asia’s journey to prosperity
TRANSCRIPT
ASIA’S JOURNEY TO PROSPERITYPolicy, Market, and Technology over 50 Years
Disclaimer: Views expressed in the presentation are those of the authors and do not necessarily reflect views of ADB or its Board of Governors or the governments they represent.
1. 50 years of Asian development
2. The role of markets, the state, and institutions
3. Dynamics of structural transformation
4. Modernizing agriculture and rural development
5. Technological progress as key driver
6. Education, health, and demographic change
7. Investment, savings, and finance
8. Infrastructure development
Table of Contents
9. Trade, foreign direct investment, and openness
10. Pursuing macroeconomic stability
11. Poverty reduction and income distribution
12. Gender and development
13. Environmental sustainability and climate change
14. The role of bilateral and multilateral development finance
15. Strengthening regional cooperation and integration in Asia
2
1. Asia’s key development achievements
2. What explains Asia’s economic success
3. Issues subject to extensive debate
a) Is Asian development unique?
b) The role of industrial policy
c) Can industrialization be bypassed?
d) Importance of institutions
4. Asia’s challenges ahead3
Outline of the presentation
• Rapid economic growth led to rising share in global GDP…
2.2
4.0
5.0
4.9
6.2
5.5
4.7
0 5 10
1960s
1970s
1980s
1990s
2000s
2010s
1960-2018
Average annual per capita GDP growth, (%)
4
PRC1.1%
India1.3%
Philippines0.2% Rest of DA
1.5%
Japan7.0%
AUS & NZL
2.2%
Latin America & the Caribbean
7.1%
MENA3.9%
Sub-Saharan Africa2.2%North America
30.6%
European Union36.2%
Rest of the World6.6%
1960
Developing Asia (DA)’s share in global GDP increased from 4% to 24% in 1960-2018; including Japan, Australia and New Zealand, Asia’s share rose from 13% to 34%.
PRC13.1%
India3.4%
Philippines0.4%
Rest of DA7.1%
Japan7.5%
AUS & NZL
1.9%
MENA4.3%
Sub-Saharan Africa2.2%
North America23.9%
European Union23.2%
Rest of the World5.6%
2018
Latin America and the Caribbean 7.4%
Asia’s key development achievements
• … and improvement in broad development indicators.
Developing Asia
1960 1980 2000 2018
Per capita GDP (constant 2010 US$) 330 647 1,762 4,903
Extreme poverty rate (% of population) … 68.1 33.1 6.9
Life expectancy at birth (years) 45.0 59.3 65.8 71.8
Infant mortality (per 1,000 live births) 137.8 80.1 48.1 26.2
Mean years of schooling (age 20-24) 3.5 6.0 7.7 8.95
Asia’s key development achievements (cont.)
• Peace and stability, especially after the Viet Nam War
• Favorable demographic conditions
• Free trade and investment policies in advanced countries
• A low-income level providing potential to catch up
• Critically, Asia’s economic success owes much to creating better policies and stronger institutions.
6
What explains Asia’s economic success?
• In the last half century, Asian development policy shifted from state-led industrialization to market-oriented growth
Late 1940s to late 1950s:Post-war political independence, reconstruction, and start of state-ledIndustrialization and import substitution.
Late 1950s to late 1970s:Export promotion and market-led growth in Japan and “four tigers”, and state control and inward orientation in PRC, India and many other countries.
Late 1970s to early 1990s: “ East Asian Miracle” fully recognized , and first wave of opening and market-oriented reform in PRC, Viet Nam, India, and Central Asia.
Early 1990s to 2007:Broadening of opening and market-oriented reform, growing trade and capital flows, Asian financial crisis, and post-crisis reform.
2008 to present: Global financial crisis, Asia leading global growth, promotion of inclusive growth and good governance, and rethinking positive role of the state in overcoming market failure.
