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Economic Growth in Asia Arvind Virmani


S. & E. Asian shares declining over period. ... Assumptions: Optimistic for China, Japan, Pessimistic for India ( Bharatiya' rate of gr) ... – PowerPoint PPT presentation

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Title: Economic Growth in Asia Arvind Virmani

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

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

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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.

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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

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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.

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

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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

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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
  • E Asian Peak 62.3 in 1991, trough58.7 in

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

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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

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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

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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

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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

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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

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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.

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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
  • 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.

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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

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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

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