Economic Development in Pacific Asia

Hafiz Akhand, Kanhaya Gupta

• Publisher: Routledge
• Year: 2005
• eBook ISBN: 9781134441808
• Topic: Business
• Subtopic: Business General
• Index: Business

During the period 1965 to 1990 East Asia was the world's fastest growing region. Economic Development in Pacific Asia provides illuminating, non-technical perspectives on key facets of the region's economies. The text focuses on the eight countries which accounted for the majority of the economic growth: Japan, Hong Kong, Taiwan, Republic of Korea, Indonesia, Malaysia, Singapore and Thailand.

Empirical evidence is used to provide a revealing, multi-dimensional statistical profile of the countries as well as the region as a whole. Rather than present a statistical history of each country, the text highlights the relative performance in terms of the variables which are studied within each chapter. Akhand and Gupta examine a range of popular topics including:

• the relative role of factors accumulation versus technology change
• factor price distribution and employment
• growth, poverty and income distribution
• the Asian Crisis and corruption.

In addition, the book examines topics rarely covered in the current economics literature such as urbanization, the gender gap and the digital divide.

It provides an accessible and wide ranging assessment of the existing evidence and current arguments on East Asian economic development, and is a valuable addition to economists, policy makers and those interested in Asian economic affairs.

1 Introduction

The so-called ‘East Asian Miracle’, the rapid growth of the Chinese economy over the past few decades and the recent spurt in the growth rate of the Indian economy, particularly in its information technology (IT) sector, have drawn considerable attention in the research agendas of academic scholars as well as other researchers and international organizations like the International Monetary Fund (IMF) and the World Bank. A good deal of the research work is widely scattered and, as one might expect, tends to be quite technical and at the same time cover a wide variety of issues. It is our strong belief that there is a wide constituency of readers, both economists, including students, and policy makers and others interested in Asian economic affairs, who would be interested in a rigorous though not necessarily technical, accessible and wide-ranging assessment of the existing evidence and arguments on some of the major issues under one roof.

If any such undertaking is to be manageable, one must make choices about countries and the topics to be covered. As for the countries, our choice is relatively straightforward. The East Asian countries have demonstrated a robust economic performance over an extended period of time. For example, considering the period 1965–1990, the twenty-three East Asian countries grew faster than any other region of the world. But the most remarkable part of even this remarkable performance is the fact that only eight of the East Asian countries accounted for most of this growth. The eight countries are: Japan, the ‘Four Little Tigers’ – Hong Kong, the Republic of Korea (from here on, also South Korea), Singapore and Taiwan, China and the three newly industrialized countries (NICs) – Indonesia, Malaysia and Thailand. And although the Philippines is sometimes included for purposes of analysis, it lagged behind considerably. Consequently, these eight or nine (including the Philippines) countries are the focus of this study.

As for the topics to be covered, the decision was more complicated. Our choice, as reflected in the chapter scheme, essentially reflects three considerations. First, they reflect our preferences, developed over a significant period of teaching and research. Second, many of the topics are routinely included in courses in development economics, and those which are not, are beginning to be; for example, gender gap, digital divide and globalization. And, finally, we have tried to include topics which in our view, though not fashionable, are none the less important and are likely to be even more so in future – for example, urbanization and corruption, to name just a few.

A brief outline of the rest of the chapters now follows, which should give a better idea about the contents of the book. In Chapter 2, using existing data sets, we try to provide a brief, but multidimensional, statistical profile of the countries of our sample as well as for the region. No attempt has been made to provide a statistical history of the eight or nine countries. Rather, the intention is to highlight relative performance in terms of the variables which are analysed in the rest of the chapters.

Chapter 3 takes up one of the most contentious but interesting topics in the entire book. This has to do with the relative roles of factor accumulation versus technological change. The debate has been particularly furious about the ‘Four Little Tigers’ already identified; namely, Hong Kong, South Korea, Singapore and Taiwan, China. This chapter provides a detailed survey of the literature, both regarding methodological issues as well as the empirical evidence and attempts are made to draw appropriate lessons.

