south east asia development 1a pptx

Week 1: Early modern development Historical background – initial conditions Getting growth started: resources, industry, agriculture “Old style” global shocks: oil crisis, 1970s Inc

Economic Development of

Southeast Asia

Ian Coxhead University of Wisconsin-Madison

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Week 1: Early modern development

Historical background – initial conditions

Getting growth started: resources, industry, agriculture

“Old style” global shocks: oil crisis, 1970s

Income growth, poverty and distribution

Week 2: Development since mid-1980s

Post-Plaza Accord boom, bubble and bust

Globalization, again: trade liberalization and FDI

Enter the dragon: the rise of China

Topics: human capital, Asian regional integration,

macro policy

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Approach and assessment

2 short midweek homeworks @ 10%

1a Southeast Asia before the

modern era

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 Why study “ancient” history?

 Precolonial SE Asia: the first globalization era

 Colonialism

 War, nationalism and revolution

 The region about 1970: a snapshot

map

Why study ancient history?

 Precolonial SEA has some remarkable similarities with contemporary times:

 Resource endowments relative to rest of world

 Natural resource abundance

 Importers of advanced technologies

 Trade relationships

 Esp predominance of China & Northeast Asia

 Vulnerability to world market shocks

 Susceptibility to radical political and religious ideas

 Of course, some differences too:

 Then: labor shortage; now, mainly labor abundance relative to rest of world

Is history fate?

map

Precolonial SE Asia (~1000-1600 AD)

 Mainland, Java, Sumatra: centralized kingdoms with capitals astride navigable rivers

Wealth based on local resource base and taxes on resource exports

(rice, spices, specialty timbers)

 E.g Ayuthaya (Thailand): about 25% gov’t revenue from taxes on

trade between hinterland and rest of world

 Major religions display strong centralizing tendencies

 Archipelago/Malay peninsula: decentralized political entities, capitals at coastal ports

Wealth based on resource exports and entrepôt trade between Red Sea ports, India and China

 Spread of Islam (a decentralized religion) along maritime trade routes

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Resource endowments

 Labor-scarce, land-abundant economies

 Slavery & quasi-slavery systems widespread & persistent

 Many wars were primarily slave raids

 Corvée and indentured labor under colonialism

 Open land frontiers (these weakened central authority)

 Natural resource wealth

 Abundant timber and cropland, plentiful & regular rainfall

 Specific resource endowments of very high value (nutmeg, mace,

cloves, tin & other mineral resources)

 Little reproducible capital and few commercial inst’ns

 Main unit of production was the household

 Manufactures and high-tech products largely imported (ceramics, silk & painted textiles, navigational eqpt, paper)

Precolonial globalization

Trade with China, India, & Europe

Maritime Silk Route

European search for “Spice Islands”  voyages of discovery

 Columbus (1492), De Gama (1498), Magellan (1521), …

Migration and cultural flows accompanied trade

Specialization & technology transfers

European trade  huge expansion of pepper & spice area,

intraregional trade in rice & other staples

Vulnerability to global shocks

Trade shocks: closure of China & Japan; European conflicts

Dependence of global trade routes on small numbers of entrepreneurs (or on foreign MNCs, e.g Dutch E India Co.)

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Summary: precolonial SE Asia

 Resources: land abundance, labor scarcity

 Trade: diversified; regional and global

 Econ structure: mainly diversified; subsistence-oriented; low-tech (no capital)

“Southeast Asia … has always been an exporter of raw materials and an importer of manufactures Its own manufactures were significant items

of local trade, but … they were not needed in China or India, the two populous manufacturing centers on its borders It was the products of tropical agriculture and horticulture… that received the greatest

stimulus from the trade boom… followed by forest products”

(Reid 1993:32)

 Econ motives for colonial rule

Trade access to East Asia (Manila, Cochinchina as

bases/entrepots)

SE Asian natural resources (spices, timber, ag produce,

minerals)

 Treaty of Breda (1697): Dutch exchange an American colony

for Run Is., securing global monopoly on nutmeg

Trade and tax revenues to support colonial govt

 Markets for European manufactures.

 Strategic and political motives also important

inter-Euro competition for markets & influence (Portugal vs Venice, etc.)

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Econ impacts of colonialism

 New bilateral trade and commercial links with European economies (e.g Manila galleon from China to Spain)

 Redirection of trade flows towards colonial power.

