Asian Economies Sisira Jayasuriya Department of Economics

skj/asianeconomies/12 This subject aims to give you a general understanding of the following topics: A picture of the structure of Asian economies and historical experiences influencing policies The debates about the role of state and market, and process of economic policy reforms Nature of trade and investment links between Asian economies, and between Asia and the rest of the world Changing international trading and investment framework: issues facing Asian economies –Implications for Asian business environment and business firms

skj/asianeconomies/13 Globalisation: implications and issues Markets are opening: trade in goods and services increasing Larger role for markets Foreign investment: inward-outward FDI, portfolio International economic and political context –Political, legal, institutional and economic volatility

skj/asianeconomies/14 Asian economies Regional identity and diversity: economic, political, historical, cultural

skj/asianeconomies/15 Diversity Some of the largest countries and some very small countries Some of the richest and some of the poorest Some natural resource-rich, some natural resource-poor In some population predominantly urban, in manufacturing/services, some, still predominantly rural, in agriculture

skj/asianeconomies/16 Historical background: links, similarities and differences –historical links in Asia go back many centuries Chinese and Indian cultural influences and links Trade links –direct western colonial rule: South Asia, Southeast Asia (except Thailand) British, Dutch, French, Portuguese, Spanish- American –western domination : China, Thailand –Japanese colonialism

skj/asianeconomies/17 Independence and post-independence nationalist movements: relatively peaceful vs revolutionary/violent communist movements in independence struggles regional conflicts political ideology and circumstances, and economic policy

skj/asianeconomies/18 Convergence in economic policies: all countries are increasingly adopting similar policies Since late 1970s, process of economic policy liberalization – market oriented policies Late 1980s-early 1990s, pace of liberalization accelerated 1997 crisis and aftermath But history, culture, structure, politics matter

skj/asianeconomies/19 Asian economic integration? geographical proximity some (limited) sense of common cultural heritage (rice eaters???) economic links have been growing: –regional integration arrangements –‘natural’ economic complementarities “Asian” economic crisis and ‘contagion’, “yen” zone…….

skj/asianeconomies/110 Regional Integration Agreements (RIAs) ASEAN CER SAARC APEC

skj/asianeconomies/111 Intra- and inter-regional trade shares exports Destination ____NA__ LA__WE Asia Origin N. America Latin America Western Europe Asia World Source: WTO

skj/asianeconomies/112 Asia in global economy Population: majority (>50%) Production: Gross Domestic Product (GDP): –by conventional $ measure, >20% –but by another measure (PPP), >30% (with three of the world’s largest economies: China (2), Japan (3), India (4)) International Trade: exports imports Merchandise (‘goods’)2521 Services 1925 Foreign Direct Investment (FDI): 20%

skj/asianeconomies/113 Asia: the big 3 PopulationArea GNP per cap income (millions)( ‘ooo km 2 ) (bn$) $ PPP $PPP$ Japan: ,290 2,928 32,390 29,180 China: 1,2399, , ,220 India 9803, , ,700

skj/asianeconomies/114 Asia’s International Trade: merchandise trade Asia (including Australia/NZ): 25.5% of world’s exports and 20.9% of world’s imports in 1999 growth in volume value (note: 1997 crisis hit both exports and imports)

skj/asianeconomies/115 Trade growth: selected Asian countries average annual growth rate: exportsimports Japan43 China 1413 (excl HK) India77 Philippines1811 Vietnam1917 Australia46

skj/asianeconomies/116 Merchandise Trade by product group:1999 (shares as % of total value) exportsimports Agricultural products Mining products Manufactures

skj/asianeconomies/117 Japan dominates trade, but China challenging Japan’s share in 1990: Exports of Asia38.9% Imports of Asia33.2% But, share falling – others’ trade growing faster 1999: Exports of Asia30.1% Imports of Asia25.9%

skj/asianeconomies/118 Japan and rest of Asia Direction of trade exports to Asia (%) imports from Asia (%) most important partners in Asia: China, Hong Kong, Taiwan, Korea

skj/asianeconomies/119 Composition of exports: diversity reflects resource availability and stage of development Japan: passenger motor vehicles integrated circuits telecommunication equipment other electronic machinery computer parts China:clothing footwear toys games and sporting goods telecommunications equipment computers

skj/asianeconomies/120 Indonesianatural gas crude petroleum plywood etc jewellery coal New Zealandmilk and cream meat fruits and nuts cheese

skj/asianeconomies/121 Malaysia, Philippines, Singapore and Thailand: integrated circuits, telecommunications equipment, computers/parts Korea: integrated circuits, passenger vehicles, ships/boats, telecommunications equipment

skj/asianeconomies/122 India: has largest number of people who cannot read/write and very low per capita income but huge and fast growing exporter of computer software

skj/asianeconomies/123 Many Asian economies’ exports depend heavily on global demand for: electronics/computers/telecommunications

skj/asianeconomies/124 Economic links in capital and labour markets FDI and portfolio capital flows –Changing attitudes to FDI –Multinationals: first world and third world MNCs –development of equity markets and relaxation of controls on cross-border capital movements Labour movements in Asia: labour migration from low wage countries to high wage countries

skj/asianeconomies/125 FDI-inflows (1999) Developed countries $ 636 billion East and SE Asia $ 93 billion (mostly to China/Hong Kong - $ 63 billion) South Asia: $ 3.2 billion, most to India A significant part of investment in Asia is from within Asia: mainly Japan, but also Taiwan and others – including China, India

skj/asianeconomies/126 Development What is development? A Multi-dimensional concept –Basic economic needs –food, clothing, adequately met –Access to health and education facilities –Political and broader ‘human rights’ –Clean environment

skj/asianeconomies/127 Measuring growth Per capita income – standard measure- US$: GNP/population – adjust by exchange rate two major measurement problems: 1.Measurement errors – underestimation 2.Prices of goods and services are different across countries – purchasing power of a dollar differs

skj/asianeconomies/128 Purchasing Power Parity (PPP) measure Prices of ‘Traded’ and ‘non-traded’ goods (and services): different determinants of prices Determine international average relative prices of goods and services and use them to value domestic output/income PPP: ratio of domestic currency expenditures to international price value of output Two sets of national income figures

skj/asianeconomies/129 Asia: the big 3 PopulationArea GNP per cap income (millions)( ‘ooo km 2 ) (bn$) $ PPP $PPP$ Japan: ,290 2,928 32,390 29,180 China: 1,2399, , ,220 India 9803, , ,700

skj/asianeconomies/130 Average per capita income - even when adjusted for price differences - does not give full picture of ‘welfare’ per capita share (%) of incomeshare of income(PPP$) of bottom 40%top 20% Sri Lanka2, Guatemala3, Brazil5, Costa Rica5, How is income distributed?

skj/asianeconomies/131 Measuring development Multi-dimensional, so any single measure has limitations –Food availability –Life expectancy –Education –Position of women, minorities, castes, ethnic groups –environment

skj/asianeconomies/132 High per capita income and higher human development indicators not always closely linked Sri LankaUpper middle income country average per cap income (US$) life expectancy female7370 male6865 infant mortality(/1000)2142 illiteracy female1731 all1324 Source: World Development Report, figures for 1988

skj/asianeconomies/133 Human Development Index (HDI) A composite index produced by the UN, published in Human Development Report Includes: –Literacy/education –Life expectancy –Per capita income Takes values between 0 and 1 Has limitations, but overcomes some limitations of ‘per capita income’ measure