East Asian Economy: The Future of East Asia

* Some parts of this note are borrowed from the references for teaching purpose only.

East Asian Economy <Lecture Note 9 > 2013.12. 12

Semester: Fall 2013 Time: Thursday 2-5 pm Professor: Yoo Soo Hong Room: 423 Mobile: 010-4001-8060 E-mail: yshong123@gmail.com Home Page: http://yoosoohong.weebly.com

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Economic Growth

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Asia 2050 Asia is in the midst of a historic transformation. Based on Asian Development Bank, if it continues on its recent trajectory, by 2050 its per capita income could rise sixfold in purchasing power parity (PPP) terms to reach Europe’s levels today. It would make some 3 billion additional Asians affluent by current standards. By nearly doubling its share of global gross domestic product (GDP) to 52 percent by 2050, Asia would regain the dominant economic position it held some 300 years ago, before the industrial revolution.

Asia’s march to prosperity will be led by seven economies, two of them already developed and six fast growing middle income converging economies: China, India, Indonesia, Japan, Republic of Korea, Thailand and Malaysia.

These seven economies had a combined total population of 3.1 billion (78 percent of total Asia) and GDP of $14.2 trillion (87 percent of Asia) in 2010. Under the Asian Century scenario, their share of population by 2050 would be 73 percent and their GDP would be 90 percent of Asia.

They alone will account for 45 percent of global GDP. Their average per capita income would be $45,800 (in PPP) compared with $36,600 for the world as a whole. They will thus be the engines of not only Asia’s economy but also the global economy.

Asia 2050

Certainties/Uncertainties

Near Certainties:• The “rise” of Asia• Demographic changes• Pressures on resources and the

environment• New health challenges

Uncertainties:• Sustainable development?• Social and political evolution• International relations• Asia-Pacific role in addressing

global issues

Rise/Re-rise of Asia: Asia’s Share of World Gross Product Over 200+ Years

0

10

20

30

40

50

60

1820 1870 1913 1950 1970 1990 2010 2050

Derived from “World Population, GDP and Per Capita GDP, 1-2006 A.D.,” by Angus Maddison; Asia includes South Asia

?

Resource Pressures

Regional Petroleum Deficits(Millions of Barrels per day)

0

5

10

15

20

25

30

1973 2001 2020 est.

EuropeN. AmericaAsia-Pacific

Source: US Congressional Research Service

Automobiles (Millions)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1975 1985 1995 2005 2015 2025 2035 2045

Other AfricaSouth AfricaOther LABrazil

Middle EastIndiaOther AsiaChinaEastern Europe

Asian TERussiaKoreaJapanAustralia and NZOther OECD EuropeUKItalyGermanyFranceUSAMexicoCanada

International Energy Agency Projections

India

ChinaOther Asia

20502000

Political Implications− Are we more sophisticated now than the world was a hundred years ago?

How long can the Pax Americana continue to maintain stability in Asia? How wise will the sole superpower be in its future dealings in Asia? How can China and India take their rightful places in the world and in their regions without further confrontations?

− Does the fact that China and India are nuclear powers and so is Pakistan, make the situation more stable as well as more dangerous? How will a potentially nuclear Iran influence the equilibrium? How important is the North Korean nuclear threat, and how long will Japan be willing to remain non-nuclear in the face of that and other threats?

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Source: Fischer Stanley. 2006. “The New Global Economic Geography”.

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Source: Fischer Stanley. 2006. “The New Global Economic Geography”.

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Governance Issues and Political Transitions

Political Systems in Evolution

• Recent coups or attempted coups in recent years: Philippines, Timor

Leste, Fiji, Bangladesh

• New democracy: Indonesia

• Maturing democracies: South Korea, Taiwan

• Frequent leadership changes: Japan, Thailand, Nepal

• Socialist countries in transition: China, Vietnam

• Autocratic regimes: North Korea, Burma

The Demographic Window of Opportunity

Fertility DeclineTotal Fertility Rate: Babies per Female

0

1

2

3

4

5

6

7

East Asia Southeast Asia South & CentralAsia

19501975200020252050

Source: East-West Center

Asia Population

0

500

1000

1500

2000

2500

3000

1950 1975 2000 2025 2050

Year

Peop

le (m

illio

ns)

East Asia

S.E. Asia

South and CentralAsia

East-West Center, Future of Population

Share of Young Adult Population in East Asia (Ages 15-24)

0

5

10

15

20

25

1960 1980 1985 1990 2000 2020 2040

Source: Graeme Hugo, University of Adelaide, based on United Nations 2003, excludes Western Asia

Growth of ElderlyPercent of Population Over Age 75

0 5 10 15 20 25

Japan

Singapore

S. Korea

China

Thailand

Vietnam

Indonesia

India

2000

2050

•

Source: East-West Center, Future of Population, 2002

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Total Fertility Rate andPercentage of Population over Age 60

in Asia and the Pacific, 1950-2050

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

TFR

0

5

10

15

20

25 Population over age 60

TFR Population over age 60

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Percentage distribution of populationby broad age groups, 2000-2050

Asia

010203040506070

2000 2010 2020 2030 2040 2050

% 0-14 %15-59 %60+

Europe

010203040506070

2000 2010 2020 2030 2040 2050

% 0-14 %15-59 %60+

P&D and the Demographic Window of Opportunity

• The demographic window theory is based on analysis of emergent countries in East and South-East Asia showing that population structure is more important than population growth for development.