(1) Relying on markets and private sector as engines of growth, with proactive state support to address market failure
7
• Review of these experiences suggests, first, market-oriented reforms and opening to the outside world were always followed by rapid economic growth; second, while markets and private sector were engine of growth, the state remains proactive in promoting development. Sustained growth and poverty reduction require efficient markets, an effective state, and strong institutions
• Structural transformation (ST) is the primary driver of growth across the world.
• A stylized fact about ST: over time, resources are transferred from agriculture to industry (up to a certain level) and services, and, within each of the three sectors, from low- to high- productivity production.
• Asia is no exception, but with a faster pace.
(2) Promoting structural transformation
8
71.0%
33.5%
14.1%
25.5%
14.9%
41.0%
1970s
2018
Agriculture Industry ServicesEmployment share (%), developing Asia
• ST also involves move from low- to high-productivity production within each of the 3 broad sectors, through technological progress
Contribution to Asia’s GDP Growth (% of total)Asian economies first
adopted foreign technologies, then began to innovate their own, using a variety of ways:
inviting experts and sending students abroad;
buying foreign licenses;
importing machinery;
promoting trade and FDI
conducting reverse engineering;
investing in R&D.Number of patents granted in US
935
1,416
1,524
2,739
3,810
8,116
11,690
16,549
17,924
52,409
Canada
Japan
France
United Kingdom
Germany
PRC
Taipei,China
Germany
Republic of Korea
Japan
20
15
Top 5 patent grantees in US
Ave
rage
19
65
—1
96
9 60.448.2
41.8
31.2
17.7
8.1
15.0
12.3
9.2
(6.6)
21.9
40.8
1970-1985 1995-2005 2010-2017
Physical capital Labor Human capital TFP
(2) Promoting structural transformation (cont.)
9TFP = Total factor productivity
• High-growth Asian economies made large investment in physical capital, financed largely by domestic savings
Physical capital stock
(2011 constant $,
trillion)
Capital stock
Growth
(%)
1960 2017 1960–2017
Developing Asia 3.9 176.0 6.9
Central Asia - 2.4 -
East Asia 1.3 108.2 8.1
PRC 1.0 94.9 8.3
South Asia 1.4 34.8 5.7
India 1.2 29.9 5.9
Southeast Asia 1.1 30.5 6.0
(3) Investing in productive capacity
10
18
24.9
27.4
32.9
36.6
41
20.3
26.1
28.5
32.3
33.3
38.9
0 5 10 15 20 25 30 35 40 45
1960s
1970s
1980s
1990s
2000s
2010s
Gross domestic savings and investment (% of GDP)
Gross domestic investment Gross domestic savings
(3) Investing in productive capacity (cont.)
• A key part of physical capital investment was for infrastructure - transport, power, water & sanitation, and telecommunications.
117
134
1,398
165
343
4,247
3,648
4,120
321
1,215
2,722
3,501
5,092
5,277
8,615
8,709
10,363
11,491
0 2,000 4,000 6,000 8,000 10,000 12,000
India
Thailand
World
PRC
Malaysia
OECD
Japan
Australia
Republic of Korea
Electricity Generation per Capita (kWh/capita)
1971
2018
11
• During 1971-2018, per capita electricity generation increased by 35 times in Korea, 30 times in China, 19 times in Thailand, 14 times in Malaysia, 9 times in India.
• In comparison, it doubled in OECD countries and tripped for the world as a whole.
• Large infrastructure investment alleviated production bottlenecks and improved living standard.
• Many Asian economies made efforts to build human capital, by making education a basic right and through compulsory education, investment in schools and education reform.
(4) Building human capital
12
25
37.5 39
52.1
78.9
2.4 5 6.511.6
34.3
0
10
20
30
40
50
60
70
80
1970 1980 1990 2000 2018
Gross Enrollment Ratio (%), Both Sexes
Secondary Tertiary
2.12.5
2.7
3.33.6
0
0.5
1
1.5
2
2.5
3
3.5
4
1970-1979 1980-1989 1990-1999 2000-2009 2010-2018
Public Spending on Education (% of GDP)
• During 1970s-2010s, developing Asia’s public spending on education increased from 2.1% of GDP to 3.6% of GDP.• Public spending on education contributed to rising school enrollments at all levels.• Expanding education boosted productivity and improved people’s well-being.
