1b. Emergence of modern SE Asian economies 0

1 Overview Comparisons: the region in 1970 and 2008 Big events and their growth implications Growth and development questions map

Main development strategies – 1970s 1970: poor, agrarian, undereducated, weak infrastructure, little modern manufacturing, dependent on primary exports Goals: industrializ’n, less import dependence, food security Main development policies: Use natural resource export revenues to finance agricultural and industrial growth Import-substitution policies (ISI; protection) for industry Upside: resource abundance, ‘easy’ import substitution (consumer goods, simple manufactures) Downside: vulnerability to terms of trade shocks, inefficiency of protected “infant” industries Growth outcomes have been diverse… 2

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Growth episodes (av. gr. per capita GDP, %) 4 Early Expansion Reagan Recession Post-Plaza Miracle Asian Crisis Recovery & Convergence Cambodia Indonesia Malaysia Philippines Singapore Thailand Vietnam Lao PDR World

Differences between countries and through time: Partly due to common external shocks Partly due to country-specific policies Let’s look at common external shocks… 5

6 4 defining events in the global economy First oil price shock (1973-5). Recycling of “petrodollars” in global markets --> cheap credit for developing countries. Second oil price shock Global recession; high real interest rates on debt Global commodity price slump early 1980s. Export revenues collapse for resource-dependent economies. Debt servicing crises and recessions (1985). Collapse of inward-oriented development strategies. Plaza Accord Recovery in US and world economies (--> boom in global manuf. trade) and “hollowing-out” of Japanese economy (--> SE Asian FDI boom)

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8 PLAZA ACCORD

Boom, bubble and bust Countries that pursued macro stability in 1970s emerged in better shape – less debt burden meant more productive investment These countries were attractive targets for E. Asian FDI after 1985 Boom: “E. Asian Miracle” (Thailand, Singapore, Malaysia, Indonesia) Based on rising exports of low-end manufactures Financed largely by foreign fixed capital investments Bubble: speculative booms in property, building, stocks Financed by short-term borrowing from foreign banks Bust: loss of export competitiveness, financial crisis ( ) Chinese competition; labor costs Inability to earn enough to service foreign debts 9

10 4 defining events in Asian regional econ. ASEAN (1967+). Regional political grouping, later economic grouping (ASEAN Free Trade Area; ASEAN-China Free Trade Agreement 2010) China’s new “Open Door” policy Re-entry of China to global economy RMB (Chinese currency) devaluation 1994 Dissolution of the Soviet Union 1991 Withdrawal of Soviet economic assistance to Asian allies (Vietnam) after 1986 Asian Financial Crisis “Correction” brings an end to “miracle” years,

Enter the dragon 11

12 Enter the dragon China’s GDP growth about 10%/yr since 1990 Trade growth around 15% per year Rising share of world exports, esp. manufactures Driven by economic growth and liberalization (WTO membership) China’s entry to world market: Adds hundreds of millions of workers to the global labor endowment Creates intense competition for labor-intensive exports Generates huge demand growth for inputs to these products

Homework!!!! Read Malcom Dowling: “Asia’s Economic Miracle: A Historical Perspective” Notice distinction between NIEs (Singapore, HK, Taiwan, Korea) and SE Asia (Indonesia, Thailand, Malaysia) What are the four “critical aspects” of Asian economies that make rapid growth possible? This was written in Are the same 4 things “critical” to development today? Do you think there are any changes? 13

Dev’t prospects & strategies – 1970s What should be main econ development goals? What dev’t strategies/policies are best? For whom? GROUPS: President; 1-2 urban industrial representatives; 3-4 rural/farm representatives BUT each urban rep has 2X votes, AND president can ignore all others if s/he chooses Discuss, decide, report back (5-10 min) 14