south east asia development 1b doc

Emergence of modern SE Asian economies 1... Comparisons: the region in 1970 and 2008 Big events and their growth implications Growth and development questions map... Main development

1b Emergence of modern SE

Asian economies

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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…

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Early Expansion Recession Reagan Post-Plaza Miracle Asian Crisis Convergence Recovery &

1970-82 1983-86 1987-96 1997-1999 2000-08 Cambodia 6.06 7.50 Indonesia 4.94 3.50 6.24 -7.71 3.85 Malaysia 5.05 -0.27 6.60 -3.23 3.12 Philippines 2.66 -6.37 1.22 -0.69 2.87 Singapore 6.54 2.27 5.84 0.69 2.47 Thailand 4.15 3.33 8.17 -3.95 3.74 Vietnam 5.35 3.86 6.15 Lao PDR 3.39 3.22 5.01 World 1.47 2.14 1.34 1.39 1.66

Differences between countries and

through time:

Partly due to country-specific policies

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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 1979-80

 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 1985

 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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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 (1997-99)

 Chinese competition; labor costs

 Inability to earn enough to service foreign debts

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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 1978+

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 1997-99

“Correction” brings an end to “miracle” years, 1988-96

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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

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 1997 Are the same 4 things

“critical” to development today? Do you think there are any changes?

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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)

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