Working Papers in Trade and Development Manufacturing Growth, Trade and Labour Market Outcomes in East Asia: Why Did the NIEs Forge so far Ahead?

This paper seeks to explain different real wage outcomes in two groups of East Asian economies: two New Industrialising Economies (NIEs: Korea and Taiwan), and three Southeast Asian economies (ASEAN-3: Malaysia, Thailand and Indonesia), all of which grew rapidly for several decades prior to the Asian economic crisis. Drawing on international and national data sets, the paper examines dynamic interactions between manufacturing growth and labour market outcomes. It adopts the dualistic Lewis model, which highlights the role of ‘unlimited’ supplies of labour in economic development and the transition towards the turning point, as a heuristic device to inform the empirical analysis. A simple regression model is employed to examine the determinants of real wages over the first two decades of accelerated growth in the two groups of economies. This finds that while both demand and supply factors contributed to real wage growth, the supply variable which proxied surplus labour conditions was especially significant in the NIEs compared with the ASEAN-3. The model did not find any evidence for institutional factors having a significant impact on the different wage outcomes between the NIEs and the ASEAN-3.