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Resurgent AsiaDiversity in Development$

Deepak Nayyar

Print publication date: 2019

Print ISBN-13: 9780198849513

Published to Oxford Scholarship Online: November 2019

DOI: 10.1093/oso/9780198849513.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 30 March 2020

The rise of Asia

The rise of Asia

Chapter:
(p.29) 2 The rise of Asia
Source:
Resurgent Asia
Author(s):

Deepak Nayyar

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198849513.003.0002

Abstract and Keywords

The transformation of Asia reflected in its demographic transition, social progress, and economic development, has been phenomenal. During 1970–2016, growth in GDP and GDP per capita in Asia was much higher than elsewhere in the world economy. Its share of world GDP rose from less than one-tenth to three-tenths. Its income per capita converged towards the world average. Its share in world industrial production jumped from 4 per cent to 40 per cent. This provides a sharp contrast with the precipitous decline of Asia in the world economy during the colonial era. For Asian countries, political independence, which restored their economic autonomy and enabled them to pursue their national development objectives, made this possible. However, economic and social development was most unequal between the constituent sub-regions of Asia. East Asia was the leader and South Asia was the laggard, with Southeast Asia in the middle, while progress in West Asia did not match its high income levels.

Keywords:   convergence and divergence, development indicators, economic growth, economic transformation, GDP and GDP per capita, international migration, manufacturing and industrialization, social progress, uneven development, world economy

The preceding chapter situated the subject of this book in its wider historical context to highlight the overwhelming significance of Asia in the world economy until the mid-eighteenth century, followed by its rapid decline through the nineteenth century, culminating in a fall that was almost complete by the mid-twentieth century, to reach a nadir in the early 1960s. It also set out the initial conditions which epitomized the underdevelopment of Asia at the time, making it the poorest continent in the world. The object of this chapter is to outline the broad contours of the story of development in Asia since then, situated in the wider context of the world economy. In doing so, it sketches a picture of the phenomenal transformation of Asia in terms of economic progress, even if it has been uneven across countries and unequal among people, over such a short time span in history. Indeed, five decades ago, such change would have been thought of as imagination running wild.

The structure of the chapter is as follows. Section 1 outlines the broad contours of the social and economic transformation of Asia, reflected in demographic, social, and economic indicators, by comparing the initial conditions circa 1965 with the situation half a century later in 2016. Section 2 considers the changes in the relative importance of Asia in terms of its shares of world population and world GDP, and compares changes in its per capita income levels with developing countries, industrialized countries, and the world. Section 3 disaggregates Asia into its four constituent sub-regions, to examine the differences in their relative importance within the continent and their economic performance over time in a global context, in terms of output shares and income levels. Section 4 presents the evidence on growth rates of GDP and GDP per capita underlying the changing shares of Asia and its sub-regions in world GDP, to explain the end of divergence and beginnings of convergence in per capita incomes. Section 5 sets out the trends in industrial production in Asia as a continent, divided into sub-regions, compared with other parts of the world, reflected in its rapidly rising share of world manufacturing value-added and world exports of manufactured goods, which suggests catch up in industrialization although its distribution was unequal among sub-regions. Section 6 traces the rapid increase in the engagement of Asia, as well as its constituent sub-regions, with the world economy, through international trade, international investment and international migration. Section 7 builds a bridge to the discussion in the chapters that follow by explaining why disaggregated analysis must move beyond sub-regions to selected countries.

(p.30) In comparing Asia with the world, the analysis in this chapter, as well as the book, makes a distinction between two country-groups. ‘Industrialized Countries’, described as developed-market-economies or developed countries in United Nations statistics, are made up of North America, Western Europe, Japan, Australia, and New Zealand. ‘Developing Countries’, described in the past as ‘underdeveloped countries’ or ‘less developed countries’, are made up of Africa, Asia, and Latin America including the Caribbean. There is a third country-group in the world, described as ‘transition economies’, made up of Eastern Europe and the former USSR, a residual group that is not part of the analysis, whose significance in the world economy has diminished rapidly since late 1991 when the erstwhile USSR was dissolved to create fifteen independent countries.

