In many countries of developing Asia, "first generation reforms," which focus on macroeconomic stability and opening markets, have progressed a lot. Achievements have contributed to favorable outcomes on inflation without damaging growth. For example, in Southeast Asia, the authorities have been quick to tame the inflationary pressures that occurred on the heels of large oil price increases. The enhanced credibility of monetary policy doused inflationary expectations and allowed many countries to absorb high oil prices more easily than would have been possible in the past. Equally, fiscal authorities, realizing the fiscal risks and high opportunity costs posed by rising gasoline, diesel, and kerosene subsidies, were quick to pare them back.
In South Asia, inflationary pressures have surfaced as a consequence of the pass-through of high oil prices but also because of accelerating growth. Growth has trended steadily upward in Bangladesh, India, and Pakistan. As sizable subsidies have been retained on oil products, and domestic prices remain well below international prices (ADO 2006 Update, Box 1.1.1), fiscal strains have been accentuated. Nevertheless, in all countries, policy frameworks governing interest rates, exchange rates, and fiscal regimes are acquiring greater clarity. The monetary authorities have set clear goals and have taken concerted measures to ease inflationary pressures. Fiscal problems and difficulties still lurk, but the overall direction is one of improvement. In Central Asia, International Monetary Fund programs have helped stabilize macroeconomic balances
But there are some countries where macroeconomic balances are more fragile. In Sri Lanka, for example, credit financing of expansionary government spending is directly stoking inflation. In Myanmar, the dual exchange rate system and monetization of government deficits keep inflation a perennial problem. In some of the small Pacific countries, an oversized government sector crowds out the space for private sector initiative and activity.
Foreign exchange reserves
Since 2002, a particularly sharp buildup of foreign exchange reserves has been seen in developing Asia, largely in East and Southeast Asia, but also in India. Initially, reserve accumulation was motivated by a strong self-insurance motive and was intended to provide a buffer against speculative attacks. If the costs of a financial crisis in terms of lost GDP are large (as they appear to be), and the probability of a crisis occurring is significantly reduced by sizable reserves, then it may be worth paying a hefty insurance premium to do this (Rodrik 2006).
The need for reserves is influenced by a variety of factors, including exposure to short-term external liabilities, the nature of the exchange rate regime, country risk characteristics, and import financing requirements. A comparison of actual reserves with estimates of a broad measure of needs shows that actual reserves exceed "adequacy levels" by 50% or more (Asia Economic Monitor, December 2006). Although these ratios are by no means exceptional for emerging market economies, it is hardly surprising that there is now growing interest in how to make better use of international reserves. Asia's reserves tend to be invested in short-term, secure assets that earn low yields that may be insufficient to compensate for even modest exchange rate appreciation.
The rewards from investing more actively are potentially large. For example, if just 50% of reserves were invested in a globally diversified portfolio, attracting a yield of 500 basis points above the current return, this would generate a fiscal dividend of about $60 billion, equivalent to 0.9% of regional GDP. These additional resources could plug infrastructure gaps and increase the supply of essential public goods. Or they could be used to retire public debt, creating larger fiscal space in the years ahead.
Some countries have already moved in the direction of more active reserves management. Capitalized by funds from the exchange equalization account, the mandate of the Korean Investment Corporation (formed in 2005) is "to achieve sustainable returns on foreign currency assets. "In March 2007, the PRC announced that it would take a more active approach to reserves management (Box 1.1.2). But while the rewards are certainly tempting, central banks and governments are rightfully wary of risks. If investments go bad, this could undermine confidence in government and/or the central bank. Having an appropriately regulated "fund," operating at arm's length, to manage some portion of reserves may have advantages. But setting up such an organization and attracting people with the right expertise is likely to take time.
1.1.2 New investment agency for reserves management in the People's Republic of China
On the back of a surging trade surplus and rising foreign direct investment, the PRC's foreign exchange reserves, already the world's largest foreign reserves holding, hit $1.07 trillion at the end of 2006, up $247 billion from the end of 2005. All the (official) foreign reserves are now managed by the State Administration of Foreign Exchange (SAFE), an arm of the central bank.
They are conservatively invested in US treasury bonds and other government securities, and generally earn small yields. Standard Chartered Bank in Shanghai has estimated the investment return on the PRC's reserves to be 3%, compared with, for example, an average 18% annual return for Singapore's Temasek Holdings since it was established. In addition, the central bank may even lose from holding currency reserves in US dollars, including valuation losses as the yuan appreciates and opportunity costs due to the dollar depreciating against investment in alternative currencies.