• High-growth Asian economies all maintained open trade and investment regimes, making Asia a center of global manufacturing production and value chains.
(5) Opening trade and investment
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
500
600
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2016 2017
$ b
illio
n
Asia's Foreign Direct Investment
Inflow (left) Outflow (left)Inflow, % of world total (right) Outflow, % of world total (right)
Asia’s top 5 merchandise exports (% of total)
13
11
8
7
6
5
0 10
Textile yarn, fabrics,made up articles, etc.
Textile fibers, notmanufactured, and
waste
Transport equipment
Iron and steel
Electrical machinery,apparatus, and
appliances
1960-1969
20
14
9
6
5
0 10 20
Electrical machinery,apparatus, and
appliances
Machinery, otherthan electric
Transport equipment
Petroleum andpetroleum products
Clothing
2010-2018
• They initially promoted exports of labor-intensive manufacturing products, and over time, moved up to export more sophisticated products such as cars, electronics and machines. In the last 2-3 decades, they participated in GVCs.
• To attract FDI, they set up SEZs and provide tax incentives, making developing Asia one of the most attractive FDI destinations, accounting for 35% of the world total in 2017.
• Compared with other developing regions, Asia did better in macroeconomic management, whether looking at growth fluctuation, inflation, or frequency of economic crises
Average annual GDP growth by decade (%)
(6) Maintaining macroeconomic stability
9.0
5.5 6.6
5.5 4.1
3.22.6
3.3
0
2
4
6
8
10
12
PRC India NIEs ASEAN5 Rest ofDeveloping
Asia
LatinAmerica
Sub-Saharan
Africa
OECD
1970–1979 1980–1989 1990–1999 2000–2009 2010–2018 __ Full period average
__ Full period average
14
4.0
7.3
5.1
8.7
9.1
7.4
22.6
12.2
0
5
10
15
20
25
PRC India NIES ASEAN5 Rest ofDeveloping
Asia
LatinAmerica
Sub-Saharan
Africa
OECD
Average Inflation by decade (%)
1970–1979 1980–1989 1990–1999 2000–2009 2010–2018
7061.9
_ Full period average
• Good macro management provided basis for sustained growth, and reforms in response to the Asian financial crisis laid foundation for future resilience.
• Rapid economic growth and targeted policies led to rapid poverty reduction.
(7) Promoting social inclusiveness and gender equality
15
Malaysia Singapore
Hong Kong, ChinaPhilippines
Thailand
Indonesia
Republic of Korea
Taipei,China
Peru
Mexico
Brazil
Colombia
Venezuela
Chile
Argentina
-20
-15
-10
-5
0
5
-1 0 1 2 3 4 5 6 7 8 9
Ch
ange
in G
ini (
19
81
-19
90
min
us
19
65
-19
70
)
Average per capita GDP growth, 1965-1990
Changes in income inequality and per capita GDP growth, 1960s-1980s
PRC
MONBAN
BHU
IND
NEPPAK
SRI
INO
LAO
MYA
PHI THA
VIE
PNG
SOL
VAN
y = 0.25x + 0.42R² = 0.38
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
An
nu
al r
ate
of
po
vert
y re
du
ctio
n (
p.p
.)
Annual growth of per capita GDP (%)
Economic Growth and Poverty Reduction, 1981‒2015(based on international poverty lines)
• Asia had stable inequality in 1960s-1980s, a pattern known as “growth with equity” in East Asia; since 1990s, growth has been accompanied by rising inequality in some economies.
• Asia benefited from engaging with bilateral partners and MDBs in implementing development projects, especially infrastructure, education, and health.
• In South Asia and Southeast Asia, development assistance financed 10-20% of gross domestic investment in the 1970s and 1980s.