At the outset, it is just as essential to specify the geographical coverage of the study. It is an ambitious exercise because Asia is such a large continent, which has forty-seven countries. This chapter makes a beginning by disaggregating Asia into four sub-regions: East, Southeast, South, and West Asia. The constituent economies in each of these four sub-regions are: (a) East Asia: China, Democratic People’s Republic of Korea, Hong Kong, Macao, Mongolia, Republic of Korea, and Taiwan; (b) Southeast Asia: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste, and Vietnam; (c) South Asia: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka; and (d) West Asia: Bahrain, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, and Yemen. The focus is on developing countries in Asia. Therefore, Japan and Israel, which are both high-income industrialized countries in Asia, and were even fifty years ago, are not part of the study. Even so, this coverage includes thirty-seven countries.1 This sub-regional classification is essentially geographical. Yet, it serves an analytical purpose, and there are similarities between countries within sub-regions. But there are also significant differences between countries within sub-regions, which are analysed later in the book.

It is worth noting that the above classification covers the entire continent of Asia but is not exhaustive because it does not include two sets of countries. It excludes thirteen Pacific islands that are part of the Asia-Pacific region.2 These are mostly small island economies with very small populations that are not quite in Asia. It also excludes eight transition economies that were part of the former USSR but are now part of Asia. Of these, in the UN classification, Armenia, Azerbaijan, and Georgia are in West Asia, whereas Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan are in Central Asia. These countries are not part of the study, since they were part of the former USSR for about half of the fifty-year period and statistical information on these countries is available only from the mid-1990s. Moreover, the scope of the present study, already vast, needs to be kept within manageable proportions.

(p.31) The title of the Gunnar Myrdal magnum opus, Asian Drama, was deceptive in terms of its country-coverage. The focus of that study was on the erstwhile British India, made up of India, Pakistan, and Ceylon. Burma and Indonesia were paid some attention. But Malaysia, Philippines, and Thailand were grouped together as the rest of Southeast Asia, while Cambodia, Laos, and South Vietnam were touched upon when some information of interest was available. Myrdal described all these countries broadly as South Asia.3 However, Japan, Korea, China, Formosa (Taiwan), Hong Kong, and Singapore were excluded. So was West Asia. And, it is no surprise that the central Asian economies, then part of the USSR, were also excluded. It is clear that Asian Drama was both selective and restricted in terms of the countries studied. This book attempts a much larger country coverage in terms of range, although it cannot match the depth of that study published half a century ago.

1. Economic transformation of Asia

For Myrdal (1968), the fundamental point of departure from conventional thinking about development was that ‘economic problems cannot be studied in isolation but only in their own demographic, social and political setting’ (p. ix). In this worldview, development was a multidimensional process of circular causation and cumulative change in which economy, polity, and society interacted not only with technology, history, and culture but also with each other. Cumulative causation could create vicious circles through negative feedbacks, keeping countries in a state of underdevelopment, or virtuous circles through positive feedbacks, placing countries on the path to development. This approach and conceptualization was both perceptive and correct. But his analysis of the prevalent situation in underdeveloped Asia sought to focus on output and incomes, conditions of production, levels of living, attitudes towards life and work, institutions, and policies. Taken together, these constituted a social system that represented a powerful constraint on development, which meant that poor countries and poor people would remain poor.4 The interaction of these conditions, Myrdal believed, would lead to ‘either an unchanged level of underdevelopment, which is to say stagnation, or else development to a higher level or a regression to a lower level’ (p. 1864).

The challenge of development, then, was intervention in the form of policies and planning to transform the process of cumulative causation so that it could create virtuous circles through positive feedbacks and spread effects. However, his assessment of the possibilities in the countries studied led him to a deep pessimism about development prospects in Asia.5 In sum, economic problems were intractable, political problems were formidable, while solutions that could transform the possible into the probable, or the desirable into the feasible, were (p.32) exceedingly difficult if not elusive. Myrdal’s conception of drama, speeding towards a climax in which economic, social, and political tensions are mounting, captured the essence of this narrative (1968, p. 34). Yet, he recognized that the outcome at the end was not predetermined by the playwright as it would be in a theatre. ‘History, then, is not taken to be predetermined, but within the power of man to shape. And the drama thus conceived is not necessarily tragedy’ (Myrdal, 1968, p. 35). The wisdom of this sentence is perhaps the unintended escape clause, as the reality of development that unfolded in Asia over the next fifty years was so strikingly different. It was, of course, contrary to what Myrdal expected. But, to be fair, it would have been just as difficult for anyone at the time to expect or even imagine.