In 2003, Central Huijin Investment Company Limited was established to be another investment arm of the central bank. It has used part of the foreign reserves to recapitalize major state banks and other state-owned financial institutions. It now holds a large proportion of state-owned financial assets. However, Central Huijin seems to be managed much like SAFE, which conservatively invests in low risk and return securities.
On 9 March 2007, the Government unveiled a plan to establish a state investment agency, to make better use of its reserves. The intention is to model operational aspects of the agency along the lines of Temasek Holdings and the Government Investment Corporation (GIC) of Singapore. Even though the proposal has not yet been finalized, it is likely that the foreign reserves will be divided into two parts-normal reserves that will continue to be managed by SAFE and others directed by the new investment agency. The new agency is expected to manage at least $200 billion of foreign reserves, and to adopt an asset management model in which reserves will be invested in higher-yielding products, such as stocks, corporate bonds, commodities, and technology companies abroad, in order to spread portfolio risks. It is still unclear if Central Huijin will be merged with the new agency. If it is, the new agency will be able to manage not only the currency reserves but also state-owned assets-reflecting the GIC–Temasek approach.
Temasek, one of the operational models for the new agency, was set up by the Singapore Government in 1974 to manage state-owned assets. Temasek owns stakes in many of Singapore's largest companies, including Singapore Airlines, DBS Bank, and Singapore Power. It also holds investments in iconic Singaporean institutions like Raffles Hotel and Singapore Zoo. About half of its managed assets are held externally. As of 31 March 2006, Temasek had $84 billion of assets under management, yielding around 24% for the year.
The Singapore Government established GIC in 1981 as another investment arm to directly manage its foreign reserves. GIC is run as a private investment company, although it is wholly owned by the Singapore Government. This arrangement allows GIC to operate as a global fund manager, while allowing the Government oversight over the management of the country's reserves. GIC invests internationally in equities, fixed income instruments, money market paper, and real estate. It is also involved in some of Asia's largest funds, such as the AIG Asian Infrastructure Fund, the largest private infrastructure fund in Asia.
Sources: Bloomberg 9, 10, 11 March 2007; Financial Times, 9 March 2007; www.temasek.com.sg; www.gic.com.sg.
An alternative, more direct approach, recently proposed in India's FY2007 budget, would be to use foreign exchange to pay for the foreign currency costs of projects, or to back guarantees that would lower the costs of borrowing by special purpose investment vehicles.
Both proposals have their attractions. But in either case contingent fiscal liabilities would be likely to rise. If guarantees are used, the resulting debt inflows could exert pressure for an appreciation of the exchange rate. If inflows are sterilized, this will push interest rates up; with no sterilization, the inflows would add to credit expansion. Decisions on whether and how to put reserves to better use should be taken in the broader context of fiscal and monetary policy frameworks.
Exchange rates
Figure 1.1.10 shows the movement of nominal exchange rates against the US dollar. Most currencies appreciated, Viet Nam's dong being an exception. The Malaysian ringgit and the PRC yuan, whose dollar pegs ended in July 2005, appreciated modestly in 2006. The appreciation of other currencies, including the Korean won, Philippine peso, and Thai baht, was more pronounced.
Changes in nominal effective (trade-weighted) exchange rates are compared with unweighted US dollar changes in Figure 1.1.11. Generally, movements of nominal effective exchange rates were smaller than their appreciation against the US dollar in 2006. This is because the currencies of most countries' major trading partners also appreciated against the US dollar. In nominal effective terms, the appreciation of the ringgit has been small. By December 2006, the Thai baht had appreciated in nominal effective terms by over 10%, and the Philippine peso by 4.5%.
Following the announcement of a near-record trade surplus in February 2007, the PRC authorities stated in March that they may now consider greater flexibility of the yuan. The sensitivity of other countries' nominal effective exchange rates to an appreciation of the yuan would be quite small (Figure 1.1.12). The main impact of its appreciation would most probably be seen in adjustments to market shares outside the region, not in terms of bilateral trade flows within. About 51% of the PRC's exports are to the US, EU, and Japan. Comparable shares for other countries range from 35% up. But these numbers may exaggerate the true extent of competition, concentrated in consumer goods industries that constitute a smaller share of total exports (Box 1.1.3). Also, firms in the PRC have already shown themselves adroit in improving productivity levels, which would help to offset any price and cost disadvantages created by a more expensive currency. There would be benefits at home. Consumers would gain from cheaper consumer goods imports, and the People's Bank of China would be better able to stem pressures on liquidity coming from rapidly accumulating foreign reserves. Pressures on the financial sector would be eased if the share of lowly remunerated reserves and sterilization bonds on their balance sheets were reduced.
