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figure 38.3


                      Success and                     Real GDP per
                                                    capita (log scale)
                      Disappointment
                                                           $100,000
                      Real GDP per capita from 1960 to
                      2008, measured in 2000 dollars, is
                      shown for Argentina, South Korea, and                 Argentina
                      Nigeria, using a logarithmic scale.    10,000
                      South Korea and some other East Asian
                      countries have been highly successful
                      at achieving economic growth. Ar-
                                                                                     South Korea
                      gentina, like much of Latin America,    1,000                              Nigeria
                      has had several setbacks, slowing its
                      growth. Nigeria’s standard of living in
                      2008 was only barely higher than it had
                      been in 1960, an experience shared by
                      many African countries.                    1960  1965  1970  1975  1980  1985  1990  1995  2000  2005  2008
                      Source: World Bank.
                                                                                                         Year




                                       East Asia’s Miracle
                                       In 1960, South Korea was a very poor country. In fact, in 1960 its real GDP per capita
                                       was lower than that of India today. But, as you can see from Figure 38.3, beginning in
                                       the early 1960s, South Korea began an extremely rapid economic ascent: real GDP per
                                       capita grew about 7% per year for more than 30 years. Today South Korea, though still
                                       somewhat poorer than Europe or the United States, looks very much like an economi-
                                       cally advanced country.
                                          South Korea’s economic growth is unprecedented in history: it took the country
                                       only 35 years to achieve growth that required centuries elsewhere. Yet South Korea is
                                       only part of a broader phenomenon, often referred to as the East Asian economic mira-
                                       cle. High growth rates first appeared in South Korea, Taiwan, Hong Kong, and Singa-
                                       pore but then spread across the region, most notably to China. Since 1975, the whole
                                       region has increased real GDP per capita by 6% per year, three times America’s histori-
                                       cal rate of growth.
                                                         How have the Asian countries achieved such high growth rates?
                                                       The answer is that all of the sources of productivity growth have
                                                       been firing on all cylinders. Very high savings rates, the percentage of
                                                       GDP that is saved nationally in any given year, have allowed the
                                                       countries to significantly increase the amount of physical capital per
                                                       worker. Very good basic education has permitted a rapid improve-
                                                       ment in human capital. And these countries have experienced sub-
                                                       stantial technological progress.
                                                         Why hasn’t any economy achieved this kind of growth in the
                                                       past? Most economic analysts think that East Asia’s growth spurt
        amana images inc./Alamy                        time that East Asian economies began to move into the modern
                                                       was possible because of its relative backwardness. That is, by the

                                                       world, they could benefit from adopting the technological ad-
                                                       vances that had been generated in technologically advanced coun-
                                                       tries such as the United States. In 1900, the United States could
        Countries in East Asia have enjoyed un-        not have moved quickly to a modern level of productivity because
        precedented growth since the 1970s,  much of the technology that powers the modern economy, from jet planes to com-
        thanks largely to the adoption of modern
        technology and the accumulation of  puters, hadn’t been invented yet. In 1970, South Korea probably still had lower
        human capital.                 labor productivity than the United States had in 1900, but it could rapidly upgrade

        382   section 7     Economic Growth and Productivity
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