Economic Growth in Asia Arvind Virmani

1
Economic Growth in AsiaArvind Virmani

• Presented at the 4th Annual Development
  Conference of GDN, on Globalisation and Equity,
  in Cairo, January 18-21, 2003

2
Asian Growth Past and Future

• Relative GDP growth
• Emerging Asia relative to the world
• Sub-regional differences
• South East, East, South Central Asia
• ADB classification

3
(No Transcript)
4
GDP Growth in Asia

• Figure 1A shows that
• Asian Growth peaked in 1994
• World Growth peaked in 2000
• Gap as per trend growth, after reaching a peak in
  early 1990s (1993) has narrowed during the 90s
  and seems to be widening again in the 2000s.

5
(No Transcript)
6
Asian Growth relative to World Growth

• Figure 1B shows that
• Growth gap peaked in 1993 and narrowed till 1998
  the year of the Asian crisis.
• Ratio stabilising between 1.5 and 1.8 times
  average world growt

7
(No Transcript)
8
Sub-regional Growth

• East S. E. Asia peaked in 1995, but S. Asia
  pulled down average.
• East Asia has been the leader in 1990s
• C. Asia the laggard Net exporter of oil while
  others are net importers. Oil prices have played
  an important role in growth.
• Certain degree of convergence over this period.

9
Role of Exports and FDI

• Very high ratio of Trade to GDP
• Over 100 for Singapore, Hong Kong, Malaysia,
  Thailand
• Over 85 for Vietnam, S Korea
• About 70 for Indonesia
• Manufactured/total exports gt 75 (except
  Indonesia)
• Export or FDI led Growth?

10
(No Transcript)
11
Change in Exports

• Figure 3A shows that
• Asian export growth consistently exceeds World
  export growth except during Asian Crisis.
• Trend lines show narrowing gap.
• Figure 3B shows, that
• Asias share of World exports rose during the
  nineties from 13 to around 20
• Has stabilised during the last few years

12
(No Transcript)
13
(No Transcript)
14
Sub-regional export growth

• Figure 3C shows that
• East and S. E. Asia have vied for highest growth.
  S. Asia lower but not too far behind.
• S.E. Asias share of Asian exports peaked at
  34.7 in 1999 (trough of 31.3 in 1992).
• S. E. Asian shares declining over period.
• SApeak6.2 in 1990, double trough 4.9 1995
  2000.
• E Asian Peak 62.3 in 1991, trough58.7 in
  1999.

15
Role of FDI

• High contribution of FDI
• Singapore, Vietnam, Hong Kong
• Moderate contribution
• Malaysia, China
• Selective or sub-period
• Thailand, Taiwan, Indonesia, S. Korea

16
(No Transcript)
17
FDI Inflows Growth Share

• Figure 4A shows that
• Asian FDI growth fell below that of World during
  mid to late nineties
• Trend Suggests converging in growth.
• Figure 4B shows that
• Asias FDI share peaked in 1994, the same year as
  growth peaked.
• Trough in 2000, some recovery thereafter.
• 2001 recovery due to some rise in S.E., S C
  while global fell sharply

18
(No Transcript)
19
(No Transcript)
20
FDI in Sub-Regions

• Figure 4C shows that
• E. asia is the leader, but its closest competitor
  is S Asia. S.E. Asia growth rate is lower than
  that of S. Asia
• Figure 4D shows that
• E. Asias share has risen dramatically.
• S. E. Asias has fallen equally dramatically.
• S. Asia C. Asia Modest gains.
• Asia 2001 recovery due to some rise in SE, S C
  while global fell sharply

21
(No Transcript)
22
High Growth Economies

• Per capita GDP growth
• Long Term Past 22 years
• Medium-Large economies
• Excluding those with GDP of less than 15 mi in
  2000

23
(No Transcript)
24
High Growth Economies

• Table 1 A Per Capita GDP growth
• 7 of the top 10 in Asia, 11 of top 15 in Asia
• Others are Ireland (4.7,4th), Cyprus (4.1,
  8th), Luxembourg (4.0, 10th), Chile (3.7, 11)
• Table 1 B GDP Growth Rank
• Malaysias position is 5th (8 ranks higher)
• Indias is 8th (6 ranks higher)
• Reason Both these countries had higher
  population growth

25
(No Transcript)
26
Forecast Issues

• Catch-up Growth Potetntial
• Role of FDI Exports
• Appropriate Technology and Marketing Networks
• Euphoria-Panic Cycle
• Thailand, Malaysia, Indonesia
• China Over estimation 0 or 2
• India Conservative

27
(No Transcript)
28
Cninas Growth trajectory

• Figure 5A
• Export share high, export growth will slow down.
• Global trade growth is also likely to be lower
  this decade.
• Overhang of bad debt 50 to 100 of GDP. Use of
  banking sector to subsidise State enterprises
  and inputs for exporters will be more limited.

29
(No Transcript)
30
India Growth Potential

• Conservative forecast valid for the 1st 5 years.
• Reasons for optimism not accounted for are
• India Service export is now a significant GDP
  sector Will add 0.5 to 1.5 to GDP going
  forward.
• FDI Guy Pefferman Ch economist, IFC IMF defn
  Indias FDI is twice the published number ie 6.5
  x2 in 2002.
• Large upside SEZs (LI, SSI). Selective/China
• Demographic Transition Can add 0.8.

31
(No Transcript)
32
Bubble Euphoria-Panic Cycle

• Malaysia (1988 to 1997), Thailand (1987 to 1996)
  and Indonesia (1990 to 1996) show evidence of a
  euphoria bubble
• FDI-Export led growth, most likely to be affected
  by shift of manufacturing FDI to China export
  competition from China.
• Manufacturing growth will slow.
• Increased demand for Natural resources

33
(No Transcript)
34
Forecast of GDP growth

• Indias economy will be larger in PPP terms (4108
  bi) than Japans by 2010 in PPP terms (3950).
• Chinas economy will be 2/3rd of USA. If 2
  adjustment is made it drops to 3.4 or 9th place
  behind India.
• Assumptions Optimistic for China, Japan,
  Pessimistic for India (Bharatiya rate of gr)
• Growth of rest of E. S. E. Asia will slow

35
Key Policy Issues

• How to move from FDI Export led growth to
  Non-tradable led growth
• Domestic reform issues
• Financial sector regulation
• Banking system