Why Europe Looks so Much like China: Big Government and Low Income Inequalities

Abstract

One view in the literature (Popov 2020) is that East Asian model is superior to other models in the Global South, 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-Sahara Africa, the East Asian model prioritizes community interests (e.g., that of work collective, neighborhood, nation-state, and all of humanity) over those of individuals with the possibility of 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 (as measured by the murder rate and share of the shadow economy). 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 (Popov, 2009; 2014).
This paper argues that European economic model and East Asian model have a lot in common.

After controlling for the size of the country 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.