The broad contours of the remarkable transformation of Asia emerge clearly from Table 2.1, which compares selected demographic, social, and economic indicators in 2016 with the initial conditions five decades ago in terms of the same indicators. The demographic and social transformation was remarkable. In terms of demographics, the population of Asia and its sub-regions in 2016 was two to three times its size in 1965, so that population density in a land-scarce continent also rose by the same multiple. Yet, birth rates in 2016 came down sharply to much less than one-half of their levels in 1965, while fertility rates came down even more to one-third of their 1965 levels. Between 1965 and 2016, social development in Asia was also impressive, as life expectancy at birth rose from forty-nine years to seventy-two years, and infant mortality rates dropped from 160 to twenty-three per 1000 live births, while literacy rates rose from 43 per cent to 82 per cent. There was a gender bias reflected in the female–male ratio for literacy rates, which diminished but persisted. Inevitably, there were variations in performance across the four sub-regions, but the similarities were much greater than the differences and there was much progress everywhere. Of course, it must be recognized that such indicators are arithmetic averages that cannot measure the well-being of the poor.

Table 2.1 Social and economic transformation in Asia: 1965–2016

Asia

East Asia

Southeast Asia

South Asia

West Asia

DEMOGRAPHIC

1965

2016

1965

2016

1965

2016

1965

2016

1965

2016

Population (millions)

1749

4239

782

1514

245

642

637

1766

86

318

Density (per sq. km)

125

320

103

202

89

257

178

486

30

92

Birth rate (per 1000)

40

17

38

12

42

18

42

20

45

20

Fertility rate (births per woman)

6

2

6

2

6

2

6

2.5

7

2.5

SOCIAL

1965

2016

1965

2016

1965

2016

1965

2016

1965

2016

Life expectancy (years)

49

72

50

76

55

71

45

69

49

74

Literacy rate (per cent)a

43

82

52

95

52

91

28

66

30

84

Literacy rate Male:Female (per cent)a

51:33

89:76

58:47

97:92

63:42

94:88

40:15

78:53

42:19

89:78

Infant mortality rate (per 1000 live births)

160

23

196b

8

83

21

154

37

92

16

ECONOMIC

1970

2016

1970

2016

1970

2016

1970

2016

1970

2016

Income

GDP (in constant 2010 US$ billion)

1416

20,763

303

11,652

212

2644

272

2975

629

3493

as a percentage of world

7.5

26.8

1.6

15.0

1.1

3.4

1.4

3.8

3.3

4.5

GDP per capita (in constant 2010 US$)

714

4898

340

7695

755

4119

382

1684

6362

11,009

as a percentage of industrialized countries

3.8

11.1

1.8

17.5

4.0

9.4

2.0

3.8

34.1

25.0

Structure and Openness

Primary sector share in GDP

27.4

8

45.8

6.8

29.7

10.4

48.5

14.5

8.6

4.7

Merchandise trade (Exports plus Imports) to GDP ratio

43

70

21

66

46

118

17

40

65

70

Investment

Gross capital formation as a percentage of GDP

21.6

37.6

30.7

43.6

24.2

28.9

20.2

32.1

16.9

28.7

Infrastructure

Electricity consumption per capita (in Kwh)c

647

3394

1355

6216

757

3366

81

1663

Road kms per 100 sq. km of land aread

25

100

67

113

8

103

30

84

20

100

Urban:Rural population

21:79

47:53

20:80

58:42

21:79

48:52

19:81

33:67

42:58

72:28

Notes: (a) The figures in the columns for 2016 relate to 2010.

(b) The figure in the column for 1965 relates to 1960.

(c) The figures in the columns for 1970 relate to 1980 and in the column for 2016 to 2015. Statistics for West Asia are not available.

(d) The figures in the columns for 2016 relate to 2015.

Source: Author’s calculations based on various sources, see Appendix.

The economic indicators also reveal some transformative changes. The comparison is between 1970, the earliest year for which national accounts statistics compiled by the United Nations are available, and 2016. If evidence on these selected economic indicators were available for an earlier year such as 1960, or even 1965, it would show even more pronounced changes in Asia. The following comparison considers Asia as a whole to focus on the big picture. Much like the social indicators, there were broad similarities across sub-regions in terms of change and progress. Yet, there were also some significant differences between the four sub-regions, which are noted here and considered later in this chapter or in subsequent chapters.