• Such partnerships remains relevant to Asia’s changing needs, providing responsive support by combining financing with policy advice.
(8) Engaging with development partners and promoting RCI
16
1.4 2.4 1.9 1.74.4
8.1
13.3
9.17.5 6.8 5.9
6.4 5.9
5.6 3.4
3.9
2.7
1.1
1.6
1.1 0.7
0.5
-5
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2017
Net Capital Inflows by Nonresidents to Developing Asia, 1970-2017 (% of gross domestic investment)
Net FDI inflows Net official flowsNet bank lending and bonds Net portfolio equity inflows
• Regional cooperation and integration (RCI) has played an important role in supporting Asian development by contributing to
• peace and security;
• intraregional trade and investment;
• provision of regional public goods.
• In 2018, close to 60% of Asian trade were among Asian countries and 50% of FDI inflows were from within Asia and the Pacific region
57.5
48
30
35
40
45
50
55
60
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Shares of Intraregional Trade and Intraregional Foreign Direct Investment Inflows, Asia and the Pacific
Trade
Foreign Direct Investment
%
(8) Engaging with development partners and promoting RCI (cont.)
17
10 policy recommendations of the Washington Consensus
Fiscal discipline
Public expenditure reform
Tax reform
Financial liberalization & market-determined interest rates
Competitive exchange rates
Import liberalization
FDI liberalization
Privatization of state-owned enterprises
Deregulation
Protection of property rights
Issue one: Is Asian development unique?
18
• Some studies considered Asian experience unique, or there is an “Asian development model”, which emphasizes the role of state interventions, as opposed to the so-called “Washington Consensus”, which follows more closely with standard economic theory of market economies.
• The book argues that Asian economies implemented policies and reforms that are not very different from standard economic theories of market economies –in this sense, Asian development is not unique.
• What made many Asian economies unique is their gradual approach and pragmatism in implementing policy reforms, including the practice of testing or piloting major policy changes before full-scale implementation and careful sequencing.
• Many Asian economies have used industrial policies (IP) to promote development. “Horizontal” IP has worked by improving business environment. But targeted IP has been more controversial and outcomes mixed.
Targeted IP was discredited after Asian financial crisis but received renewed attention in recent years.
• The book argues that targeted IP, if used badly, can lead to rent-seeking, unfair competition, and inefficiency; but if used wisely, it can be effective, especially in areas with strong positive spillovers and coordination problems.
• Targeted IP is more likely to succeed when it is performance-based and promotes competition, with clear targets, sunset clauses, and transparent implementation rules.
• As a country becomes more developed, IP should focus more on supporting R&D to promote technological innovation that are less intrusive.
Issue two: The role of industrial policy
19
• Many Asian economies achieved high growth by promoting manufacturing and exports.
NigeriaUSAVenezuela
Brazil
Colombia
Egypt
Australia
Bangladesh
India
Indonesia
PRC
Japan
Pakistan
Nepal
New Zealand
Philippines
Sri Lanka
Papua New Guinea
Rep. of KoreaSingapore
Hong Kong, China
Fiji
Malaysia Taipei,ChinaThailand
0
2
4
6
8
10
0 2 4 6 8 10 12 14 16 18
GD
P g
row
th (
ann
ual
ave
rage
, %)
Export Growth and Economic Growth, 1960–2017
Bubble size: Population (2017). Color
gradient: Trade/GDP (2017)
Growth in export of goods and services (annual average, %)
Issue three: Can industrialization be bypassed?
0
10
20
30
40
India PRC NIEs ASEAN4
Manufacturing Employment (% of total)
1970-1979 1980-1989 1990-1999 2000-2009 2010-2018
20
• They used a variety of ways to promote manufacturing: large capital investment, investment in R&D, opening to trade and FDI, education and skills training, setting up SEZs.
• Historically, manufacturing was important almost in all high-income countries worldwide before de-industrialization.
