1b. Emergence of modern SE Asian economies

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Overview

Comparisons: the region in 1970 and 2008Big events and their growth implicationsGrowth and development questions

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Main development strategies – 1970s1970: poor, agrarian, undereducated, weak infrastructure,

little modern manufacturing, dependent on primary exportsGoals: industrializ’n, less import dependence, food securityMain development policies: Use natural resource export

revenues to finance agricultural and industrial growthImport-substitution policies (ISI; protection) for industryUpside: resource abundance, ‘easy’ import substitution

(consumer goods, simple manufactures)Downside: vulnerability to terms of trade shocks, inefficiency of

protected “infant” industriesGrowth outcomes have been diverse…

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Early Expansion

Reagan Recession

Post-Plaza Miracle

Asian Crisis

Recovery & Convergence

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 common external shocksPartly due to country-specific policies

Let’s look at common external shocks…

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4 defining events in the global economyFirst 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 bustCountries that pursued macro stability in 1970s emerged in better

shape – less debt burden meant more productive investmentThese countries were attractive targets for E. Asian FDI after 1985Boom: “E. Asian Miracle” (Thailand, Singapore, Malaysia, Indonesia)

Based on rising exports of low-end manufacturesFinanced largely by foreign fixed capital investments

Bubble: speculative booms in property, building, stocksFinanced 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 1994Dissolution 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 dragonChina’s GDP growth about 10%/yr since 1990Trade growth around 15% per year

Rising share of world exports, esp. manufacturesDriven 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 exportsGenerates 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 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 – 1970sWhat 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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