What, for example, are the depreciation rates of different types of capital (buildings, industrial machinery, computers)? Although the Four Tigers accumulated capital and increased labor participation at a much faster rate than other economies, the increase in these two factors far from fully explains their exceptional growth rates; growth in productivity attributable to innovative technology also accounts for a significant fraction. The importance of this question can hardly be exaggerated. Therefore, even if their so-called success can be replicated in other countries, it is probably not wise to do so. Why? In its microeconomic aspect, government should ensure property rights, law and order, and adequate provision of public goods. Since 1960 Asia, the largest and most populous of the continents, has become richer faster than any other region of the world. Recent developments: Growth in developing East Asia and Pacific strengthened slightly in 2017 to 6.4 percent from 6.3 percent in 2016. Developing Asia will contract by 0.7% this year, its first contraction in six decades. Downside risks to the outlook include the Just when one seems to have arrived at the above unambiguous and intellectually satisfying conclusions, a nagging doubt recommends checking on how sensitive these findings are to changes in the main parameters of the growth accounting exercise, such as the a parameter (usually at 0.3333) indicating the relative contribution of labor and capital, the depreciation rate, the reference period for extrapolation, the chosen estimation period, and the date for the beginning of capital accumulation. The selection of interventions to be analyzed is therefore skewed and is not scientifically neutral. In China and Vietnam, which both have kept new If the hypothesis is valid, the government should jump start the engines of growth, and if certain sectors continue to contribute to economic progress, while others do not, then government should assist the economy's forward motion by promoting the "good" sectors. Nevertheless, a strong argument of reversed causality can be made even in this case. One of the major players, China – whose markets and slowing economy caused concern across the globe – is predicted to experience a steadier growth throughout 2016, while forecasts for other Asian regions paint a mixed picture. Sizable policy support will prevent a more severe deceleration. Three of the four (except Singapore) also exceeded productivity growth in Japan. Examining the initial conditions, the study finds that, in certain important respects, they were very different from what one would expect, given the income level of these economies. and the Pacific is projected at 7.4% in 2021, The collapse of the Soviet Union in about 1990, after years of apparent economic success, caught most people by surprise. ... East & Southeast Asia ... "If the average growth … Since the early 1990s, East Asia has achieved remarkable economic growth with increasing trade and foreign direct investment (FDI), as well as opening financial markets. Figure 1 shows that in this comparison the growth rates of output per person of Hong Kong, Korea, and Taiwan Province of China were very high in the 1960-75 period and outstanding in 1975-90, while the growth rate of Singapore was outstanding during the first period and very high during the second. East Asian Economic Growth: Miracle or Bubble? risk until widespread immunity or effective Also comparing this with Latin America, where the economies are arising from a two-year recession with modest GDP growth between 1.5% to 2%. Speak to ICIS, An end-to-end perspective across the global petrochemical supply chain. 106 (May 1991), pp. The comparison of the 1960 investment rates of the four economies with the investment rates of 100 other economies clearly rejects the view that investment rates were high in the Four Tigers in 1960. Krugman (1994) makes the comparison specific: Likewise, in explaining the extraordinary postwar growth of the Four Tigers, Young (1994b) concludes that, In the same vein, Kim and Lau (1994), comparing the sources of economic growth in these countries with those of Germany, France, Japan, the United Kingdom, and the United States, found that. This variation has a regional dimension. East Asia & Pacific economic growth for 2016 was $22,658.59B, a 3.41% increase from 2015. The paper then looks at the growth record of the four countries from three other angles: the influence of government intervention, the extent to which investments and exports can be considered the main engines of growth, and the significance for sustained growth of the economic conditions prevailing at the very beginning of the countries' period of extended growth. The arguments at the center of the debate are based on theoretical notions of growth accounting. The empirical evidence presented by Rodrik regarding the possible influence of initial conditions in explaining the East Asian miracle is impressive but should be accepted with caution because of the small number of observations. Lawrence J. Lau, Ph. Download Historical Data Save as Image. Data on initial conditions in 1960, especially for developing countries, are rare and are of questionable quality. The following paper draws on material originally contained in IMF Working Paper 95/98, "Growth in East Asia: What We Can and What We Cannot Infer From It," by Michael Sarel, an Economist in the Fund's Southeast Asia and Pacific Department. Key Messages. GDP growth rate SEA 2020-2021, by country Published by Molly Moore, Dec 17, 2020 In 2020, it was forecasted that the GDP would grow by two percent in Myanmar. 