Several names:• demographic window of opportunity (preferable)• demographic window• demographic dividend

Demographic Window in Four S-E Asian Countries, 1970-2050

0

10

20

30

40

50

60

70

80

90

100

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

IndonesiaPhilippinesThailandVietNam

Dependency ratios in Africa and Asiataux de dépendance (15-64 ans)

0,0

20,0

40,0

60,0

80,0

100,0

120,0

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Sub-Saharan AfricaAFRICAEastern AfricaNorthern AfricaWestern AfricaEastern AsiaSouth-Eastern AsiaSouth-Central Asia

Eastern Asia

S-E Asia

South central Asia

Northern Africa

Africa

Eastern Africa

SubSaharan and Western Africa

The demographic window in Africa and Asia

• Some countries in East Asia and SE Asia are right in the middle of the demographic window with dependency ratios in the 40 to 45 range

• Other countries in SE Asia are heading towards the low point in dependency ratio (around 2020), followed by South and Central Asia (from 2035)

• Northern Africa is close to South Central Asia – minimum dependency ratio is projected to remain higher (around 45) than in East Asia

• Western and Eastern Africa would not show dependency ratios below 50 before 2050 in medium scenario

- Southern Africa has lower fertility and dependency ratios, but the latter is also influenced by the impact of AIDS

Fertility in Africa and Asia (TFR observed and projected - medium scenario)Indice synthétique de fécondité

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

1950-1955

1955-1960

1960-1965

1965-1970

1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

2000-2005

2005-2010

2010-2015

2015-2020

2020-2025

2025-2030

2030-2035

2035-2040

2040-2045

2045-2050

Sub-Saharan AfricaAFRICAEastern AfricaNorthern AfricaWestern AfricaEastern AsiaSouth-Eastern AsiaSouth-Central AsiaEastern Asia

SE Asia

South Central Asia

AfricaNorthern Africa

Eastern and Western Africa

SubSaharan Africa

Re-emergence of Asia

The Asian Century

• Per cap incomes similar to Europe today; No poor country. • Asian century driven by Asia 7: India, Indonesia, Japan, Malaysia,

PRC, Republic of Korea, and Thailand projected to account for 91% of Asia’s growth between 2010-2050.

Realizing the Asian Century

• Mostly national actions, but also regional and global

Growth with Inclusion and Equity

• Growth has to be more inclusive in order to address:

• Inequities within countries (e.g. rural vs. urban, ethnic, gender) that threaten social and political stability

• Risk to future growth (ref. China)

• Disparities across countries which increases risk of mass migration, rising tensions or even conflict

• Creation of productive, sustainable jobs, while removing barriers that limit participation in growth process: education, health, discrimination (access and opportunity)

Resource Efficiency and Diversification

• Rapid growth leading to intensified global competition for resources, sharply rising dependency on imports, and unsustainable increase in emissions

• Asia must pursue radical improvements in resource use • Early and aggressive action on climate change is in Asia’s self-interest

Demographic Change

• Truly a very long run issue

• “Aging” economies: address fiscal affordability issues; shrinking labor force;

• “Young” economies: Deliver economic growth that creates jobs in order to realize demographic dividend

• Key lies with overcoming obstacles to increasing labor mobility

Innovation and Technological Development

• Innovation vital for continued improvements in productivity

• Converging economies, particularly PRC and India, must transition from “catch-up” to “frontier” entrepreneurship and put in place a supportive “ecosystem”: •Access to quality education: primary, secondary, tertiary

• Research and development

• Protection of intellectual property rights

• Multi-tiered financing structure including venture capital

• Policy framework away from government controls to individual initiative

• Clusters of innovation

Financial Transformation

• Financial deepening reaching advanced country standards means Asia would have the largest stock market, banking and debt markets.

Urbanization

• Asia’s urban population will double to 3 billion

• Asia’s cities expected to account for more than 80 percent of GDP

• Centers of learning, innovation and cultural heritage

• Key to Asia’s competitiveness

• Dysfunctional cities hotbeds of crime and social unrest

More compact, energy efficient, safer and livable cities.

Institutional Development and Governance

• Stem and reverse the decline in governance – more than dealing with corruption

• More transparent and accountable governance

• Effective decentralization

• Requires strengthening of institutions and building new ones

• Increased voice and participation of citizenry

Regional Cooperation

• Important bridge: interactions within Asia and rest of the world • Collaboration rather than rivalry among the major economies

• Effective regional cooperation and integration to: - sustain economic growth over the longer term; - reduce cross-country disparities - play a more influential role on the global scene

Approach: flexible, pragmatic—open regionalism

Global Agenda

Asia’s larger footprint in the global economy brings new challenges, responsibilities and obligations

• Can no longer free-ride

• Take greater ownership of preserving the global commons – peace and security, financial system stability, rules-based and open trading system etc.

• Delicately manage rapid rise as major player in global governance

• Act- and be seen to act- as a responsible global citizen

Not Just Asia’s Century

• Asia’s future prosperity must be earned, with actions at the national, regional and global levels

• The Asian Century is not just Asia’s Century

• It should be the century of Shared Global Prosperity

• But the opportunity cost of failure is high, mainly to Asia but also the rest.

Opportunity Cost of Failure

Asian GDP: $174 trillion (52% of World) Asian GDP per capita: $40,800

Asian GDP: $65 trillion (31% of World ) Asian GDP per capita: $20,600

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References

ADB. 2010. key Indicators for Asia and the Pacific 2010.

Menon, J. 2012. “Will this be Asia’s Century?”. Asian Development Bank.

Morrison, Charles E. 2012. “Mega-Trends in Asia”. East West Center. (PPT)