Transcript Development in East and Southeast Asia

1b. Emergence of modern SE
Asian economies
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Overview
 Comparisons: the region in 1970 and 2008
 Big events and their growth implications
 Growth and development questions
map
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Main development strategies – 1970s
 1970: poor, agrarian, undereducated, weak infrastructure,
little modern manufacturing, dependent on primary exports
 Goals: industrializ’n, less import dependence, food security
 Main development policies: Use natural resource export
revenues to finance agricultural and industrial growth
 Import-substitution policies (ISI; protection) for industry
 Upside: resource abundance, ‘easy’ import substitution
(consumer goods, simple manufactures)
 Downside: vulnerability to terms of trade shocks, inefficiency of
protected “infant” industries
 Growth outcomes have been diverse…
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Per capita income ($US of 2000) relative to world average (%)
100
90
80
70
Cambodia
60
Indonesia
50
Malaysia
40
Philippines
Thailand
30
Vietnam
20
Lao PDR
10
0
Source: WDI
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Growth episodes (av. gr. per capita GDP, %)
Early
Expansion
Reagan
Recession
Post-Plaza
Miracle
Asian
Crisis
Recovery &
Convergence
1970-82
1983-86
1987-96
1997-1999
2000-08
6.06
7.50
Cambodia
Indonesia
4.94
3.50
6.24
-7.71
3.85
Malaysia
5.05
-0.27
6.60
-3.23
3.12
Philippines
2.66
-6.37
1.22
-0.69
2.87
Singapore
6.54
2.27
5.84
0.69
2.47
Thailand
4.15
3.33
8.17
-3.95
3.74
Vietnam
5.35
3.86
6.15
Lao PDR
3.39
3.22
5.01
1.34
1.39
1.66
World
1.47
2.14
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Differences between countries and
through time:
 Partly due to common external shocks
 Partly due to country-specific policies
 Let’s look at common external shocks…
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4 defining events in the global economy
 First oil price shock (1973-5).
 Recycling of “petrodollars” in global markets --> cheap credit for
developing countries.
 Second oil price shock 1979-80.
 Global recession; high real interest rates on debt
 Global commodity price slump early 1980s.
 Export revenues collapse for resource-dependent economies. Debt
servicing crises and recessions (1985). Collapse of inward-oriented
development strategies.
 Plaza Accord 1985.
 Recovery in US and world economies (--> boom in global manuf. trade)
and “hollowing-out” of Japanese economy
(--> SE Asian FDI boom)
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World oil prices ($/barrel) 1970-2009
OPEC I OPEC II
Source:
http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.as
p
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PLAZA ACCORD
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Boom, bubble and bust
 Countries that pursued macro stability in 1970s emerged in better
shape – less debt burden meant more productive investment
 These countries were attractive targets for E. Asian FDI after 1985
 Boom: “E. Asian Miracle” (Thailand, Singapore, Malaysia, Indonesia)
 Based on rising exports of low-end manufactures
 Financed largely by foreign fixed capital investments
 Bubble: speculative booms in property, building, stocks
 Financed by short-term borrowing from foreign banks
 Bust: loss of export competitiveness, financial crisis (1997-99)
 Chinese competition; labor costs
 Inability to earn enough to service foreign debts
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4 defining events in Asian regional econ.
 ASEAN (1967+).
 Regional political grouping, later economic grouping (ASEAN Free
Trade Area; ASEAN-China Free Trade Agreement 2010)
 China’s new “Open Door” policy 1978+
 Re-entry of China to global economy

RMB (Chinese currency) devaluation 1994
 Dissolution of the Soviet Union 1991
 Withdrawal of Soviet economic assistance to Asian allies
(Vietnam) after 1986
 Asian Financial Crisis 1997-99.
 “Correction” brings an end to “miracle” years, 1988-96
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Enter the dragon
Merchandise exports (current US$) China/World (%)
10
9
8
7
6
5
4
3
2
1
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
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Source: WDI
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Enter the dragon
 China’s GDP growth about 10%/yr since 1990
 Trade growth around 15% per year
 Rising share of world exports, esp. manufactures
 Driven by economic growth and liberalization (WTO
membership)
 China’s entry to world market:
 Adds hundreds of millions of workers to the global labor
endowment
 Creates intense competition for labor-intensive exports
 Generates huge demand growth for inputs to these products
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Homework!!!!
 Read Malcom Dowling: “Asia’s Economic Miracle: A
Historical Perspective”
 Notice distinction between NIEs (Singapore, HK, Taiwan,
Korea) and SE Asia (Indonesia, Thailand, Malaysia)
 What are the four “critical aspects” of Asian economies that
make rapid growth possible?
 This was written in 1997. Are the same 4 things “critical” to
development today? Do you think there are any changes?
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Dev’t prospects & strategies – 1970s
 What should be main econ development goals?
 What dev’t strategies/policies are best? For whom?
 GROUPS:
• President; 1-2 urban industrial representatives; 3-4 rural/farm
representatives
• BUT each urban rep has 2X votes, AND president can ignore all
others if s/he chooses
• Discuss, decide, report back (5-10 min)
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