The Paradox of Catching Up

Abstract

The postwar experiences of the Soviet Union, the East Asian high-performing economies and China in the past century supported the historical observation that latecomers in economic development could succeed in industrialization or modernization by employing the state as a developmental instrument. This study suggests that the phenomenon of state-led economic development is derived from the large developmental differentials among countries that have created the informational advantages for the economies in relatively backward position. As the latecomers could obtain the economic information from the advanced countries to guide their own domestic production, the informational role of the domestic markets in these backward economies is greatly reduced, and correspondingly, the government becomes a powerful instrument in promoting economic development for the latecomers.