Chapter 4 takes up the question regarding the role of factor price distortions. There has been much debate, no doubt inspired by neoclassical economics, that there exists significant factor price distortions in the developing countries which have serious consequences for resource allocation in general, but particularly for employment. Since these distortions are generally caused by public policies, the distortions have policy implications. After providing a brief and non-technical analytical background, the chapter tries to summarize the existing evidence on the extent of factor price distortions. An attempt is also made to summarize arguments and evidence on the causes of these distortions. Following this, a summary and assessment of the effects of these distortions are provided.

Chapter 5 takes up the theme ‘Growth, Poverty and Income Distribution’. This topic has attracted particular attention because many of the countries of our sample have been able to achieve rapid growth while at the same time achieving reductions in income inequalities and poverty. This chapter provides a survey of this evidence and also examines possible danger signals for the future.

Chapter 6 deals with an issue which continues to attract attention far beyond the East Asian region. This chapter tries to provide a brief but solid summary of the causes, implications and the reforms to deal with what is now popularly know as the ‘Asian crisis’.

Few issues have caught as much attention or aroused as much passion as corruption. This topic is taken in Chapter 7. The problem with this topic is that it is too broad, it has too broad a scope – social, political and economic. Since there already is a vast literature on corruption, we very briefly summarize a rather specific section of this literature devoted to identifying the causes of corruption, and the effects of corruption on growth and foreign direct investment (FDI). In addition, we provide some of our own estimates of the effects of corruption on growth and FDI.

Chapter 8 on ‘Urbanization’ tries to draw attention to an area which is rarely, if ever, included in books on economic development. This topic is generally included in geography, urban planning and demography. But our goal is rather limited. We aim to analyse the data on urbanization given in the World Development Indicators and provide a preliminary analysis of this information insofar as it bears on the issue of sustainability.

Chapter 9 on the ‘Gender Gap’ is certainly an unorthodox one for a book on economic development, but not on Asia or East Asia. But our goal is quite limited, partly, as we will see, due to limitations of the data. However, this chapter offers some interesting ideas as to why we continue to have the ‘gender gap’ in these countries and what might be done to bridge the gap.

Chapter 10 on the ‘Digital Divide’ may be viewed in the same spirit as the previous chapter on the gender gap. In spite of the explosion of interest in the information technology industry, this topic does not get included in books on economic development. We offer a brief survey of this topic.

Globalization is a catchword these days and means so many things that it almost ends up meaning nothing. We try to define it very narrowly for our purpose and then summarize its implications for the labour market in Chapter 11.

In a book of this kind, there can be no standard type of conclusions. This is a book on ‘some major themes’ and no doubt one can argue that many, if not all, of the themes covered are interrelated, but that is not the aim of this book. Of course, we can argue that many of the topics are interrelated, but what we have done is to treat them individually, so readers can get a handle on separate issues and then draw their own conclusions. For this reason, Chapter 12 is not only brief, but also reflects our view of what the literature says, what lessons we can possibly draw, and what remains to be done.

2 Record of transformation

The basic aim of this chapter is to highlight some of the major changes that have taken place in the countries of our sample, which often earn the appellation of the ‘East Asia Miracle’. It should be noted that our aim is not to provide a detailed account of the economic history of the East Asian economies. The major rationale for including the statistical material that we have in this chapter is that these materials reflect our choice of the topics covered in the subsequent chapters.

We provide brief descriptions of the tables included in this chapter along with their rationale and how they are connected to the chapters that follow.

We start with Table 2.1 which details the aggregative aspects of growth in the region and their comparison with the rest of the world. The table reflects the aggregative performance as well as the sectoral performance. The improvement in individual welfare can also be read if we assume that improvements in household consumption expenditure reflect improvements in individual welfare. Given this interpretation and the rest of the data in this table, we can see that the countries of East Asia and the Pacific outperformed countries in every other group over the period considered. This is so whether judged in terms of the growth rate of the gross domestic product (GDP) or per capita GDP growth, or the growth rates of value added in the three major sectors or household consumption expenditure. Of course, there are variations in the individual countries included in East Asia and the Pacific region.