Capital controls
In December 2006, Thailand imposed controls on capital inflows with the intention of stemming the baht's appreciation. The initial rules were widely regarded as too stringent and triggered a rout in the equity market (Figure 1.1.13). In response, exemptions have been widened. It has also been clarified that the aim is to eventually abandon the controls. Further relaxation of controls took place in mid-March 2007: the 30% nonremunerated reserve requirement for investors in debt securities and unit trusts, who fully hedge their investments through forward swaps of at least 3 months, was abrogated.
In principle, the case for a tax on destabilizing capital inflows is clear. As offshore investors do not consider or internalize the costs of any destabilizing effects of their behavior on the domestic economy, a tax on inflows could be beneficial.
But theory and practice can differ. First, identifying conditions that warrant the imposition of a tax on capital inflows is not straightforward. Even if the Thai baht appreciated sharply against the US dollar in 2006 and reserves accumulated, it is uncertain that this threatened the economy or export businesses. The appreciation did not deter healthy export performance in 2006, and the trade balance moved from deficit to surplus.
When pressures for speculative capital inflows do need easing, the question arises of how to do this. Precisely because foreign exchange transactions are fungible, designing regulations that are not porous is extremely difficult. Simple approaches that are based on flat withholding taxes and that use existing taxation (and rebate) arrangements may have attractions (Box 1.1.4).
Sustaining growth
Notwithstanding its considerable achievements, developing Asia still lags a long way behind rich industrial countries. Measured at market exchange rates, per capita GDP in developing Asia is estimated at US$1,295 in 2006, compared with US$31,230 in the OECD (Figure 1.1.14). As of 2002, there were still 1.9 billion men, women, and children in developing Asia who subsisted on less than $2 a day. Growth remains the surest means of tackling poverty and other forms of deprivation, but stresses are beginning to arise that may eventually undercut growth and worthy economic ambitions. These show up in different ways in different countries.
1.1.3 Trade and structural change in East and Southeast Asia
The chapter, Trade and structural change in East and Southeast Asia: Implications for growth and industrialization, in Part 1, provides an in-depth analysis of recent developments in international trade in manufactures in the region.
It shows that the rising share of the region, and especially of the PRC, in world exports and imports has been fueled by the explosive growth of intra-industry trade in parts and components in machinery sectors. Multinational enterprises are active in established production networks with a vertical division of labor leading to trade in goods in different stages of processing. The region's economies trade most intensively in the manufacturing industries that have the highest growth in world trade: electrical machinery, transportation equipment, chemicals and allied products, and precision instruments.
The region is also shown to be highly competitive in traditional labor-intensive manufactured products. Although intraregional trade is of increasing significance-with the PRC the point of assembly for final products-consumption of these final products is overwhelmingly in destinations outside the region. Final demand in the United States, Europe, and Japan and other extraregional markets is the driving force behind the rise of intraregional trade in East and Southeast Asia.
Hence, globalization is driving the process of regional integration and the processes are mutually reinforcing. So, although the region is partaking in the trend toward bilateral preferential trade agreements, it is market forces rather than tariff preferences that are more influential in determining what is produced and where it is produced.
The impact of the emergence of the PRC on industrialization and trade performance in other parts of the region, such as ASEAN, are also examined.
1.1.10 Nominal United States dollar
exchange rate index
Sources: International Monetary Fund, International Financial Statistics online database; Central Bank of China, available: http://www.cbc.gov.tw; both downloaded 13 March 2007.
1.1.4 Withholding taxes on international capital flows
The idea of taxing international capital flows is not new, and was originally mooted as a way of taming the flow of "hot money" across borders. More recently, other objectives have been added, such as raising additional revenues for the provision of international public goods.