13-54. Furthermore, it is not clear what the normative implications of these findings are. Innovation is critical to productivity growth and economic progress in developing East Asia including Cambodia, China, Indonesia, Lao PDR, Malaysia, … There are four reasons for this skepticism. But the opposite might also be true, that technological advances cause export orientation. By the 1960s, East Asia began to make its mark on the world economy when it began growing faster than the high-income economies of the Western World and today their share accounts for one-third of the global output and one-half in … It has been prepared by David D. Driscoll of the Fund's External Relations Department. Strong and broad-based global growth and trade, reinforced by the US fiscal stimulus, are expected to support Asia’s exports and investment, while accommodative financial conditions should support domestic demand. Between 1975 and 2005, East Asia’s GDP increased ten-fold; South Asia’s GDP increased In extreme contradiction to the neoclassical doctrine, it allows, and even recommends, the active use of tax policy to manipulate relative prices in the economy. East Asia has a remarkable record of high and sustained economic growth over the past three decades. On the macroeconomic side, government should ensure stable and low inflation, avoid excessive budget deficits, promote the integrity of the financial and banking system, provide for open markets, and strive for stable and realistic exchange rates. This material is refined for the general readership by editing and partial redrafting. Since it regards markets as efficient, this school maintains that government should confine itself to providing public goods (roads and bridges, police protection) and to getting the basics right and should abstain from any further intervention in the market. In this case, the data will reveal a strong correlation between export performance and the rate of technological progress across industries. In this case, increased saving rates are caused by increased growth rates, and not vice versa. Are they equal for all countries and for all industries, or are they higher in faster-growing economies? For this reason, strong and coordinated efforts are needed to contain the COVID-19 pandemic and minimize its economic impact, especially on the most vulnerable,” said ADB Chief Economist Yasuyuki Sawada. The Economic Outlook for Southeast Asia, China and India is a regular publication on regional economic growth, development and regional integration in Emerging Asia. While Rodrik's results suggest a possible explanation for the East Asian success, they are not robust enough to rule out other possibilities. As a percentage of the growth rates of output per person, the productivity growth rates in these four economies are roughly similar to those in Japan and the United States. The study also offers from its findings a theoretical explanation that recognizes savers as creatures of habit. Historical, current and forecast prices, together with commentaries, to help you track price fluctuation and understand price drivers and trends. East Asia is one of the most dynamic and fastest-growing regions in the world. Fourth, determining the correct direction of causality is tricky. Accordingly, the highest ambition of economists who examine the East Asian success is to identify a set of public policies that has promoted economic growth there and gives promise of doing so elsewhere. The continent contains one of the world’s most economically developed countries, Japan, and several that are impoverished, such as Afghanistan, Cambodia, and Nepal. But slowing productivity growth, uncertainties in global trade and technological advances are increasing the need to transition to new and better modes of production to sustain economic performance. It would assign to government both a microeconomic and a macroeconomic function. Can other factors shed light on the mystery of growth? This should be followed by a rebound to 5% growth in 2021. Figure 1 compares the growth rates of output per person of the Four Tigers with those of the rest of the world during 1960-75 and 1975-90. Carroll, Christopher D., and David N. Weil, "Saving and Growth: A Reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Vol. The East Asian Miracle: Economic Growth and Public Policy. So in my research, I’ve disaggregated Asia into its four constituent sub-regions – East, South-East, South and West Asia – and further into 14 selected countries described as the Asian-14. The empirical argument is that most East Asian countries that experience phenomenal growth rates also enjoy impressive rates of investment and are successful exporters. the growth of the Asian economy and its driving forces, and then share my views on the challenges ahead for the sustainable growth of the Asian economy. Inflation. somewhat relatively subdued, reflecting lasting demand, regional activity is expected to remain Bank’s projections. On the other hand, Korea and Taiwan Province of China, which are geographically much larger, were not particularly open in 1960, either in absolute terms or relative to other countries of comparable size. Therefore, in order to achieve permanent growth, an economy must continuously improve its technology. Third, public policy in the successful East Asian economies is far from homogeneous. These choices, though only slightly different from those in the baseline calculation, together yield an estimate of productivity growth significantly lower than the baseline result. These findings raise the possibility (but do not prove) that these initial conditions may help explain the phenomenal growth rates we observed in East Asia after 1960. 65-94. The downturn is broad-based—three-fourths of the region's economies are expected to contract this year. Gross domestic product (GDP) growth in Emerging Asia – Southeast Asia, China and India – has held up in 2018 despite external and domestic headwinds. Advocates of this view see the success of East Asia as the natural outcome of these cautious policies. Twitter LinkedIn Email. This paper critically reviews the reasons alleged for this extraordinary growth. Economic growth enables a reduction in absolute poverty. Stay tuned. The redistribution may be extremely damaging by weakening property rights or disrupting political stability, which are obviously essential to growth. The conclusion is that the view of these activities as engines of growth does not find much support in the data. “The road to recovery for economies in South-East Asia will be a long one, with existing US-China tensions, a long-term slowdown in global trade activity, and the Covid-19 pandemic weighing on the region’s growth prospects,” said Mark Billington, ICAEW regional director, Greater China and South-East Asia. The Asian Development Bank has stated that growth in Asia is expected to rebound next year following a significant drop in 2020 due to the Coronavirus (COVID-19).. 62-78. vaccination is achieved," it added. The study does not offer clear and conclusive results nor does it make clear policy recommendations. damage caused by the coronavirus pandemic, it Growth of the Asian Economy: Past, Present, and Future Asian Economic Growth in Historical Context Let us turn back the clock and reflect on the history of Asian economic growth. Setting up in ASEAN likely to produce results as western recovery will be sluggish . This school requires only that the government "get the basics right" and opposes any other kind of government intervention. Growth in Asia is expected to moderate to 5.0 percent in 2019 and 5.1 percent in 2020 (0.4 and 0.3 percentage point lower than projected last April, respectively). While the average resident of a non-Asian country in 1990 was 72 percent richer than his parents were in 1960, the corresponding figure for the average Korean is no less than 638 percent. In the case of exports, the theoretical argument is that export orientation increases the openness of the economy and, by exposing it to foreign technology and foreign competition, provokes a rapid rate of technological progress. Small countries need to trade more than large countries with big internal markets. We use cookies to improve the performance of our site, to analyse the traffic to our site, and to personalise your experience of the site. Young, Alwyn, "Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Economics Annual, (1992) pp. Therefore, it should encourage investments and exports, using such policy instruments as direct subsidies or preferential allocation of credit to promote these activities. He graduated from the Hebrew University of Jerusalem and received a Ph.D from Harvard University. You can control cookies through your browser settings. - reflecting release of pent-up demand and economies and global demand," the World Bank In the case of Hong Kong, Korea, and Taiwan Province of China, their growth rates of total factor productivity are as outstanding as their output growth rates. How should human capital be treated? Growth will rebound to 6.8% in 2021. Asia - Asia - Economy: While the economies of most Asian countries can be characterized as developing, there is enormous variation among them. The view that investments and exports are engines of growth is based on one empirical and one theoretical argument. A final note on the debate. 