Growing wealth in East Asian middle-income countries with transnational production regimes

INTRODUCTION: Since the 1960s, law and development theorists have prescribed law-based measures for stimulating economic development in East Asian middle-income countries (MICs). During the last decade, a growing number of scholars from different disciplines claim that rapid economic growth in this region is taking place without fully functioning legal systems. They argue that consistent and pragmatic state developmental policies, more than formal laws and legal institutions, are the main ingredients for economic growth. This chapter provides a complementary explanation for economic growth in East Asia. It posits that transnational production regimes (TPRs) are responsible for generating much wealth creation in East Asian MICs over the last thirty years. TPRs are structured around supply chain and investment networks that transfer goods, capital, and knowledge among firms in high-income countries (HICs) and MICs. This chapter musters evidence that, over the last three decades, intra-Asian TPRs have incrementally displaced Euro-American TPRs as the main source of technical and regulatory knowledge in East Asian MICs. This transformation has three principle implications: first, knowledge transferred through TPRs largely bypasses domestic laws and legal institutions and directly influences East Asian firms; second, intra-Asian TPRs are more likely than Euro-American TPRs to convey the regulatory knowledge needed to innovate and upgrade into higher value-added activities in world markets; and third intra-Asian TPRs are a key factor in generating wealth creation and raising the next wave of East Asian countries into the ranks of HICs.