Transcript AAE/IS 373 Class 4 Economic growth

Economic Development of
Southeast Asia
Ian Coxhead
University of Wisconsin-Madison
0
Overview
 Week 1: Early modern development
 Historical background – initial conditions
 Getting growth started: resources, industry, agriculture
 “Old style” global shocks: oil crisis, 1970s
 Income growth, poverty and distribution
 Week 2: Development since mid-1980s
 Post-Plaza Accord boom, bubble and bust
 Globalization, again: trade liberalization and FDI
 Enter the dragon: the rise of China
 Topics: human capital, Asian regional integration, macro
policy
1
Approach and assessment
 Lots of reading!   
 Thinking about what we read:
 2 short midweek homeworks @ 10%
 Connections to data
 1 big research assignment, using SE Asian economic growth
and development data @ 30%
 Just checking…
 2 end-of-week tests @ 20%
 Having your say
 Class participation @ 10%
2
1a Southeast Asia before the
modern era
3
Overview
 Why study “ancient” history?
 Precolonial SE Asia: the first globalization era
 Colonialism
 War, nationalism and revolution
 The region about 1970: a snapshot
map
4
Why study ancient history?
 Precolonial SEA has some remarkable similarities with contemporary
times:
 Resource endowments relative to rest of world
Natural resource abundance
 Importers of advanced technologies
 Trade relationships
 Esp. predominance of China & Northeast Asia
 Vulnerability to world market shocks
 Susceptibility to radical political and religious ideas

 Of course, some differences too:
 Then: labor shortage; now, mainly labor abundance relative to rest of
world
Is history fate?
map
5
Precolonial SE Asia (~1000-1600 AD)
 Mainland, Java, Sumatra: centralized kingdoms with capitals
astride navigable rivers
 Wealth based on local resource base and taxes on resource exports
(rice, spices, specialty timbers)
 E.g. Ayuthaya (Thailand): about 25% gov’t revenue from taxes on
trade between hinterland and rest of world.
 Major religions display strong centralizing tendencies
 Archipelago/Malay peninsula: decentralized political entities,
capitals at coastal ports
 Wealth based on resource exports and entrepôt trade between Red Sea
ports, India and China
 Spread of Islam (a decentralized religion) along maritime trade
routes
6
Resource endowments
 Labor-scarce, land-abundant economies
 Slavery & quasi-slavery systems widespread & persistent
Many wars were primarily slave raids
 Corvée and indentured labor under colonialism.
 Open land frontiers (these weakened central authority)
 Natural resource wealth
 Abundant timber and cropland, plentiful & regular rainfall
 Specific resource endowments of very high value (nutmeg, mace,
cloves, tin & other mineral resources)
 Little reproducible capital and few commercial inst’ns
 Main unit of production was the household
 Manufactures and high-tech products largely imported (ceramics,
silk & painted textiles, navigational eqpt, paper)

7
Precolonial globalization
 Trade with China, India, & Europe
 Maritime Silk Route
 European search for “Spice Islands”  voyages of discovery
Columbus (1492), De Gama (1498), Magellan (1521), …
 Migration and cultural flows accompanied trade
 Specialization & technology transfers
 European trade  huge expansion of pepper & spice area,
intraregional trade in rice & other staples
 Vulnerability to global shocks
 Trade shocks: closure of China & Japan; European conflicts
 Dependence of global trade routes on small numbers of entrepreneurs
(or on foreign MNCs, e.g. Dutch E. India Co.)

8
Summary: precolonial SE Asia
 Resources: land abundance, labor scarcity.
 Trade: diversified; regional and global.
 Econ. structure: mainly diversified; subsistence-oriented;
low-tech (no capital).
“Southeast Asia … has always been an exporter of raw materials and an
importer of manufactures. Its own manufactures were significant items
of local trade, but … they were not needed in China or India, the two
populous manufacturing centers on its borders. It was the products of
tropical agriculture and horticulture… that received the greatest stimulus
from the trade boom… followed by forest products”
(Reid 1993:32).
9
Colonialism (17th century to ~1950s)
 Econ. motives for colonial rule
 Trade access to East Asia (Manila, Cochinchina as
bases/entrepots)
 SE Asian natural resources (spices, timber, ag. produce,
minerals)
Treaty of Breda (1697): Dutch exchange an American colony for
Run Is., securing global monopoly on nutmeg
 Trade and tax revenues to support colonial govt

 Markets for European manufactures.
 Strategic and political motives also important
 inter-Euro competition for markets & influence (Portugal vs.
Venice, etc.).
10
Econ. impacts of colonialism
 New bilateral trade and commercial links with European
economies (e.g. Manila galleon from China to Spain)
 Redirection of trade flows towards colonial power.
 Strong in Philippines and Indochina, less so elsewhere
 New products (rubber, palm oil) and new emphasis on
some traditional products (rice, spices)
 Colonial regimes stressed production for metropolitan
markets - and those alone:
 e.g in VN, "colonial production must be limited to supplying
the mother country with raw materials and with noncompetitive products" (Fr. official).
map
11
Econ. impacts of colonialism
 New modes of production, esp. plantation economies
 Esp. in Indonesia. 19th century plantation develpt even led
to hunger as food production declined.
 New resources and changes in existing resource bases
 Infrastructural development: railroads, ports, cities
 But dendritic development: new cities (Saigon, Rangoon on
coast)
 Movement of people: Chinese & Tamils --> Plantations in
Malaya & Philippines; Vietnamese to Cambodia, etc.
 New technologies and flows of information (economic,
political, etc).
12
Welfare impacts of colonialism
 Little evidence of gains from trade in colonial era
 Falling global terms of trade in early 20th century reduced
gains of the 19th century, if any
 “Colonial drain” -- unrequited export surplus, implying a
drain of capital or lack of reinvestment from rest of world.
 Probable distortion of investment & expenditure incentives