There has been extensive discussion of the "Tobin tax," a proposed tax on all transactions entailing currency conversion. By taxing the amount of currency to be converted, the objective is to dissuade short-term capital movements. For a given tax rate, the effective burden would diminish with the horizon of the transaction. Two main criticisms have been leveled at the idea. The first is that by taxing all transactions involving currency conversions it will create distortions, and, for example, could discourage trade. The second is that the Tobin tax presents formidable coordination problems, requiring broad multilateral agreement about implementation and the use of tax proceeds.
Zee (2000) has proposed that if the goal is simply to inoculate an economy against the potential damage of speculative capital inflows, then national authorities could impose a tax without worrying about international coordination. Zee's proposal is to levy a withholding tax at source when inflows enter a country. Those taxes paid on current account transactions, including export receipts, would then be credited against domestic tax liabilities. By taxing inflows rather than outflows, and by refunding taxes paid on current account transactions, the idea is that capital flows would bear the burden of tax.
Spahn (2002) has observed that, like the Tobin tax, Zee's withholding tax would entail a much smaller tax burden for long-term capital inflows. In this way it is different from the nonremunerated reserve requirements used by Chile as well as Colombia, Spain, and Slovenia. As practiced by Chile, nonremunerated reserves had the problem that they imposed a larger effective tax burden, the longer the holding period. Thailand's arrangements allow for repatriation of nonremunerated reserves only after a year, thereby affecting short-term flows most.
Sources: Zee (2000), Spahn (2002).
Asia is still not creating enough jobs for the burgeoning numbers of young workers that enter the labor market each year. Despite fast growth, open unemployment rates are rising. Today, at least 500 million workers, or about 30% of developing Asia's 1.7 billion labor force, are either unemployed or underemployed. As another 245 million workers will be added to developing Asia's labor force by 2015, 750 million new jobs will be needed if full employment is to be achieved within a decade. Developing Asia's future prosperity depends on its ability to use productively its most valuable resource-its people. Failure to create decent and productive jobs may come at high cost. If many workers get left behind, the legitimacy of growth, and, by extension, support for the reforms needed to sustain catch-up and modernization, could be threatened. The promise of developing Asia's "demographic dividend" could yet prove to be a "demographic curse. "
Linked to the problem of job creation is widening disparity in income distribution. Some widening of inequality may be "good" in the sense that it reflects rewards for enterprise and innovation and the incentives needed to apply resources to their most productive uses. But where widening inequality is a consequence of arrangements that restrict access to opportunity, that tolerate asset grabbing and rent seeking, and that perpetuate and widen social cleavages, it is more likely to be symptomatic of institutions that will also eventually stymie growth. The challenge is to formulate policies and to reform institutions in a way that creates and widens opportunities for those who might otherwise fail to share in the fruits of growth, without compromising on growth. Key Indicators 2007 (ADB forthcoming) will focus on the issue of inequality.
Environmental stresses are also on the rise. Most people in developing Asia do not yet enjoy a level of affluence where they have a strong demand for improved environment quality. But failures of policy, and a lack of vision, as much as low incomes, are at the root of Asia's environmental problems. Integrating environmental objectives and concerns into broader development plans, giving a larger role to market-based instruments, and strengthening cooperation at a regional and international level, are some of the ingredients of a better approach to reconciling growth with environmental objectives.
In addition to these "macro" challenges are the "micro" challenges of building the markets and institutions needed to support growth, facilitate change, and improve social welfare.
As Asia's crisis painfully illustrated, macroeconomic stability and openness do not completely immunize countries against shocks. In East and Southeast Asia, the failure of institutions and structural policies to keep pace with fast expansion led to vulnerabilities that eventually derailed growth and caused reversals. To sustain growth, but also to improve lives, "second generation" reforms are needed. These reforms aim to develop markets and institutions that may be missing, incomplete, or inefficient. As these endeavors are necessarily shaped by political, social, and cultural factors, second generation reforms are inherently complicated and have a long time frame. Although desired outcomes are often clear-e.g., the elimination of corruption or better delivery of public services-there is much less clarity about how to achieve objectives. Priorities and sequencing are also likely to be sensitive to country context. An assortment of challenges fall within the ambit of these reforms: the building of efficient and safe financial and capital markets; the delivery of high-quality infrastructure services; improvement in the business investment climate and the development of arrangements that allow people, businesses, and countries to share risks and adapt to change. This list can easily be extended.
