Introduction
Most economies in developing Asia and the Pacific present two main differences between today and three decades ago. The first relates to size: they have grown significantly. The second relates to their look and form: they have changed.
Economies that sustain rapid growth do not simply replicate themselves on a larger scale. Countries become different as they grow, not only in terms of what they produce, but also how they produce. And the ways in which they change matter for growth. Growth occurs through diversification and the birth and expansion of new economic activities and assimilation of better methods of organization and production. Countries that do not change cannot sustain rapid growth.
At the dawn of the industrial revolution, today's industrial countries were largely agrarian. They followed a path of population migration from countryside to town, and resources moved out of agriculture and into industry and services: they changed. The celebrated "logistic model of growth" (Kuznets 1966, 1971; Chenery 1977) captures these features but suggests that transformation is almost automatic-ingrained in technological progress and in the way needs and tastes change with rising incomes.
This part of Asian Development Outlook 2007 asks what has been the experience of growth and change in developing Asia over the last 35 years, and sifts for clues about how future growth can be sustained. Developing Asia's experience certainly confirms that change is deeply ingrained in growth and that change has been evolutionary rather than revolutionary. Countries that have grown have changed their form continuously, not by great leaps. And countries that have struggled tend to display structural inertia. Reversals have also occurred.
The newly industrialized economies (NIEs) of developing Asia-Hong Kong, China; Republic of Korea (hereafter Korea); Singapore; and Taipei,China-are approaching completion of the catch-up process, i.e., they are reaching rich-country per capita income levels. On past trends, their productivity levels and incomes will soon converge on levels seen in the countries of the Organisation for Economic Co-operation and Development (OECD). The NIEs now face the challenges that economic maturity brings.
Other countries, like Malaysia and Thailand, are closing the gap, but still have to navigate more changes if they are to sustain progress. In the People's Republic of China (PRC) and India, as well as in other countries like Cambodia and Pakistan, the pace of change is quickening and incomes are rising, but many potential challenges still lie ahead.
But some early starters in the catch-up process have suffered reversals. The Philippines has gone back down to a lower gear: low productivity levels and modest per capita income growth appear to be linked to a lack of structural dynamism. And Indonesia serves as a warning about complacency over rapid growth: the 1997-98 Asian crisis has left scars on the economy's productivity levels and economic structure that are yet to fully heal. The young countries of Central Asia also face enormous challenges, though their natural resource industries present opportunities, provided that rents are invested sensibly. Their proximity to large markets in the PRC and the Russian Federation may also help. But for small countries that are also often handicapped by geography, options are more limited. They will have to incubate their own models of economic growth and change, drawing largely on local resources and capabilities.
Looking ahead, twin challenges present themselves. Developing Asia needs to grow and create wealth to tackle poverty and other forms of human deprivation. But at the same time, developing Asia must create jobs for those who are at present unemployed or underemployed-on some estimates as many as 500 million workers. New workers who are about to enter the labor force will also need decent jobs. The thesis of this chapter is that arrangements that instigate and propagate changes in an economy's shape are instrumental for growth and the creation of jobs.
Before this chapter looks ahead, the next section, Looking back, distills some stylized facts about shifts of economic structure in developing Asia over the past 35 years. Change is measured in terms of: movements in the composition of output and employment; the speed and breakdown of labor productivity growth; the pace of technological transformation; and developing patterns of specialization and diversification. In most countries the profile of economic activity has moved from agriculture to industry and services. But there seems to be much greater complexity about the way in which patterns of industrial diversification and specialization evolve that may be linked to the sustainability of growth.
In the following section, Looking ahead, productivity growth in developing Asia is extrapolated from past experience. This exercise sizes up the extent to which productivity gaps with OECD might be closed in the next two decades. Dimensions of the future unemployment and underemployment challenge are also sketched.
Walking on two legs considers possible broad strategies for future growth and job creation. For most countries, both industrial and services development are likely to have an important role to play (Panagariya 2006). Complementarities between industry and services are stressed, as is the role of services as a provider of jobs. The idea that high-productivity services offer an opportunity to bypass industrialization is examined, as is the role of complexity and diversity in spawning growth.
In the last section, Incubating change, linkages to policy are considered. Some of the ingredients needed to lubricate change are old and constitute part of reasonably orthodox approaches. Others have a more catalytic character and take as their point of departure the realization that markets do a better job at allocation than they do in creating demands and providing incentives for experimentation and creation. |
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