Asias Economic Transformation Where to, How, and How Fast? Key - - PowerPoint PPT Presentation

Asia’s Economic Transformation Where to, How, and How Fast?

Jesus Felipe Advisor to the Chief Economist Economics and Research Department Asian Development Bank

Key Indicators for Asia and the Pacific 2013 Special Chapter

The views expressed in this presentation are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, its Board of Governors or those of the governments they represent

Key messages

• Diverse transformation, with varying:

– degrees of diversification, upgrading and deepening – speeds

• Agriculture is still the largest employer

– Over 700 million workers – needs massive modernization

• To become a high income economy,

industrialization cannot be bypassed

• Transformation in many Asian countries is from

agriculture into services

• Good quality education is essential for industrial

diversification

2

Despite significant transformation, agriculture is still Asia’s largest employer: over 700 million workers

Employment shares, 2010 or latest (% of total)

Output shares, 2010 or latest (% of total)

3

42 15 25 3 30 23 22 27 22 24 33 62 48 74 45 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dev. Asia LAC MENA OECD World Agriculture Industry Services 11 6 10 1 3 40 33 43 24 27 49 62 46 75 70 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dev. Asia LAC MENA OECD World Agriculture Industry Services

LAC=Latin America and the Caribbean; MENA=Middle East and North Africa; OECD=Organisation of Economic Co-operation and Development members

The largest sector today and region’s averages

Economies where largest sector in GDP is

Agriculture Industry (8 economies) Services (31 economies) None Azerbaijan; Bhutan; Indonesia; Papua New Guinea; People’s Republic

• f China; Thailand;

Turkmenistan; Viet Nam Afghanistan; Armenia; Bangladesh; Cambodia; Fiji; Georgia; Hong Kong, China; India; Japan; Kazakhstan; Kiribati; the Republic of Korea; the Kyrgyz Republic; Lao PDR; Malaysia; Maldives; Mongolia; Myanmar; Nepal; Pakistan; the Philippines; Samoa; Singapore; Solomon Islands; Sri Lanka; Taipei,China; Tajikistan; Timor-Leste; Tonga; Uzbekistan; Vanuatu Region’s averages 10.9% 40.2% 48.9%

4

Note: (i) Region’s averages exclude Japan (ii) In the past, industry has been the largest employer only

• nce: Hong Kong, China in 1980

Economies where where the largest sector in total employment is

Agriculture (17 economies) Industry Services (15 economies) Armenia; Bangladesh; Bhutan; Cambodia; Georgia; India; Myanmar; Nepal; Pakistan; Papua New Guinea; People’s Republic of China; Samoa; Tajikistan; Thailand; Uzbekistan; Vanuatu; Viet Nam; None Azerbaijan; Hong Kong, China; Indonesia; Japan; Kazakhstan; Kiribati; the Republic of Korea; the Kyrgyz Republic; Malaysia; Maldives; Mongolia; the Philippines; Singapore; Sri Lanka; Taipei,China; Region’s averages 42.82% 23.62% 33.58%

….and de-industrialized ……and have not de- industrialized have not industrialized O U T P U T Armenia, Azerbaijan, Hong Kong, China, Japan, Kyrgyzstan, Mongolia, China, People’s Republic of, Taipei,China, Tajikistan, Cambodia, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Thailand, Viet Nam Bangladesh, Georgia, India, Kazakhstan, Nepal, Papua New Guinea

Industrialization, de-industrialization & non industrialization in Asia The 18% threshold

5

E M P L O Y M E N T Azerbaijan, Hong Kong, China, Japan, Korea, Singapore, Taipei,China Malaysia, Sri Lanka Armenia, Bangladesh, Cambodia, China, People’s Republic of, Georgia, India, Indonesia, Kazakhstan, Kyrgyzstan, Mongolia, Nepal, Pakistan, Papua New Guinea, Philippines, Tajikistan, Thailand, Viet Nam

20 40 60 80 100

1970 1985 1980 2007 1985 1998

Employment

INDONESIA BANGLADESH KOREA

20 40 60 80

1970 1985 1980 2007 1985 1998

Output

BANGLADESH INDONESIA KOREA

High-tech and Non High-tech Manufacturing Sectors Bangladesh, Indonesia, & the Republic of Korea

(% total of manufacturing output and employment)

Non High-tech (e.g. basic metals, food & beverages, leather products, textiles, wearing apparel, etc.) High-tech (e.g. chemicals, motor vehicles, machinery, communication equip. etc.)

The service sector is the major absorber of employment

9,3 8,3 3,5 9,3 11,9 6,8

• 20
• 15
• 10
• 5

5 10 15 20 People's Rep. of China Indonesia India Japan

• Rep. of Korea

Taipei,China

Change in the share of employment, 1995 and 2009 (percentage points)

Primary Manufacturing Construction and public utilities Services

7

Issues

• Agriculture:

700 million workers

• Industrialization

and the role of Technology

• Service economies

both GDP and employment

• Education

Needed: Further Structural Transformation

Questions

• What type of transformation

is expected to take place in the coming decades?

• How will the transformation

happen?

• How fast will Asia continue

changing?