Colonial governments placed low priority on ‘development’
expenditures
Colonial market distortions probably diverted domestic
investments toward less productive activities and
consumption
 But new technologies & info flows (both deliberate and
otherwise) from colonizers to colonized
map
13
Persistence of colonial impacts
 Economic impacts
 Primate cities (Jakarta, Saigon, … )
 Ethnic mix of some populations (Malaysia)
 Political, administrative, legal and fiscal structures.
 Production structure
 SEA specialized in food (for own consumption) and agric. raw
materials for industrial economies: rubber, palm oil, timber,
copra/CNO, sugar.
 Trade patterns
 Europe (later USA, Japan) but no longer much intra-regional
or China/India trade.
14
War, nationalism, and revolution
 WWII (1941-45 in Pac/Asia) wrought destruction and
created opportunities for change
 Loss of infrastructure, manpower (esp. Philippines, Burma)
 Promotion of nationalist (anti-colonialist) movements --
some by the Japanese themselves
 Exit from colonialism, 1940s-50s.
 Liberation with violence: Indonesia, Vietnam, Malaysia
 Domestic political fissures persisted beyond decolonization
 Colonial legacies in early nationalist regimes
 Emphasis on self-legitimation (“nation-building”)
 Economic nationalism (mistrust of colonial systems)

map
Self-sufficiency and Soviet-style central planning
15
SE Asia about 1970: A snapshot
 Ongoing or recent wars/violent civil conflict/separatist
movements in Vietnam, Cambodia, Laos, Indonesia,
Philippines, Thailand
 Military dictatorships in all countries except Singapore (and
Philippines, until 1972)
 Major challenges of nation-building and establishment of
“national” economy
16
SE Asia about 1970
GDP per capita (constant 2000 US$)
 Poor
Cambodia
Indonesia
236
Malaysia
1145
Myanmar
Philippines
732
Singapore
4531
Thailand
516
Vietnam
Low & middle income
High income
635
12934
17
SE Asia about 1970
 Agrarian
Agriculture, Employment
value added in agriculture
(% GDP)
(% of total)
Cambodia
Indonesia
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Low & middle
income
High income
45
29
30
62
48
60
54
26
72
25
6
Manuf.
exports
(% total)
1.6
1.2
6.5
1.5
7.5
27.5
4.7
71.1
18
SE Asia about 1970
Literacy rate (% Telephone lines
of population) (per 100 people)
 Unlettered
and
unconnected
Cambodia
Indonesia
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Low & middle
income
High income
47
23
60
72
50
68
>90
0.12
0.96
0.48
5.13
0.26
0.00
18.46
19
SE Asia about 1970
 Moderate
savings &
financial dev.
Gross domestic
savings (% of Money (M2) as
GDP)
% of GDP
Cambodia
Indonesia
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Low & middle
income
High income
14
24
22
18
21
7.8
34.8
23.8
23.3
61.8
30.2
21
26
23.7
>80
20
SE Asia about 1970
Exports of goods and services (% of GDP)
 Somewhat
Cambodia
tradedependent
Indonesia
13
Malaysia
41
Myanmar
Philippines
22
Singapore
Thailand
15
Vietnam
Low & middle income
10
High income
14
21
Exports as percent of GDP
140
1960
120
1970
1980
100
1990
80
2000
60
40
20
0
Indonesia
Malaysia
Myanmar
Philippines
Thailand
Vietnam
Cambodia
Source: WDI
22
Imports as percent of GDP
120
1960
100
1970
1980
80
1990
2000
60
40
20
0
Cambodia
Indonesia
Malaysia
Myanmar
Philippines
Thailand
Vietnam
Source: WDI
23
Ag & nat. res exports (% of total)
120
Indonesia
100
Malaysia
Philippines
80
Thailand
60
40
20
0
1970
1980
1990
2000
Source: WDI
24
Manufacturing exports (per cent merchandise exports)
100
90
Indonesia
80
Malaysia
70
Philippines
60
Thailand
Singapore
50
40
30
20
10
0
1960
1970
1980
1990
2000
Source: WDI
25
Two important themes
 Globalization and growth in historical context
 Shifting patterns of trade in precolonial, colonial, and postcolonial eras
 Evolution of global and regional trade networks in late 20th
century
 Influence of global integration on economic growth
 Industrialization vs. reliance on natural resource wealth
 Follow comparative advantage or hope for dynamic gains
from industry growth?
 Within industrialization, factor content and links to growth
26
SE Asian transitions
 “3rd world”  “Emerging markets”
 Low income  middle income
 Nat resources  manufacturing
 Rural  urban
 Economically isolated  integrated
 Gov’t as central actor  Gov’t as regulator/facilitator
 But not simple:
 Nonlinear processes!
 Different speeds of transition
 No guarantees of future trajectory
27
 Read Malcom Dowling: “Asia’s economic miracle”
 NIEs: Singapore, HK, Taiwan, Korea
 SE Asia: Indonesia, Thailand, Malaysia
 What are the 4 “critical” elements of E/SE Asian growth?
 Ask yourself: is anything different since 1997?
 Is what was true in 1997 still true today?
28