1.
Tony Makin
Director, APEC Study Centre, Griffith
University, Australia

2.
Main Themes
 Underlying Reasons for Asia’s Success
 Near Term Prospects
 International Factors
 Longer Term Prospects

3.
Asia’s Growth in Historical Perspective
 according to economic historian Angus Maddison per capita
income in the world rose 13-fold between 1000-2000
 this compares to no increase in per capita income in the 1st
millennium!
 in 2nd millennium, most world growth occurred after 1820 the
start of the industrial revolution
 over just the past ½ century, Asia’s growth been the strongest
the world has ever seen

4.
Globalisation and Asia’s Rise
 the world economy first experienced large scale globalisation
during la belle époque from 1870s to 1914
 improved transport and communications eg telegraph,
railways, steamships) spurred international trade and capital
flows
 unlike the first globalisation era there now exists a well-
established supranational institutional framework fostering
international exchange
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5.
A fundamental question:
Why have some emerging Asian countries grown
faster than others?
?

6.
Globalisation and Asia’s Rise
 Distinct phases in development of modern Asia:
 Japan - 1960s
 Asian tigers - Singapore, Hong Kong, Taiwan,
South Korea - 1970s – 1980s
 China, India, Indonesia - 1990s
 Asia’s phenomenal growth has occurred during the
second great globalisation phase - from 1990
onwards
- so international factors have played a key role
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7.
Economic Growth in Open Economies
 it can be shown that:
sources of growth = domestic + foreign
- trade liberalization and capital account
liberalization further increase economic openness
 can extend growth theory to examine how openness
influences growth

8.
 Since 1990 emerging Asian economies have become more globalised
Domestic-international linkages
Rest of the World
Goods and Services
Markets Asset Markets
Globalisation and Asia’s Rise

9.
Key Developments in Asia since 1990
 large expansion of trade and investment flows
 exchange rate management and global imbalances
 two major economic crises
– Asian Financial Crisis 1997-8
- Transatlantic Financial Crisis aka GFC 2008-9

10.
The CIRIs?
 Jim O'Neill, Goldman Sachs economist, proposed in 2001
that Brazil, Russia, India and China the BRICs could
become among the four most dominant economies in the
world by 2050
 predicted a big rise in the size of the middle class in these
nations
 If we include Indonesia instead of Brazil
 BRICs – B + I = CIRIs
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11.
CIRIs: Key Macroeconomic Facts
 account for roughly 40% of the world's population and
over 30% of the world's gross domestic product
 the most important engines of the world economy in
recent years
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12.
Near Term Growth Prospects
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13.
Near Term Growth Prospects
 Asia to continue leading global growth but at a slower rate
 Exports have slowed and domestic demand likely to play a
more important role in the future
 Slower growth in China likely to be offset by further
strengthening of India’s growth
 Structural reforms needed to lift productivity across the
region
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14.
Income per head – China vs India
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15.
Reasons for High Growth: Micro
 privatisation and reform of state-owned enterprises
 enhanced labour mobility and better educated
workforce
 emergence of entrepreneurial class

16.
 inflation kept under control
 generally benefited from increased international trade
and foreign direct investment
 heavy spending on productive infrastructure
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Reasons for High Growth: Macro

17.
Infrastructure
 over half world’s infrastructure now in emerging Asia
 estimated to continue spending around 6% of
combined GDP on roads, railways, electricity and
telecommunications
 this is twice the infrastructure ratio of developed
nations

18.
Growth and International Trade
 numerous econometric studies have focused on the
relationship between exports and growth
 these studies show that high trade to GDP ratios tend to be
associated with high economic growth
hence openness matters!

19.
Growth and International Trade
 enhanced international trade also implies:
 increased foreign demand for domestically
produced goods and services → more exports
and hence more overall production
increased imports raise competition for
manufacturing sector
 higher productivity  higher growth

20.
Exports as % of GDP- CIRIs
20
16.1
7.1
18.2
25.3
29.6
21.5
30.0
24.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
China India Russia Indonesia
1990 2010

21.
Imports as % of GDP- CIRIs
21
13.1
8.5
17.9
23.7
25.7 24.8
21.7
22.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
China India Russian Federation Indonesia
1990 2010

22.
Foreign Capital’s Contribution to Growth
 Standard growth accounting (Solow 1957) implies
focus on key factor inputs to economy-wide
production to identify the contributions made by
factor inputs – capital , labour, technology
 in open economies, yet another distinction is that
between domestically funded and foreign funded
capital
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23.
Foreign Capital’s Contribution to Growth
 open economy macroeconomic production function of
the form
where y is net output per worker, φ represents TFP, k(t)
is domestically funded capital per worker and k*(t) is
foreign funded capital per worker
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24.
Foreign Direct Investment (% of GDP) CIRIs
24-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
China India Russian Federation Indonesia

25.
GDP Growth
Road Transport

26.
Lessons from China
 China has outperformed other Asian emerging economies with
its GDP exceeding the combined total of the other CIRIs
 Now the world’s second largest economy, the world’s biggest
manufacturer, and its biggest exporter
 Foreign investment and exports crucial to China’s development
strategy, but now rebalancing demand to consumption

27.
Longer Term Growth Prospects
 great scope exists for further increasing international trade
and investment as means of lifting the performance of
emerging Asia
 The World Bank expects China’s phenomenal growth to
slow to less miraculous rates from here on, gradually
tapering down to around five per cent by 2030
 remains to be seen whether other emerging Asian
economies, especially India, Indonesia, Vietnam and other
ASEAN can accelerate as China’s growth normalises
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28.
Looking Ahead
 Rise of Asia-Pacific region unforeseen in 1990s, so not easy
to say:
Prediction is very difficult, especially if it’s about the future.
(Nils Bohr)
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