In the PRC, the Government has clearly laid out the challenges: to diversify and balance growth, spread its benefits more widely, and to "harmonize" economic and environmental objectives. But there are hard constraints. Diversifying growth will require a shift away from a bank-dominated financial system. Geared as they are for lending for enterprise investment, they do not do a good job of appraising risks or providing credit to households. Modernizing the PRC's banking system will take time and is already drawing on foreign capital and expertise to support the extension of consumer credit and other new services.
The deepening of equity and bond markets also has a long way to go and will require significant support in terms of improved market infrastructure and better regulation. Widening access to social services, including health and education, is not simple either. In some ways, resources have run ahead of the capacity to deliver quality services. Well-trained nurses, doctors, teachers, and administrators are just as important as hardware but, in the short term, their supply is inelastic. And the solutions to the PRC's environmental challenges do not lie with administrative measures alone. These are often blunt and can be circumvented. Markets have to be developed for environmental services and incentives appropriately geared to objectives.
In a number of countries-though not in the PRC or any longer in India-investment appears to be struggling. The ratio of fixed capital formation to income is falling in the Philippines and industry's share in output is falling. In Pakistan, fixed investment is a constraint in pushing growth to the next level, and modernizing the economy. In Indonesia, the crisis and a comparatively slow recovery appears to have badly dented investor confidence. In Malaysia and Thailand, too, postcrisis investment rates have remained in the doldrums. Investment rates may have been too high before the crisis, but they are now too low. In important ways, low investment rates appear to be a consequence of deeply embedded regulatory and institutional difficulties that increase risks and uncertainty for potential investors. But blockages to private investment can occur in many shapes and forms (Box 1.1.5).
1.1.11 Movements in exchange rates, 2006
Note: Positive (appreciations)/negative (depreciations) movements computed using average rates in December 2005 and 2006.
Sources: International Monetary Fund, International Financial Statistics online database, downloaded 15 March 2007; staff estimates.
Sources:Asian Development Outlook database; International Monetary Fund, World Economic Outlook September 2006 database, available: www.imf.org, downloaded 17 March 2007.
1.1.5 Ten years after the crisis: The facts about investment and growth
Ten years after Asia's crisis, an air of normality would appear to have returned and incomes in all the crisis countries now exceed their precrisis peaks. But a closer look shows that growth and investment rates have settled on a lower trajectory. On average in 2000-2006, growth in the five most directly affected countries (Indonesia, Korea, Malaysia, Philippines, and Thailand) ran some 2.5 percentage points behind performance in 1990-1996. Viewed over longer periods, performance also seems to have slipped a gear. Investment rates have tumbled. Although investment may have been too high before the crisis, on a variety of measures it now seems to be low. Slower growth and low investment rates may be linked.
A variety of possible explanations for slower growth and low investment rates are examined in Ten years after the crisis: The facts about investment and growth in Part 1. Different factors have been at work in different countries. Poor infrastructure may be holding investment back in Indonesia and the Philippines, and slower growth of employment and the labor force may be playing a role in Malaysia. In Korea, growth and investment may not be of such concern, given the country's high income levels and economic maturation.
An investigation of a range of possible explanations for low investment and slower growth draws out little that is concrete. Credit and loanable funds do not seem to be constraints, and capacity utilization rates appear to have returned to "normal" levels after a period of marked weakness. The idea that investment has been redirected to the People's Republic of China (PRC) is also difficult to square with the facts. As noted in several places in ADO 2007, the PRC and East and Southeast Asia show much complementarity in trade and investment.
The analysis then sifts through factors that might influence perceptions of risk and uncertainty. Information on risk ratings, equity prices, economic forecasts, corporate balance sheets, and the quality of governance in the crisis countries is presented. These data do not rule out the idea that, compared to the precrisis period, perceptions of risk and uncertainty in the crisis-affected countries (other than Korea) are now raised or that private sector investors have elevated precautionary motives (deterring investments in hard projects, but not in more liquid assets). The analysis ends by identifying some of the things that might be done to stimulate investment, drawing on information from business investment-climate surveys.
One factor that seems to be holding back private investment is poor delivery of infrastructure services. Across developing Asia, complaints are routinely voiced about gaps in infrastructure provision and bad service delivery. Good infrastructure is needed to connect villages and towns, to each other and to the global economy. Infrastructure is also needed to promote public health objectives, support reasonable levels of security and safety, and a decent quality of life. In India, poor rural infrastructure is taking its toll on agricultural productivity. In the Philippines, conspicuous infrastructure gaps have played a role in retarding industrialization and job creation. High levels of congestion, squalor, and grime in Asia's megacities are a result of years of sorely neglected infrastructure investment (and maintenance). By adding to costs, poor infrastructure services deter private investment. Indeed, the absence of upstream and downstream infrastructure can block altogether what might otherwise be lucrative private investments.
