A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Aoki, Masahiko Working Paper Historical sources of institutional trajectories in economic development: China, Japan, and Korea compared ADBI Working Paper, No. 397 Provided in Cooperation with: Asian Development Bank Institute (ADBI), Tokyo Suggested Citation: Aoki, Masahiko (2012) : Historical sources of institutional trajectories in economic development: China, Japan, and Korea compared, ADBI Working Paper, No. 397, Asian Development Bank Institute (ADBI), Tokyo This Version is available at: http://hdl.handle.net/10419/101284 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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He would like to acknowledge helpful discussions with Francis Fukuyama of Stanford University, Minquan Liu of Peking University and the Asian Development Bank Institute, and Young-Hoon Rhee of Seoul National University in preparing an earlier draft. However, he is solely responsible for views and interpretations expressed in this essay. He benefitted greatly from able research assistance provided by Yoko Yamamoto and Trevor Incerti. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI’s working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. Suggested citation: Aoki, M. 2012. Historical Sources of Institutional Trajectories in Economic Development: China, Japan, and Korea Compared. ADBI Working Paper 397. Tokyo: Asian Development Bank Institute. Available: http://www.adbi.org/working- paper/2012/11/30/5341.historical.sources.intl.trajectories.economic.dev/ Please contact the authors for information about this paper. Email: [email protected] Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan Tel: +81-3-3593-5500 Fax: +81-3-3593-5571 URL: www.adbi.org E-mail: [email protected] © 2012 Asian Development Bank Institute ADBI Working Paper 397 Aoki Abstract This essay provides a game-theoretic, endogenous view of institutions, and then applies the idea to identify the sources of institutional trajectories of economic development in China, Japan, and Korea. It stylizes the Malthusian-phase of East Asian economies as peasant-based economies in which small families allocated their working time between farming on small plots— leased or owned—and handcrafting for personal consumption and markets. It then compares institutional arrangements across these economies that sustained otherwise similar economies. It characterizes the varied nature of the political states of Qing China, Tokugawa Japan, and Yi Korea by focusing on the way in which agricultural taxes were enforced. It also identifies different patterns of social norms of trust that were institutional complements to, or substitutes for, political states. Finally, it traces the path-dependent transformations of these state-norm combinations along subsequent transitions to post-Malthusian phases of economic growth in the respective economies. JEL Classification: O43, O53, P51 ADBI Working Paper 397 Aoki Contents 1. Introduction: The Co-Evolution of Economic, Demographic and Institutional Variables .... 3 2. A Stylized Model of the East Asian Peasant-based Economy .......................................... 5 2.1 The Stylized Model .................................................................................................. 5 2.2 The Evolution of Self-Managing Peasant Families in East Asian Economies ......... 6 3. The Political States, Norms, and their Institutionalized Relations in the Peasant-based Economies ......................................................................................................................... 8 3.1 The Interpenetrative State of Qing China ................................................................ 8 3.2 Nested, All-Inclusive Coalitions and Membership-Based Norms in Tokugawa Japan ..................................................................................................................... 11 3.3 The Governance Structure of the Yi-Dynasty and Autonomous Social Compacts 12 3.4 Institutional Reasons for the Lack of Endogenous Driving Force for the Industrial Revolution ............................................................................................................. 14 4. Transitions to the Kuznets Phase in East Asia ................................................................ 15 4.1 Japan: Realignments of the Coalitional State and the Resilience of Membership- based Norm ........................................................................................................... 18 4.2 Korea: Development under the Colonial State ...................................................... 19 4.3 China: Transformations of the Interpenetrative State Structure ............................ 20 5. Conclusions and Further Prospects ................................................................................ 21 References .................................................................................................................................. 24 ADBI Working Paper 397 Aoki 1. INTRODUCTION: THE CO-EVOLUTION OF ECONOMIC, DEMOGRAPHIC AND INSTITUTIONAL VARIABLES One of the most important social scientific research agendas today is to understand the dynamic nature of East Asian economies in a comparative and historical perspective, and to understand how those economies affect the world economy. According to Angus Maddison’s frequently cited estimate, China, Japan, and Korea together constituted the largest economic region in 1820, producing more than one-third of the world’s total production (Maddison 2003). However, that proportion dropped to about 8% in the middle of the 20th century, which was then followed by the successive economic miracles of Japan, the Four Asian Tigers, and now the People’s Republic of China. The aggregate real gross domestic product (GDP) of the East Asian region, including Taipei,China, amounted to 22.4% of Gross World Production in 2011, slightly surpassing that of the North American Free Trade Agreement economies and the European Union plus Switzerland and Norway (IMF 2012). How can we account for this dramatic “return” of East Asia? Can we simply extrapolate its recent economic performance into the future? Is there anything common and unique to the development patterns of East Asian economies, or something fundamentally different in their respects? In either case, how will their accumulated assets—physical, human, and institutional—and other heritages be facilitating or constraining their capacities to further develop and meet emergent challenges such as population aging? These questions appear to call for new thinking based on historical and comparative perspectives. In the last decade or so, a new “unified” approach to economic growth has been explored in economics to deal with issues relevant to the above-mentioned ones in a general analytical framework (e.g., Hansen and Prescott 2002; Galor 2010). They are unified in three senses. First, they deal with interactions between economic variables and demographic variables (e.g., fertility, mortality, migration, age composition of the population) rather than dealing with the latter as parameters as in neoclassical