQVWLWXHQWVXQDEOHWRFRQWULEXWHWRHFRQRPLFJURZWK ZKLOHSHUKDSVVRFLDOO\VWDELOL]LQJFDQEHFRPHLPSHGLPHQWVWRUDSLGDGMXVWPHQW WRFKDQJLQJHFRQRPLFQHHGV'HYHORSPHQWDV-RVHSK6FKXPSHWHUPDGH FOHDUGHFDGHVDJRLQYROYHVQRWRQO\WKHDELOLW\WRJHQHUDWHWKHQHZEXWDOVRWKH DELOLW\ WR GHVWUR\ WKH ROG ´&UHDWLYH GHVWUXFWLRQµ LV DV FULWLFDO DQ LQJUHGLHQW RI JURZWKLQWKHFXUUHQWFHQWXU\IDYRULQJOLEHUDOL]DWLRQDVLWZDVLQWKHODVWIDYRULQJ GHYHORSPHQW