Government intervention and economic performance in East Asia

Analyzing the effects of government intervention is important because, although a consensus may be emerging about the extent of intervention in East Asia, there is still a debate about the effects of such interventions, both in East Asia and elsewhere. Robert Barro and William Easterly, for example, argue that some forms of government intervention can be harmful for growth. The article is organized as follows. Section II reviews the existing empirical literature on government intervention and economic performance to highlight the reliance in this literature on government spending as a proxy for intervention. Section III discusses in detail why government spending is a poor proxy for government intervention, with reference to the East Asian economies. In Section IV, we discuss three additional measures of government intervention. Section V shows how government intervention can be incorporated into the neoclassical growth model. This model will be empirically tested in Section VI, and in Section VII, we will provide conclusions.