Between 1970 and 2016, the share of Asia in world GDP, measured in constant 2010 dollars, rose from less than one-twelfth to more than one-fourth, by almost 20 percentage points, but GDP per capita in Asia as a proportion of that in (p.33) (p.34) industrialized countries, in constant 2010 dollars, increased far less. This catch-up in aggregate output and average income levels was uneven between the sub-regions, which is analysed in Section 3. There was structural change in Asia as the share of the primary sector in GDP fell from 27 per cent to 8 per cent. This decline varied across sub-regions. In West Asia, there was little agriculture to start with. In fact, for East Asia, Southeast Asia, and South Asia, taken together, the share of the primary sector in GDP fell from 42 per cent to 9 per cent.6 The share of manufacturing value added in GDP more than doubled, rising rapidly in East Asia, moderately in Southeast Asia and marginally in South Asia, while falling in West Asia.

The degree of openness in Asia defined as the ratio of merchandise trade (exports plus imports) to GDP increased significantly over this period from 43 per cent to 70 per cent, increasing far more in East Asia and Southeast Asia than it did in South Asia and West Asia (where it was already high). Investment rates in Asia shot up. Gross capital formation, as a proportion of GDP, rose from around one-fifth to almost two-fifths, broadly similar across sub-regions, except East Asia and West Asia where these were higher and lower respectively to start with, in 1970. The indicators on infrastructure also reveal transformative change. For Asia, the road density multiplied by four while electricity consumption per capita multiplied by five, with some variations in levels between sub-regions in which East Asia was ahead and South Asia was behind. The ratio of urban to total population in Asia rose from about one-fifth to one-half over this period, although this urbanization was somewhat less in South Asia, somewhat more in East Asia and the most in West Asia.

The remarkable transformation of Asia in fifty years is reflected in its demographic transition (a sharp drop in birth rates and fertility rates), its social progress (the spread of education as literacy rates reached much higher levels and improved health status as life expectancy rose and infant mortality rates fell) and its economic development (output growth, income levels, structural change, investment rates, infrastructure, and urbanization). In this process of transformation, East Asia was the leader and South Asia was the laggard, with Southeast Asia in the middle, while progress in West Asia did not quite match its high incomes per capita.

2. Output shares and income levels in Asia

The preceding discussion paints a broad brush picture of social and economic change in Asia through a simple point-to-point comparison between then and now, fifty years apart, largely within the continent. But the economic transformation of Asia needs to be situated in its wider context of the world economy, to reveal how its importance and performance have changed over these five decades.

(p.35) Table 2.2 presents evidence on population, GDP and GDP per capita in Asia, in current prices at market exchange rates, compared with developing countries, industrialized countries and the world economy, at ten-year intervals from 1970 to 2010, plus 2016, to keep the statistics within manageable proportions. It starts in 1970, rather than 1965, because national accounts statistics compiled by the United Nations are available only from 1970.

Table 2.2 Asia in the world economy: 1970–2016

1970

1980

1990

2000

2010

2016

Population (in billions)

Asia

2.0

2.5

3.0

3.6

4.1

4.3

Developing Countries

2.6

3.3

4.1

4.9

5.6

6.1

Industrialized Countries

0.8

0.9

0.9

1.0

1.0

1.1

World

3.7

4.5

5.3

6.1

7.0

7.5

Percentage Share of Asia in

Developing Countries

75.4

74.6

73.8

73.9

72.1

70.5

World

53.8

55.4

56.8

58.6

58.4

57.3

GDP

(US$ billion in current prices at market exchange rates)

Asia

296

1405

2343

4550

15,112

22,582

Developing Countries

580

2727

4003

7279

21,810

29,273

Industrialized Countries

2372

8554

18,107

25,943

42,094

44,578

World

3402

12,293

22,985

33,601

66,010

75,649

Percentage Share of Asia in

Developing Countries

51.0

51.5

58.5

62.5

69.3

77.1

World

8.7

11.4

10.2

13.5

22.9

29.9

GDP per capita

GDP per capita (US$ in current prices at market exchange rates)

Asia

149

569

773

1263

3718

5211

Developing Countries

220

824

975

1495

3874

4792

Industrialized Countries

2974

9956

19,920

26,622

40,933

42,390

World

919

2757

4312

5468

9487

10,131

GDP per capita in Asia

as a percentage of that in

Developing Countries

67.7

69.1

79.3

84.5

96.0

108.7

Industrialized Countries

5.0

5.7

3.9

4.7

9.1

12.3

World

16.2

20.6

17.9

23.1

39.2

51.4

Note: The percentages have been calculated.