70 (1956), pp. Additional interpretational problems come from trying to estimate the share of national income attributable to capital and the share attributable to labor. In Southeast Asia, growing economic interdependence will be the backdrop to great-power rivalry, internal strife, religious radicalization, and domestic political uncertainty, including struggles between democratization and authoritarianism. 7.9% in 2021 - one percentage point above the The GDP growth rate for fiscal year 2019–20 was ­–0.4 per cent — … said. This includes forecasting the inflation and gross domestic product growth rates of countries throughout the region, including the People’s Republic of China and India. De Long and Summers (1991) sum up this view: "The government should jump-start the industrialization process by transforming economic structure faster than private entrepreneurs would." Would the Hawaiians have invented innovative igloos if it snowed a lot in Honolulu? The rate of economic growth in the long run is determined by the rate of technological progress, which is itself a natural outcome of fierce competition in the laissez-faire economic system. Rodrik, Dani, "King Kong Meets Godzilla: The World Bank and the East Asian Miracle," Chapter 1 in Miracle or Design? 4% in 2021 before moderating to 3.8% in 2022, Readers interested in the original Working Paper may purchase a copy from IMF Publication Services. [Preface]  [What We Can and What We Cannot Infer]  [The Nature of Growth][The Role of Public Policy]  [Investment and Exports]  [Initial Conditions][Concluding Remarks]  [References]  [Author Information]. from stimulus-fueled public investments, Using the East Asian model as one potential development strategy, the first step is to implement household-based land redistribution programs and other productivity improvement initiatives, such as increasing irrigation and the use of fertilizer. The Economy of Japan. One suggestion is to look at the role of government. However, these explanations rested ultimately on rapid productivity improvements. What conclusion emerges from this exercise? The results of these studies are not only strikingly different from the view presented earlier of the primacy of technological progress, but they also convey a very pessimistic message. The intention of this exercise is to demonstrate the general fragility of conclusions about the nature of the growth process in East Asia. expand by 4.9% in 2021 and 5.2% in 2022, to a 2020, led by a strong rebound in China, the Moreover, Asia is the site of some of the world's longest modern economic booms, starting from the Japanese economic … First, economic growth in the Four Tigers is hardly miraculous: it is just the expected outcome of a massive accumulation of labor and capital. Global economic output is expected to expand by Investment rates (or equivalently, saving rates) appear to have a causal relationship to growth rates (i.e., saving causes growth). The first four bars in this figure describe the growth rates of the individual Tigers. after shrinking by 4.3% in 2020, based on World IMF: Asian economic growth set to be lowest for six decades. Until the early 19th century, the economies of East Asia together was larger than today's high-income economies combined measured in purchasing power parity terms. Krugman, Paul, "The Myth of Asia's Miracle," Foreign Affairs, Vol. Growth in China is projected to accelerate to Rodrik (1994), for example, remarks that the East Asian model encompasses highly interventionist strategies (Japan and Korea), as well as noninterventionist ones (Hong Kong and Thailand); explicitly redistributive policies (Malaysia), as well as distributionally neutral ones (most of the rest); clientelism (Indonesia and Thailand), as well as strong, autonomous states (Japan, Korea, Singapore); emphasis on large conglomerates (Korea), as well as on small, entrepreneurial firms (Taiwan). Tracing average growth of income per person in 41 countries during 1960-85 back to initial conditions in 1960, Rodrik shows that countries that were poorer, but that had good primary education systems and less inequality of income and land distribution around 1960, grew faster than the others during the following period. Third, the societies in these countries made enormous sacrifices of consumption and leisure to achieve these growth rates. Based … The paper concludes with a few minimalist observations on possible areas for future study. De Long, J. Bradford, and Lawrence H. Summers , "Equipment Investment and Economic Growth," Quarterly Journal of Economics, No. On the other hand, since economists find unsuccessful economies much less attractive to study, they rarely look at government intervention in economies of this type. Conventional wisdom relates education to wealth. This paper begins by looking at the long-running debate over the nature of growth. The influence of Confucianism in economic development is a double-edged sword as highlights. First, in analyzing "successful" policies, there is clear selection bias. 38 (April, 1994a), pp. It demonstrates that in the case of the Four Tigers