10 20 30 40 50 60 70 Percentage

Agricultural output and employment shares, latest and projected for 2040

Note: Projected output and employment shares for 2040 are less than 5% for Thailand and Malaysia. Bhutan, Georgia, Viet Nam, India, Bangladesh, Pakistan, Armenia, Samoa, PRC, Indonesia, and the Philippines are the countries with less than 5% projected output shares for 2040. Reduction Projected for 2040 Latest Employment Shares Reduction Projected for 2040 Latest Output Shares

• Infrastructure
• Modern technologies
• GVCs - Agribusiness

PRC and India together about 400 mill. workers

Income level and Industrialization across the world (109 economies)

OUTPUT

E M P L O Y M E N T

HIGH-INCOME COUNTRIES INDUSTRIALIZED DID NOT INDUSTRIALIZE INDUSTRIALIZED Austria, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, China, Ireland, Italy, Japan, Korea, Republic of, Netherlands, Norway, Puerto Rico, Singapore, Spain, Sweden, Switzerland, Taipei,China, United Kingdom, United States Israel DID NOT INDUSTRIALIZE

• United Arab Emirates

LOW MIDDLE-INCOME COUNTRIES INDUSTRIALIZED Argentina, Belarus, Bolivia, Bulgaria, Colombia, Costa Rica, Croatia, Czech Republic, Dominican Republic, El Salvador, Guatemala, Hungary, Latvia, Lithuania, Macedonia, Malaysia, Mexico, Moldova, Morocco, New Zealand, Peru, Poland, Portugal, Romania, Serbia, Slovak Republic, Slovenia, Sri Lanka, Tunisia, Turkey, Ukraine, Uruguay Greece, Iran, Paraguay, Russia DID NOT INDUSTRIALIZE Albania, Armenia, Azerbaijan, Brazil, Cambodia, Cameroon, Chile, China, People's Republic of, Egypt, Honduras, Indonesia, Kyrgyzstan, Lesotho, Mongolia, Nicaragua, Pakistan, Philippines, South Africa, Syria, Tajikistan, Thailand, Venezuela, Viet Nam, Yemen, Zambia Algeria, Angola, Bangladesh, Botswana, Cuba, Ecuador, Ethiopia, Georgia, India, Iraq, Jamaica, Kazakhstan, Madagascar, Mali, Namibia, Nepal, Nigeria, Oman, Panama, Papua New Guinea, Saudi Arabia, Sierra Leone, Tanzania

With a few exceptions, no economy has become high-income without industrializing

Probit regression of high-income status in 2010 (i.e., income above US$15,000)

• n industrialization in output dummy,

together with the following control variables (one variable at a time)

Industrialization (in output) and:

Percentile

10th 50th 90th

Roads per capita (kms/'000 persons) 96 obs actual 1.267 4.359 17.045 prob 16.00% 20.20% 44.50% Financial development (Liquid liabilities as percent of GDP) 95 obs actual 17.37 36.625 75.74 prob 14.40% 22.30% 43.50% Average years of schooling (No .of years) 110 obs actual 2.631 6.186 9.853 prob 6.00% 21.00% 48.50% Share of manufacturing value added in high-tech sectors (percent manufacturing value added) 59 obs actual 10.507 36.128 52.389 prob 1.60% 33.80% 75.30% Share of manufacturing employment in high-tech sectors (percent manufacturing employment) 60 obs actual 13.226 34.402 49.395 prob 0.80% 2.75% 75.40% actual – actual value of the variable at each percentile prob – probability of being a high income economy

• 0,06
• 0,04
• 0,02

0,02 0,04 0,06 0,08 0,1 0,12

• 0,2
• 0,15
• 0,1
• 0,05

0,05 0,1 0,15

Productivity growth (% per year 1995-2009) Percentage points change in employment share (1995 - 2009)

Restructuring Dynamic

PRC India Indonesia PRC Indonesia India

Size of bubbles represents employment share in 2009 Countries: Indonesia, India, PRC, Japan, Korea, and Taipei,China

Sectors that gained the most employment registered positive but relatively low productivity growth

 Agriculture, Hunting, Forestry and Fishing, Mining and Quarrying  Manufacturing  Construction and Public Utilities  Wholesale and Retail Trade, Hotels and Restaurants  Transport, Storage and Communication  Finance, Real Estate and Business Services  Public Services Service sector employment remains much more dependent on domestic demand than manufacturing employment and, as a consequence, the former is less globalized than the latter

Change in employment share and Productivity growth

PRC India Indonesia

Education and Diversification

• The quality of education matters more than

the quantity for economic diversification

• Diversification is path-dependent : countries

tend to develop comparative advantage in ‘small steps’ (i.e., in products that require capabilities similar to those the country has)

• But high-quality education allows countries to

take ‘bigger steps’ and reduce the effect of path-dependence

13

that are small islands will probably bypass industrialization. They should nurture niches in services

Priorities for Asia’s transformation

Economies … Priorities with agriculture as the largest sector must develop sectors outside the countryside to absorb labor and industrialize the country side that have failed to industrialize must develop a deeper and broader industrial base that diversified must upgrade industries to avoid middle-income trap that are still low- income should follow their comparative advantage, and also facilitate the accumulation of capabilities, foster diversification and upgrading, and target activities in some advanced industries rich in natural resources must make efforts to diversify the economy

Summing Up: Where to, How, and How Fast?

• Where to?

– Services already the largest sector in Asia’s GDP – Over 700 million people employed in agriculture – But services will become the largest employer – Dilemma: what type of services?

• How?

– There is no one-size fits all package of policies and institutions to expedite transformation – Industrial Policy, if well designed, can help expedite transformation

• How Fast?

– It will be difficult for many countries to reproduce the experiences of the NIEs

15

Thank you

16