Source: United Nations, National Accounts Statistics and Population Statistics.

It is worth beginning with a perspective on population changes. The total population of Asia more than doubled between 1970 and 2016, as its share of world population returned to its 1870 level. This was attributable to demographic factors. As death rates dropped because of improvements in public health systems that eliminated epidemic diseases, birth rates did not at the same pace because poverty and illiteracy persisted. However, with rising levels of income and (p.36) education, birth rates in Asia did come down significantly so that its population growth between 2010 and 2016 was modest. In fact, between 1970 and 2016, Asia’s share in the population of developing countries dropped by 5 percentage points, essentially because Africa’s population grew more rapidly as it lagged behind in the demographic transition.

From 1970 to 2016, the share of Asia in world GDP jumped by 21 percentage points from less than one-tenth to three-tenths, while its share in the GDP of developing countries rose by 26 percentage points from one-half to more than three-fourths. Over this period, the share of industrialized countries in world GDP fell from 70 per cent to 59 per cent, while that of developing countries rose from 17 per cent to 38 per cent. It would seem that Asia accounted for almost the entire increase in the share of developing countries in world GDP, while the increase in Asia’s share of world GDP was at the expense of industrialized countries (11 per cent) and transition economies (10 per cent).

Figure 2.1a outlines trends in Asia’s share of world population and world GDP based on time-series data from 1970 to 2016. It shows a large asymmetry in 1970 when Asia’s population share exceeded its income share by 45 percentage points. This asymmetry persisted until 1990 to diminish slowly until 2000 after which it narrowed significantly. Yet, in 2016, Asia’s population share was 27 percentage points higher than its income share.

The rise of Asia

Figure 2.1 Rising significance of Asia in the world economy: 1970–2016 (in percentages)

Note: The percentages have been calculated.

Source: United Nations, National Accounts Statistics and Population Statistics.

The story is different for per capita income. Table 2.2 shows that, GDP per capita in Asia as a proportion of GDP per capita in the world economy rose from less than one-sixth to more than one-half. The comparison with developing countries appears even more impressive. GDP per capita in Asia relative to that in the developing world rose from two-thirds in 1970 to exceed it in 2016. However, the reality check lies in a comparison with industrialized countries. The ratio of GDP per capita in Asia to GDP per capita in industrialized countries was just 1:20 in 1970 and 1:21 in 2000 but, as a consequence of rapid growth thereafter, it was higher at 1:8 in 2016. Yet, convergence was modest.

Figure 2.1b, based on time series data, clearly outlines these trends in GDP per capita for Asia, as a percentage of GDP per capita in industrialized countries, developing countries, and the world economy during the period from 1970 to 2016. It shows that GDP per capita in Asia, as a proportion of GDP per capita in industrialized countries, witnessed a modest convergence from 2000, while, as a proportion of GDP per capita in developing countries, it increased steadily throughout the period, gathering pace after 2000, to catch up and surpass it in 2013. It is also clear that GDP per capita in Asia converged towards the world average income level from the late 1990s.

In sum, the precipitous decline in its share of world GDP and the massive divergence in its GDP per capita experienced by Asia during the preceding 150 years came to an end by 1970. A reversal started thereafter. In fact, beginning around 2000, Asia witnessed a rapid increase in its share of world GDP and a (p.37) significant convergence in per capita incomes in comparison with the world economy although this convergence was at best modest in comparison with industrialized countries. It is obvious that the decline and fall of Asia during 1820–1950 occurred under some form of colonialism, or dependence, which was accentuated from 1870 in the age of imperialism. This changed, in the period from the late 1940s to the early 1960s, as Asian countries regained their political (p.38) independence, which restored their economic autonomy, enabling them to pursue their national development objectives.

