By the 1970s, it had become clear that NIEs were emerging in East Asia, South-East Asia, and Latin America, while most of the rest of the developing world was being left behind. This paper examines the development process of four of these NIEs in Asia. Taiwan and South Korea, East Asian Systems are used as examples of states which are small, natural resource poor, and initially labour surplus and human resource rich. Thailand and the Philippines, South-East Asian countries, are used as examples of states which are medium in size, favourably endowed with natural resources and initially intermediate in labour surplus and human capital dimensions. One commonly asked question then is what are the differences in the development in these two kinds of NIEs. The principal difference lies in the move—after primary import substitution—of East Asian countries to the export of labour intensive consumer non-durables, while South-East Asian countries enter a phase of secondary import substitution and develop the domestic ability to produce consumer durables. A second commonly asked question is why this marked divergence in strategy and consequent performance between these two kinds of NIEs occurs, i.e., what are the reasons for the policy choices made, development paths followed, and the timing of different phases of development?

Initial conditions are seen to have a substantial impact on the policy choices available since this affects not only initial levels of income and welfare but also the degree to which the institutional heritage is susceptible to obstructing or accommodating economic change. Colonial heritage and geographic and cultural cohesion are dimensions which have a direct bearing on the process of development. In East Asia, a confidence in national goals and an attitude of pragmatism allowed the expectation of economic attainment to be clear and permitted the government to take actions which were politically unappealing but economically sound. There were consequently less harmful price distortions and governments showed restraint in good times and flexibility in bad times. In South-East Asia, on the other hand, citizens were more concemed with competing for their rights; there was less pursuit of clear rational economic goals; and often the government would undertake a politically popular policy only to have this policy cause problems in the future. Thus, the East Asian countries can be characterized as pursuing a steady progression to economic maturity, while the South-East Asian countries can be characterized as having oscillated along a path which is less certain to achieve steady growth consistent with enhanced equity.