Role of government in trade and investment boom: lessons from East Asia

This paper extends the empirical analysis on Rodrik's (1995a) domestic investment-led export growth model for East Asia to nine East Asian countries for a longer time period, 1960 through 2004, and tests whether openness Granger-caused investment or vice versa. Our results suggest that there can be no single conclusion about the role of investment in East Asia. Causality has also changed for some countries in different time periods. We question the exogeneity of the investment boom in East Asia, a key assumption made by Rodrik. Government's incentives encouraged investment in export industries through different channels.