It would be instructive to compare the substantial increase in Asia’s share of world GDP, and the relatively modest increase in its per capita income levels, during the period 1970–2016, with the past. The Maddison PPP statistics show that the share of Asia in world GDP reached its lowest level of 14.9 per cent in 1962 (Table 1.1), while its GDP per capita as a proportion of that in Western Europe and North America also reached its lowest level of 9.2 per cent in 1962 (Table 1.2). It is obviously not possible to compare these proportions with income shares and levels in current prices at market exchange rates. Fortunately, the Maddison statistical database has recently been extended up to 2016, from which it has been estimated that Asia’s share of world GDP, in 1990 international (Geary–Khamis) dollars, was 43.1 per cent in 2016.7 This proportion was 36.1 per cent in 1870 and 56.5 per cent in 1820 (Table 1.1). It has also been estimated that GDP per capita in Asia as a proportion of that in Western Europe, North America, and Oceania was 26.4 in 2016.8 This proportion was 26.6 per cent in 1870 (Table 1.2). Therefore, it is reasonable to infer that the share of Asia in world GDP returned to its level circa 1850, whereas its per capita income as a proportion of that in industrialized countries returned to its level in 1870.

3. Uneven development among sub-regions

Asia is a large and diverse continent. It is, therefore, essential to provide an analysis of output shares and income levels by disaggregating Asia into its four constituent sub-regions. Table 2.3 makes a distinction between East Asia, Southeast Asia, South Asia, and West Asia to present evidence on the share of each of these sub-regions in world population and world GDP, while comparing their GDP per capita with that in the world economy and in industrialized countries.

Table 2.3 Asia disaggregated by sub-regions: population, GDP and GDP per capita in comparison with the world: 1970–2016

1970

1980

1990

2000

2010

2016

Population

East Asia

24.1

24.1

23.7

22.5

21.1

20.3

Southeast Asia

7.6

8.0

8.3

8.5

8.6

8.6

South Asia

19.3

20.2

21.3

22.6

23.1

23.7

West Asia

2.7

3.0

3.4

3.7

4.1

4.2

Asia

53.7

55.4

56.8

58.6

58.4

58.0

GDP

East Asia

3.3

3.7

4.1

6.8

11.9

17.9

Southeast Asia

1.1

1.7

1.6

1.9

3.0

3.4

South Asia

2.5

1.9

1.8

1.8

3.1

3.8

West Asia

1.6

3.9

2.4

2.5

4.1

3.9

Asia

8.7

11.4

10.2

13.5

22.9

29.9

GDP per capita

as a percentage of GDP per capita in the world

East Asia

13.9

15.3

17.3

30.4

56.6

88.4

Southeast Asia

14.6

21.0

19.4

21.7

35.0

39.4

South Asia

12.9

9.6

8.5

8.0

13.3

16.2

West Asia

59.4

131.2

70.3

67.3

100.1

91.6

Asia

16.2

20.6

17.9

23.1

39.2

51.4

as a percentage of GDP per capita in the industrialized world

East Asia

4.3

4.2

3.7

6.2

13.1

21.1

Southeast Asia

4.5

5.8

4.2

4.5

8.1

9.4

South Asia

4.0

2.7

1.8

1.6

3.1

3.9

West Asia

18.4

36.3

15.2

13.8

23.2

21.9

Asia

5.0

5.7

3.9

4.7

9.1

12.3

Note: The percentages have been calculated. The data used for GDP and GDP per capita are in US dollars at current prices and market exchange rates.

Source: United Nations, National Accounts Statistics and Population Statistics.

More than three-fourths of the people in Asia live in the East and the South. Between 1970 and 2016, as a proportion of world population, the share of East Asia decreased from one-fourth to one-fifth while the share of South Asia increased from one-fifth to one-fourth. The shares of Southeast Asia and West Asia in world population were much smaller and witnessed little change. Over this period, the share of Asia in world GDP rose by about 21 percentage points, of which more than two-thirds was attributable to East Asia, while less than one-third was attributable to Southeast, South and West Asia taken together. This unequal distribution of the rise in Asia’s share of world GDP is confirmed by Figure 2.2a, which uses time-series data to outline the trends in the shares of Asia and its constituent sub-regions in world GDP.

The rise of Asia

Figure 2.2 Asia and its sub-regions compared with the world economy: 1970–2016 (in percentages)

Note: The percentages have been calculated. The data used for GDP and GDP per capita are in US dollars at current prices and market exchange rates.

