The High-income Trap In East Asia

June 16, 2017

International Studies Association International Conference 2017, Hong Kong

Syaru Shirley Lin

ChineseUniversityofHongKong

syaru@cuhk.edu.hk www.shirleylin.net

The Middle Income Trap

•  Middleincomeeconomiesarethosewithagrossna2onalincomepercapitabetween$1,026and$12,475

•  Highincomeeconomiesarethosewithagrossna2onalincomepercapitaofover$12,476(WorldBank2017)

•  Thereisnoconsensusonwhatcons2tutes“middleincometrap”

•  Middleincomeeconomieswhichhaveremainedinsuchstatusforover42yearsareregardedashavingfallenintothemiddleincometrap(Felipe,Abdon,andKumar2012)

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Escaping the Middle Income Trap

•  Only13amongthe101middle-incomeeconomiesinthe1960ssuccessfullytransi2onedtohigh-incomeeconomiesby2008(WorldBank2012)•  EquatorialGuinea,Greece,Ireland,Israel,Mauri2us,Portugal,Spain,PuertoRico,Japan,HongKong,Singapore,SouthKorea,andTaiwan

•  JapanandthefourAsian2gersmaintainedhighgrowthduringtheirmiddleincometransi2onbyrelyingonexports,movingfromlowtohighvalue-addedproducts

•  Butallhavebeguntoexhibitsignsofseveredomes2cstructuralproblems

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The High Income Trap

•  Prolongedglobalmonetaryeasingandfiscals2mulus,leadingtoassetinfla2onandrisinghousingprices•  Housingaffordability(medianhousingpricedividedbytheannualmedianhouseholdincome)hasbecomeextreme-HongKong:18.1;Taipei:15.5;Seoul:7.7;Singapore:4.8(DemographiaInterna2onalHousingAffordabilitySurvey2017)

•  Householdindebtednessisunsustainable:SouthKorea:88%;Taiwan:83%;HongKong:67%;Singapore:60%(ra2o(BankforInterna2onalSedlements2015,Na2onalSta2s2csR.O.C.2016)

•  Genera2onalinjus2cehasexacerbated•  Oldergenera2onsenjoybederjobprospectsandmoresecurere2rementsystems

•  Youngergenera2onsdonothaveaffordablehousing4

More Symptoms of the High Income Trap

•  Slowergrowth•  Stagnantrealwages•  Fewerjobsespeciallyforunskilledworkersandyoungergenera2ons

•  AgingSociety•  Increasinginequality

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Slower Growth Rate

6 Sources:ForTaiwan,Na2onalSta2s2csR.O.C;WorldBank

Aging Population

•  Lownetbirthrateandagingpopula2onplaceburdensonwelfareen2tlements

•  Medianageontherise(CIAWorldFactBook2016)•  HongKong(44)•  SouthKorea(41)•  Taiwan(40)•  Singapore(40)

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Aging Society Amidst Declining Fertility

8 Sources:ForTaiwan,Na2onalSta2s2csR.O.C;WorldBank

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Increasing Inequality

Increasing Inequality

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Such Problems Produce Social Repercussions

•  Problemsarisingfromeconomicintegra2onhavehadnega2veconsequencesinhighincomecountries

•  Astheeconomiesbecomelesscompe22ve,socialtensionhasrisenandthereisabacklashagainstglobaliza2on

•  Thepercep2onofthecausesofsucheconomicdisloca2onvaryfromeconomytoeconomyandokeninclude•  Trade

•  Investment

•  Immigra2on

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And Produce Political Consequences

•  Thereisahighlevelofdissa2sfac2onwiththeestablishment

•  Thereisanemergenceofseparateiden2tyamongyoungpeople

•  Thesetrendsproduceextremepreferencesespeciallywhenglobaliza2onthreatensthatsenseofiden2ty

•  Extremepoli2calleadersandpolicyop2onsbecomemoreappealinginadividedsociety

•  Thepoli2calrepercussionofsocio-economicproblemsinhighincomeeconomiesinEastAsiadifferdependingonthepoli2calsystemandeconomicstructure

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Political Consequences Differ

•  Korea:youngpeoplesupportedtheimpeachmentofthepreviousParkadministra2onwhichtheyviewedascorrupt

•  Taiwan:youngpeopleopposedthepreviousKMTadministra2onwhichtheyviewedascolludingwithbusinessesandmainlandChinaandsupportednewpoli2calpar2es

•  HongKong:youngpeoplewantmoredemocracyandmoreautonomyfromChinaandhavefoundedlocalistpar2es

•  Singapore:youngpeopleremainpragma2ctowardscurrentpoli2calstructure,butaredemandingmorepoli2calcompe22venessandcheckandbalance

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Taiwan and Hong Kong are Similar in that they Blame China Rather than Globalization

•  YoungpeoplebelievethatChinapresentsmixedeconomicopportuni2es(unevenlydistributedbenefits)butseverechallengestoautonomyandiden2ty

•  Theyareskep2calaboutindiscriminatesocio-economicorpoli2calintegra2onwithChina

•  Theirinstrumentalconcernsincludespecificeconomicwoes,suchasinequalityandenvironmentaldamage

•  TheirconcernsalsoincludefundamentalvaluedifferenceswithChinathatarehardertobridgesuchasdemocracy,freedomofspeechandsocialjus2ceandincreasinglyinterna2onalrecogni2onandrespect

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Conclusion

•  Whilethesefourhighincomeeconomiessharesimilarproblems,thecausescanbeacombina2onofinterna2onalstructuralchangeaswellasmismanagementinpublicpolicy

•  Thishasledtothesesocie2esbecomeincreasinglypolarizedwithnewpoli2calcandidatesandpar2esemerging

•  Youngpeoplearepar2cipa2ngmoreac2velyinpoli2csbutarenotnecessarilyembracingexis2ngpar2es

•  Solu2onstoaddresssuchsocio-economicproblemshavebeenelusive,forexample,Japan

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Conclusion (Continued)

•  Ashighincomeeconomiesfallbehindininnova2ng,middleincomeeconomieslikeChinaaremovingupthevaluechain

•  Mostsolu2onstocreatemoreefficiencyandproduc2vityaretechnology-specificwhichmaycostjobsnotcreatethem

•  Solu2onsmustdifferdependingoncontext,butpredicatedoncrea2ngasocialconsensuswhichisincreasinglydifficult•  Taiwan’sandKorea’sdemocra2csystemares2llevolving

•  HongKongmustoperatewithinOneCountryTwoSystems

•  Singapore’sone-partydominanceisbeingchallenged

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