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

Abstract

Based on the variable rate of GDP per capita growth and its sources, this paper first identifies five phases of economic development that are common to China, Japan and South Korean: M (Malthusian), G (government-led), K (a 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 so doing, the paper employs game-theoretic reasoning and interpretations to 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 relevance of foregoing developmental discussions to institutional agenda that China and Japan face in the respective emergent phase-transitions. In what way can China avoid the “middle income trap”? What institutional shortcomings become evident from the Fukushima catastrophe and how they can be overcome in the aging Japan?

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

JEL Classification: B52, E01, E02, J11, J15, N15, N35, N55, O15, O43, O53, P51, Q10