Why Europe looks so much like China: Big government and low income inequalities

Abstract

One view in the literature is that the East Asian economic model is superior to other models in the Global South (i.e. in the developing world), at least in terms of catch-up development and possibly even in innovations beyond the technological frontier. Unlike economic models in Latin America and Sub-Saharan Africa, the East Asian model prioritizes community interests of the work collective, the neighbourhood, the nation-state, and all of humanity over those of individuals, possibly limiting some human rights for the greater benefit of all. Crucial features of the East Asian economic model include relatively low income and wealth inequalities, strong state institutional capacity. The origins of the East Asian economic model can be traced to different trajectories of the development of the Global South since the 16th century.This paper argues that European economic model and the East Asian model have a lot in common. After controlling for the country size and the level of development, it turns out that government consumption as a share of GDP is relatively high in both models, whereas income inequalities are relatively low.