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On the
Micro Aspects of the Economic Miracle and Finance Crisis in Asia
Heling Shi
Abstract
This paper exams the micro aspects of the economic miracle and
finance crisis in Asia in a symmetric framework. The direct involvement
of government at the various stages of economic development has two
distinctive effects. It might act like a guarantor to provide insurance
for the firms in the market transactions, therefore, promote higher
level of specialization and division of labor. This is argued as one
of the underlying forces of the long sustained economic growth in
Asia, so called "Asian economic miracle". However, the guarantee
of government might also results in "moral hazard" problems
in inducing firms to take extra risk in investment and other business
decisions. The lack of feedback correcting mechanism, combined with
higher than social optimal level of specialization and division of
labor makes the economy vulnerable to external shocks. Finance crisis
is only one such example. This paper tries to argue that there exists
an optimal level of government involvement: it could promote economic
growth at the early stage of economic development; but it could also
stifle the inspiration at the later, more mature stage.
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