The Five-Phases of Economic Development and Institutional Evolution in China and Japan

Abstract

Based on the variable rate of gross domestic product per capita growth and its sources, this paper first identifies five phases of economic development that are common to China, Japan, and Korea: M (Malthusian), G (government-led), K (à la Kuznets), H (human capital based) and PD (post demographic-transition). But there are also marked differences in the onset, duration, and institutional forms of these phases across these economies. In order to understand these differences, this paper explores the agrarian origins of institutions in Qing China and Tokugawa Japan (and briefly Chosŏn Korea) and their path-dependent transformations over those phases. In doing so, the paper employs game-theoretic reasoning and interpretations of divergent institutional evolution between China and Japan, which also clarifies the simplicity of prevailing arguments that identify East Asian developmental and institutional features with authoritarianism, collectivism, kinship-dominance, Confucianism and the like. Finally, the paper examines the relevance of the foregoing developmental discussions to the institutional agendas faced by the People’s Republic of China (PRC) and Japan in their respective emergent phase-transitions. In what way can the PRC avoid the 'middle income trap'? What institutional shortcomings become evident from the Fukushima catastrophe and how can they be overcome in an aging Japan?

Keywords: development phases, institutional evolution, agrarian origin, PRC economy, middle income trap, post demographic transition, East Asia, norm

JEL Classification: J11, N15, N35, N55, O15, O43, O53, P51