• Why manufacturing is important: tradability and generating foreign exchanges, having high income elasticity of demand, large scope for innovation, scale economy, and creating better paying jobs.
Issue four: The importance of institutions
21
y = 0.39x + 3.86R² = 0.60
0.0
1.0
2.0
3.0
4.0
5.0
6.0
-2.0 -1.0 0.0 1.0 2.0 3.0
Government effectiveness score
Government Effectiveness Score and Per Capita GDP in 2011, Developing Asia
Log
(Per
Cap
ita
GD
P)
• There is a positive association between quality of institutions and economic development, and Asia is no exception. But this correlation may vary across different dimensions of institutions and depends on a country’s stage of development.
• At a low-income stage, igniting growth is a priority, and government effectiveness, regulatory quality and control of corruption are important (see Figure on the right). As a country becomes more developed, the priority is sustaining growth, and accountability and wide citizen participation could become more important.
• In some Asian economies, creating a vision for the future that was shared across a wide spectrum of society and promoted by forward looking leaders, made a difference, especially when backed by a component bureaucracy.
• Asia’s development gaps with advanced countries remain large – in 2018, developing Asia’s per capital GDP was just 13% of OECD level.
• Asian economies should maintain sound policies that prove to have worked, and address remaining and emerging challenges, such as
• Promoting innovation-based growth
• Making growth more inclusive and narrowing gender gaps
• Improving education quality and achieving universal health coverage
• Reducing large infrastructure gaps
• Protecting environment and tackling climate change
• Responding to demographic change and population aging
Asia’s challenges ahead
22
Improving education quality and achieving universal health coverage (1)
16.2
18.5
39.5
44.6
48.6
52.7
57.5
71.8
77.4
79.2
81.0
82.7
87.3
89.2
90.5
92.6
92.8
93.5
93.5
93.8
0.1
0.1
0.3
0.4
0.3
1.4
1.4
1.1
5.8
11.6
10.5
2.7
24.6
20.7
28.6
24.0
11.6
22.2
20.8
37.0
0 20 40 60 80 100
India*
Kyrgyz Republic
Philippines
Indonesia
Azerbaijan
Georgia
Thailand
Mongolia
Malaysia
OECD
US
Armenia
PRC*
ROK
Taipei,China
Japan
Viet Nam
Hong Kong, China
Kazakhstan
Singapore
Average Science/Mathematics Test Scores (% of student participants achieving 400+ and 600+)
600+ 400+
Notes: People's Rep. of China includes only Beijing, Shanghai, Jiangsu, and Guangdong. India includes only Himachal Pradesh and Tamil Nadu. The test scores are standardized to range from zero to 1,000. Sources: 2015 PISA / TIMSS scores except for Armenia and Philippines (TIMSS 2003); Mongolia (TIMSS 2007); Azerbaijan, India, and Kyrgyz Republic (PISA 2009). 23
Sources: ADB estimates.