A simple way to appreciate the dimensions of their outstanding performance is to look at their per capita GDP growth rate. Of the seven countries included here, the lowest estimate for the period 1965–1999 is for Japan, and even in that case the estimate is 3.4 per cent, a remarkable figure indeed. The average for the region was 5.6 per cent as against a mere 1.6 per cent for the world as a whole. We can appreciate their performance further, if we consider the growth rates of three sectors. An interesting comparison is between South Asia and East Asia and the Pacific. Finally, the last column is very revealing. The growth rate of household final consumption expenditure was 6.7 per cent in East Asia and the Pacific while it was only 3.4 per cent for the world as a whole. Quite apart from the fact that the growth rate of East Asia and the Pacific was almost twice that of the world, what is even more striking is the absolute magnitude of the growth rate. It meant that while it took nearly twenty-one years for per capita consumption expenditure to double for the world, for East Asia and the Pacific it took only about eleven years, roughly a decade, or just about half the time.

Table 2.1 Average annual growth rates, 1965-1999 (%)

The evidence from Table 2.2 immediately points to the importance of the structure of production over the period covered. In this table we consider the evidence across the countries of the sample as well as over time. An outstanding feature of the table is the decline in the share of agriculture for each of the countries included in the table. By 1999, with the exception of Indonesia, the share of agriculture had declined to about 10 per cent or lower for all but Indonesia. The dominance of the share of the service sector is obvious for each of the countries. The extraordinary role played by this sector in Hong Kong, Japan, South Korea and Singapore is obvious, although its importance cannot be overemphasized for the remaining countries also. But the main point that emerges from this table is that the rapid growth rates detailed in Table 2.1 were accompanied by significant changes in the structure of production.

Along with the rapid changes in the structure of production shown in Table 2.2, it has also been suggested that the growth of these economies was accompanied by or caused by rapid changes in the export performance of these economies. Put differently, it is often asserted that their growth was in no small measure due to their openness to trade and foreign investment. Table 2.3 shows the importance of trade. Columns 2 and 3 give the shares of trade in 1970 and 1999 while the next two columns give the shares of manufactures as a percentage of total exports for 1980 and 1998. By 1998 we can easily see the important role played both by trade as well as manufactures in total exports. Without saying anything about causality here, it is worthwhile asking whether the dynamic role often ascribed to the external sector had more to do with the manufacturing sector or with the industrial sector broadly defined. Regardless, what is clear is that for the countries under consideration, trade played a significant role.

Table 2.2 Structure of production: distribution of GDP, 1960 and 1999 (%)

Table 2.3 The importance of trade and globalization, 1970 and 1999

Along with the transformation in economic sectors noted above, these economies also exhibited remarkable transformation in terms of demographic features. Some of these demographic factors are shown in Table 2.4. We concentrate on four variables: crude birth rate, crude death rate, total fertility rate and annual population growth rate. A comparison with the developed countries is revealing. Thus, with the exception of Japan, the crude birth rate in 1960 was almost twice that of the developed countries, but it had moved close to that of the developed countries by the end of 1994. Similar movement can be discerned in the case of the death rate. Of course, the total fertility rate reflects the movement of the two. By 1994 the total fertility rate in many of the countries in the sample had declined to even lower than that of the developed countries. Finally, if we consider the annual population growth rate over the period 1960–1994, it had declined to even lower than that of the industrial countries in Japan and South Korea, while it was close to 2 per cent for all except Malaysia. This significant decline in population growth is reflected in the sharp increase in the growth of per capita GDP noted in Table 2.1 earlier. This also indicates how economic and demographic factors must have interacted in these countries.