The neglect of infrastructure reflects a variety of deeper problems, including low levels of public sector revenue mobilization, misplaced public spending priorities, weak institutions, and regulatory failures. Private investors' enthusiasm for infrastructure investment, which could be detected in the early 1990s, has ebbed largely because of failures in policy and regulatory environments. By raising costs and risks and lowering expected returns, these failures have discouraged private investors. Business investment climate surveys point to a raft of impediments. These vary widely in nature and by degree across countries. Some countries, such as Malaysia, do well by international standards, but many do not. Heavy regulation, corruption, onerous and costly administrative requirements, and difficulties with contract enforcement can quickly turn profits to losses, and assets into liabilities. A stable and predictable macroeconomic environment is critical, but without complementary micro and institutional reforms, investment is unlikely to prosper.
In Growth amid change (Part 3), it is seen that rapid growth in developing Asia has not simply been about economies replicating 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. It is therefore important that countries develop systems that allow them to activate, manage, and capitalize on change. Policies for growth are policies that allow countries to learn, become more diverse, build on their successes, and, not least, put their failures behind them.
Approaches will have to be sensitive to country circumstances but some familiar ingredients will be important. High investment rates are required to build, expand, and upgrade economic activities. Support for infrastructure and a variety of other services is vital for economies of scale. Relevant and purposeful education is needed (Box 1.1.6). Labor mobility and flexibility need to be complemented by affordable social insurance and protection. As businesses create wealth, obstacles that raise costs and risks need to be removed. And economic openness is needed not just to enlarge markets, but also to increase variety and expose countries to modern technologies and new institutional designs.
Yet markets alone cannot be expected to instigate all these changes, and catalytic elements may be required. In particular, so as to remove obstacles to innovation and to the creation of new activities, partnerships between government and the private sector will be needed. Among other elements, viable operational approaches must embody learning, strong incentives, and mechanisms that minimize risks of moral hazard and rent seeking, and remove subsidies for failed experiments (Rodrik 2004).
1.1.6 Education and structural change in four Asian economies
Labor force surveys from India, Indonesia, Philippines, and Thailand are used to examine the linkages between rising education levels and changes in the structure of economic activity. The chapter in Part 3, Education and structural change in four Asian economies, documents what workers of different education levels do for a living, what they are paid for doing it, and how this has changed over time.
From an employment perspective, the importance of the "knowledge economy" is often overstated. Most workers labor in agriculture and lower-status services-activities that pay modest premiums to educated workers. While high-end services produce a rapidly growing share of GDP, especially in India, this reflects rocketing labor productivity, not a boom in their employment share. Overall, educational attainment has steamed ahead of job creation in sectors that historically hired the educated. These results are ambiguous, as they are consistent with at least two distinct views: the labor force is becoming more educated than is necessary given the jobs available; and the labor force was initially undereducated, so rapidly rising education levels are necessary to ensure competitiveness.
The correct interpretation differs across countries and is hard to pinpoint. However, a more detailed examination of the wage premiums received by educated workers in different activities is revealing. Returns to basic education have fallen over time. This is especially true in industrial jobs, and among junior workers. This implies that if inadequate education levels have been inhibiting industrialization, the constraint has eased over time. Moreover, the least educated countries-India and Thailand-are industrializing the fastest. In contrast with findings during the "green revolution," returns to education in agriculture are generally low, consistent with the notion that education carries returns when it facilitates the adoption of new technologies and activities. More positively, returns to basic education in services and tertiary education everywhere have typically risen.
In all jobs, Filipinos are the most educated, followed by Indonesians, and then Thais and Indians, including some in which more-educated workers do not command a premium. Such jobs are becoming more common and are employing increasingly educated workers in the Philippines, suggesting that the country is "overeducated. "
These results suggest that the benefits of schooling depend as much on conditions outside the classroom as inside it. They also leave open the possibility that raising the quality of education will carry greater benefits than increasing the quantity of workers with various levels of education. Education policy makers and development agencies are therefore strongly urged to measure the effects of education policies on quality and relevance, rather than focusing exclusively on raising attainment.
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