Baseline Climate adjusted
Total % of GDP Total % of GDP
Central Asia 492 6.8 565 7.8
East Asia 13,781 4.5 16,062 5.2
South Asia 5,477 7.6 6,347 8.8
Southeast Asia 2,759 5 3,147 5.7
The Pacific 42 8.2 46 9.1
Asia and the Pacific 22,5515.1
26,1665.9
Annual Average 1,503 1,744
Developing Asia’s investment needs, 2016–2030 ($ billion in 2015 prices)
Reducing large infrastructure gaps (2)
24
Addressing rising income inequality (3)
Gini coefficients change in 1990s-2010s End-year value
RegionPre-tax and Pre-transfer Gini (mean)
Post-tax and Post-transfer Gini (mean)
% Difference
Developing Asia 40.0 37.4 (6.3)
Japan, Australia, and
New Zealand45.7 32.6 (28.6)
Latin America and the
Caribbean47.1 43.4 (7.7)
Sub-Saharan Africa45.9 45.0 (1.8)
European Union 46.8 29.9 (36.0)
North America 48.6 34.5 (29.1)
OECD 46.4 31.0 (33.2)
Asia’s Inequality in the Global Context
-10 -5 0 5 10 15
PRC (1990-2017)
Sri Lanka (1990-2016)
Indonesia (1990-2017)
Bangladesh (1991-2016)
India (1993-2012)
Lao PDR (1992-2012)
Pakistan (1990-2015)
Viet Nam (1992-2016)
Mongolia (1995-2016)
Nepal (1995-2010)
Philippines (1991-2015)
Thailand (1990-2017)
Malaysia (1992-2015)
46.7 (I)
39.8 (C)
38.1 (C)
32.4 (C)
35.7 (C)
36.4 (C)
33.5 (C)
35.3 (C)
32.3 (C)
32.8 (C)
40.1 (C)
45.3 (I)
41.0 (I)
25
Narrowing gender gaps (4)
• Challenges to achieve gender equality:
Increase women’s access to the formal labor market and decent work
Reduce women’s unequal share of unpaid care and domestic work
Increase women’s public and political participation
Eliminate gender discrimination in laws, policies and social norms
Share of Vulnerable Employment of Women (% of total female employment)
38.4 46.9
79.053.2
82.855.2
8.122.0
46.0
0
20
40
60
80
100
Central Asia East Asia(excl. ROK)
South Asia SoutheastAsia
The Pacific DevelopingAsia
Japan ROK World
Gender Wage Gap in the World by Income Level, 1995–2015
Developing Asia
Rest of the World
Real GDP per capita (2010 US dollars) 26
Rest of Developing Asia, 12.7%
People's Republic of China,
24.7%
India, 6.8%
Japan, 2.8%
Australia and New
Zealand, 1.2%
Middle East and North
Africa, 8.1%
Sub-Saharan Africa, 5.9%
LAC, 8.4%
North America,
15.3%
Europe,14.1%
2014
Rest of Developing Asia, 11.3%%
PRC, 8.7%
India, 3.5%
Japan, 3.4%
AUS and NZL,1.6%
MENA, 5.3%
Sub-Saharan Africa, 7.7%
Latin America and
the Caribbean, 10.4%
North America,
19.0%
Europe, 29.3%
1990
• Pressure from rapid economic development has created many environmental problems.
• Environmental policy responses were initiated and expanded in recent 2-3 decades.
• But much more action is needed to make the region’s development sustainable and contribute to global efforts.
Global Shares of Greenhouse Gas (Carbon Dioxide Equivalent)Annual Emissions
Protecting environment and tackling climate change (5)
27
36.4 40.4 41.3 38.2 34.0 30.6 26.1 24.0
59.7 56.1 55.1 57.6 61.4 64.0 67.6 68.1
4.0 3.5 3.6 4.1 4.7 5.5 6.3 7.9
1950 1960 1970 1980 1990 2000 2010 2018
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
10
20
30
40
50
60
70
80
90
100
1950 1960 1970 1980 1990 2000 2010 2018
Tota
l po
pu
lati
on
, bill
ion
Po
pu
lati
on
by
age
, % o
f To
tal
Total Population (billion) and Population by Age (% of Total), Developing Asia, 1950‒2018
0-14 15-64 65+ Developing Asia
Responding to demographic change and population aging (6)
28
• Asia’s economic success owes much to creating better policy and stronger institutions. The book highlights the following:
1) relying on markets with proactive state support;
2) promoting structural transformation;
3) investing in productive capacity;
4) building human capital;
5) opening trade and investment;
6) maintaining macroeconomic stability;
7) promoting social inclusiveness; and
8) engaging with development partners and promoting RCI.
• Going forward, Asia still faces many challenges and there is no room for complacency.
• Asia must continue to maintain good policy, strengthen institutions, and contribute to the development of science and technology and to tacking global issues.
Summary
29
Thank you!
The soft copy of the book can be downloaded at
https://www.adb.org/publications/asias-journey-to-prosperity
30