Reference was made to the increase in welfare in Table 2.1. That was done in terms of the increase in the rate of household consumption expenditure. While that indicator is useful, we might also look at some other indicators which try to answer the same question. For this purpose, we consider a number of indicators of the quality of life. Needless to say, any selection of indicators for this purpose must remain arbitrary and the indicators considered in Table 2.5 are no exception. These indicators generally lie behind the Human Development Index (HDI) of the United Nations Development Programme (UNDP). There are many ways to read this table. For example, we can make an intercountry intertemporal comparison, or we can compare the countries of our sample with those of the other developing countries or the industrial countries. Thus, the comparison we make depends on the purpose at hand. For our case, we consider the performance of the countries in our sample with those of the industrial countries. Considering one indicator at a time, we can see that by 1994, life expectancy at birth had exceeded in Hong Kong and Singapore, in addition to Japan which had already surpassed the industrial countries earlier. The other countries had closed the gap significantly as well. Equally significant improvements can be noted in the case of infant mortality rates as well as adult literacy rates. Perhaps a comparison of the real GDP in per capita terms (at purchasing power parity dollar, PPP $) is most revealing. By 1994, it had exceeded in Hong Kong, Japan and Singapore and had risen significantly in the remaining countries. If we compare the figure for the developing countries in general, we find that the performance of these countries can only be described as being astounding.

Table 2.4 Demographic transition

Table 2.5 Trends in human development or some quality of life indicators

Table 2.6 Population below the international poverty line (population below $2 a day)

Turning to Table 2.6, we can examine another feature of the ‘welfare’ experienced by the populations of these countries. One might reasonably ask, what good is it to have a high growth rate if most of the population is mired in poverty and/or its income distribution is very lopsided? This table tries to shed some light on these kinds of questions. The table provides data on the percentage of the population below the poverty line, poverty being measured by $2 per day. In the three countries that we have the data for in Table 2.6, we can see that the disparity is very substantial, being less than 2 per cent for South Korea, to almost 28 per cent for Thailand and then almost twice that of Thailand for Indonesia. Of course one might argue that $2 per day is too high a standard to adopt, but by the same token, we may argue that it is too low as well. What is obvious, however, is that there is still widespread poverty in the East Asian economies as well as inter-country disparity.

Next we consider their performance in terms of some of the inputs. Starting with Table 2.7, we first consider the use and the efficiency of commercial energy. An interesting way to look at these numbers will be to compare them over time with the performance of the ‘high’ income countries. But first, we can see that there was considerable variation in the performance of the different countries in East Asia. That is not surprising given the fact that the growth performance of these countries was not even either. A more revealing figure is the one given in column 4. For the period 1980–1998, the average annual growth rate of commercial energy consumption per capita was 1 per cent for the ‘high’ income countries whereas it was 3 per cent for the East Asia and the Pacific countries. The performance was even more striking if we consider the individual countries, except Indonesia. To get some idea about the efficiency with which commercial energy was used, we can look at the last two columns. For the high-income countries, the figure was 4.6. It was equalled or exceeded by Hong Kong, Indonesia, Japan and Thailand.

From the efficient use of commercial energy considerations in Table 2.7, we turn our attention to human capital accumulation in Table 2.8. In this table, we consider three components of the gross enrolment ratio, namely, primary, secondary and tertiary, each expressed as a percentage of the relevant age group. In this case again, we look at intertemporal as well as inter-country comparisons. Without entering into discussion about which is more important, we simply note that by 1997, the latest year for which we have the relevant data, the primary gross enrolment ratio for each of the countries in Table 2.11 had reached close to that of the high-income countries. For the secondary and tertiary gross enrolment ratios, the story is not quite as remarkable. Wit...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Acknowledgements
• 1 Introduction
• 2 Record of transformation
• 3 The East Asian Miracle
• 4 Factor price distortions and economic activity
• 5 Growth, poverty and income distribution
• 6 East Asian financial crisis
• 7 Corruption, growth and foreign direct investment
• 8 Urbanization
• 9 Gender gap
• 10 Digital divide
• 11 Globalization and labour market outcomes
• 12 What we have learned and what remains to be done
• Notes
• References