Strong in Philippines and Indochina, less so elsewhere

 New products (rubber, palm oil) and new emphasis on some traditional products (rice, spices)

Colonial regimes stressed production for metropolitan

markets - and those alone:

 e.g in VN, "colonial production must be limited to supplying the mother country with raw materials and with non-

competitive products" (Fr official)

map

Econ impacts of colonialism

 New modes of production, esp plantation economies

Esp in Indonesia 19th century plantation develpt even led to

hunger as food production declined

 New resources and changes in existing resource bases

Infrastructural development: railroads, ports, cities

But dendritic development: new cities (Saigon, Rangoon on

coast)

Movement of people: Chinese & Tamils > Plantations in Malaya

& Philippines; Vietnamese to Cambodia, etc

New technologies and flows of information (economic, political,

etc)

Welfare impacts of colonialism

 Little evidence of gains from trade in colonial era

Falling global terms of trade in early 20th century reduced

gains of the 19th century, if any

 “Colonial drain” unrequited export surplus, implying a drain

of capital or lack of reinvestment from rest of world

Probable distortion of investment & expenditure incentives

 Colonial governments placed low priority on ‘development’

expenditures

 Colonial market distortions probably diverted domestic investments toward less productive activities and consumption

 But new technologies & info flows (both deliberate and

otherwise) from colonizers to colonized

map

Persistence of colonial impacts

Economic impacts

Primate cities (Jakarta, Saigon, … )

Ethnic mix of some populations (Malaysia)

Political, administrative, legal and fiscal structures

 Production structure

SEA specialized in food (for own consumption) and agric raw

materials for industrial economies: rubber, palm oil, timber,

copra/CNO, sugar

 Trade patterns

Europe (later USA, Japan) but no longer much intra-regional or

China/India trade

War, nationalism, and revolution

WWII (1941-45 in Pac/Asia) wrought destruction and created

opportunities for change

 Loss of infrastructure, manpower (esp Philippines, Burma)

 Promotion of nationalist (anti-colonialist) movements some by the

Japanese themselves

 Exit from colonialism, 1940s-50s

 Liberation with violence: Indonesia, Vietnam, Malaysia

 Domestic political fissures persisted beyond decolonization

 Colonial legacies in early nationalist regimes

 Emphasis on self-legitimation (“nation-building”)

 Economic nationalism (mistrust of colonial systems)

 Self-sufficiency and Soviet-style central planning

map

SE Asia about 1970: A snapshot

 Ongoing or recent wars/violent civil conflict/separatist

movements in Vietnam, Cambodia, Laos, Indonesia,

VietnamLow & middle income 635High income 12934

SE Asia about 1970

 Agrarian

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Agriculture, value added (% GDP)

Employment

in agriculture (% of total)

Manuf exports (% total)

Indonesia 45 62 1.2Malaysia 29 48 6.5

Philippines 30 54 7.5

Thailand 26 72 4.7Vietnam

Low & middle income 25High income 6 71.1

CambodiaIndonesia 47 0.12Malaysia 23 0.96Myanmar 60

Philippines 72 0.48Singapore 50 5.13Thailand 68 0.26Vietnam

Low & middle

High income >90 18.46

CambodiaIndonesia 14 7.8Malaysia 24 34.8

Philippines 22 23.3Singapore 18 61.8Thailand 21 30.2Vietnam

Low & middle income 21 23.7High income 26 >80

MyanmarPhilippines 22Singapore

VietnamLow & middle income 10High income 14

Two important themes

 Globalization and growth in historical context

Shifting patterns of trade in precolonial, colonial, and post-

colonial eras

Evolution of global and regional trade networks in late 20th

century

Influence of global integration on economic growth

 Industrialization vs reliance on natural resource wealth

Follow comparative advantage or hope for dynamic gains

from industry growth?

Within industrialization, factor content and links to growth

SE Asian transitions

“3rd world”  “Emerging markets”

Low income  middle income

Nat resources  manufacturing

Rural  urban

Economically isolated  integrated

Gov’t as central actor  Gov’t as regulator/facilitator

But not simple:

Nonlinear processes!

Different speeds of transition

No guarantees of future trajectory

 Read Malcom Dowling: “Asia’s economic miracle”

 NIEs: Singapore, HK, Taiwan, Korea

 SE Asia: Indonesia, Thailand, Malaysia

 What are the 4 “critical” elements of E/SE Asian growth?

 Ask yourself: is anything different since 1997?

 Is what was true in 1997 still true today?

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