this proportion was not systematically different from those of Japan and the United States: for Hong Kong and Taiwan Province of China it was slightly higher, while in the case of Korea and Singapore it was slightly lower. The western part of Asia grew during this period at about the same rate as the rest of the world, but, as a whole, the eastern half (ten countries: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan Province of China, and Thailand) turned in a superior performance, although variations in achievement can be observed here too. In this case, by the way, further education constitutes an advantage for the specific individual relative to other individuals but does not necessarily improve the macroeconomic prospects of the economy. the region excluding China is expected to Finding, for example, that economies with high growth rates during the 1960-90 period had very high investment rates or a significant export orientation around 1960 would go a long way toward solving the problem of reverse causality. There is still a long way for the virus to vanish, and it is expected to remain as an “integral” part of our everyday lives. The growth of East Asia’s economic development is evidently influenced by the ideas of Confucius in particular in relation to ideas of social hierarchical order and harmony. The findings reported by Young (1994a) regarding the low productivity growth in the Four Tigers were obtained by using a relatively high value for a (0.45) and a specific estimation period (1970-85). East Asia and Pacific economy to expand 7.4% in 2021 - World Bank SINGAPORE (ICIS)--Economic growth in east Asia and the Pacific is projected at 7.4% in 2021, reversing an estimated contraction of 0.9% in 2020, led by a strong rebound in … The Tigers have had annual growth rates of output per person well in excess of 6 percent. Advocates of this view see the success of East Asia as confirming their conviction. These examples are presented not to prove that government policies are unimportant, but to make the modest point that we still understand very little about the relationship between public policy and the extraordinary growth rates of the East Asian economies. Labor and capital, known collectively as the "factors of production," refer in this context to the workforce and to the capital goods (buildings, machines, vehicles) that the workforce uses in manufacturing some product or providing some service. BANGKOK, October 10, 2019 —Growth in developing East Asian and Pacific economies is expected to slow from 6.3 percent in 2018 to 5.8 percent in 2019 and to 5.7 and 5.6 percent in 2020 and 2021, respectively, reflecting a broad-based decline in export growth and manufacturing activity. This impressive achievement is, however, still modest compared with the phenomenal growth of Hong Kong, Korea, Singapore, and Taiwan Province of China, known as the "Four Tigers" because of their powerful and intimidating economic performance. The pickup reflected better-than-expected external conditions—an expansion of global activity and trade, a recovery of commodity prices, and benign financing conditions. A study by Rodrik in 1994 examined precisely this question. In a famous study, Solow (1956) conducted a growth accounting exercise such as the one described above. Driven by robust domestic demand and a gradual recovery in the global economy and commodity prices, the economies of East Asia are projected to expand at 6.2% in 2017 and 6.1% in 2018. have expanded by 2 and 2.8%, respectively, in Investment and government spending are likely to offset substantial weakness in trade. global economy. Most studies observe a correlation between investment and exporting that are averaged over a period and a rate of growth that is averaged over the same period. World Bank's growth forecast in June last year If growth is too fast, we could experience inflation. Especially in the case of the Four Tigers, for which there are no good data before 1960, it is extremely difficult to estimate the capital stock at that time. Confusion is compounded when he discovers that ideological debate has multiplied even further the analyses of this phenomenon. But slowing productivity growth, uncertainties in global trade, and technological … This accounting method deals with three elements that contribute to the production of goods and services: labor, capital, and technology. Although their incomes may be growing, households will respond slowly to their expanding wealth and will increase their consumption only gradually, with the effect that they save more. Nevertheless, from a normative point of view, it is far from clear what specific policies governments should pursue, beyond the standard set of policies aimed at getting the basics right. economic growth, such as that seen in East Asia, can largely be ex-plained by successfully catching up with technology: "The optimistic view of the potential for development suggested by idea gaps is consis-tent with the experience of a few, very rapidly growing economies.