Source: United Nations, National Accounts Statistics and Population Statistics.

A comparison of the asymmetries in shares of world population and world GDP for each of the four sub-regions is also revealing. In 1970, the population (p.39) share exceeded the income share by 20.8 percentage points in East Asia, 6.5 percentage points in Southeast Asia, 16.8 percentage points in South Asia, and 1.1 percentage points in West Asia. In 2016, the population share exceeded the income share by a far narrower 2.4 percentage points in East Asia, a marginally lower 5.2 percentage points in Southeast Asia, a clearly wider 19.9 percentage points in South Asia, and a mere 0.3 percentage points in West Asia. It would seem that, over this period, population and income shares became almost symmetrical for East Asia and even more asymmetrical for South Asia. For West Asia, with its concentration of oil-exporting countries, these shares were always close and its income share exceeded its population share when world oil prices rose in 1973 and 1979. For Southeast Asia, this asymmetry diminished a little but remained significant.

(p.40) Trends in GDP per capita set out in Table 2.3 mirror this uneven development in Asia. A comparison of GDP per capita for each of the sub-regions with GDP per capita in the world economy, or in industrialized countries, in 1970 and 2016, shows that East Asia fared the best and South Asia fared the worst, with Southeast (p.41) Asia in between, while West Asia, fluctuations apart, stayed roughly where it was. However, point-to-point comparisons conceal the trends, which emerge clearly from Figure 2.2b, which plots these proportions using time series data. It shows that, starting around 1990, the enormous gap in per capita income vis-à-vis industrialized countries diminished significantly in East Asia and moderately in Southeast Asia. In West Asia, where the gap was always narrower, this proportion was never stable and fluctuated sharply with world oil prices, rising from 1973 to 1981, falling thereafter until 2001, to rise again until 2013 and fall again until 2016. South Asia was the real outlier in this story, as the enormous gap widened even more for twenty-five years, so much so that the ratio of GDP per capita to that in industrialized countries dropped from 1:25 in 1970 to 1:66 in 1995 to recover partly and reach 1:33 in 2010 but, forty-six years later, this ratio was still a fraction less than 1:25 in 2016.

To recapitulate, it is clear that, from 1970 to 2016, the increase in Asia’s share of world GDP was attributable in large part to East Asia but in part also to other sub-regions, among which the contribution of South Asia was the least. The asymmetry in world income and population shares, which was always small for West Asia, diminished greatly for East Asia and just a little for Southeast Asia, but increased moderately for South Asia. The convergence towards the per capita income level in the world economy was striking in East Asia, modest in Southeast Asia, and the least in South Asia, while per capita incomes in West Asia fluctuated around the world average. In comparison with per capita incomes in industrialized countries, there was a significant convergence for East Asia and a modest convergence for Southeast Asia, particularly after 2000, but the income gap remained large, South Asia witnessed a divergence for three decades followed by a recovery after 2000 but no convergence over the entire period, while West Asia experienced fluctuations driven by oil prices to stay roughly where it was.9

4. Growth, convergence, and divergence

The changes in the global significance of Asia over time depend upon its economic performance as compared with the rest of the world. It is obvious that differences in GDP growth rates, in real terms, underlie the changing share of any country-group, or continent, in world GDP. It is simple arithmetic that differences in growth rates of GDP and population determine differences in growth rates of GDP per capita, which in turn shape convergence or divergence in per capita incomes. Therefore, Table 2.4 sets out growth rates in GDP and GDP per capita for Asia, and its constituent sub-regions, compared with Africa, Latin America, developing countries, industrialized countries, and the world economy from 1970 to 2016, also subdivided in time for the periods 1971–1980, 1981–1990, 1991–2000, 2001–2008 and 2009–2016. It is logical to choose decades for this purpose. However, (p.42) (p.43) the dividing line for the last two sub-periods is different, as the global economic crisis that surfaced in late 2008 led to a sharp slowdown in growth across the world. This evidence reveals clear differences in the growth performance of Asia compared with other parts of the world and of its sub-regions compared with each other.

Table 2.4 Growth rates in the world economy by country-groups and regions compared with growth rates in Asia and its sub-regions: 1970–2016 (per cent per annum)

1971–1980

1981–1990

1991–2000

2001–2008

2009–2016

1971–2016

GDP

World

3.70

3.45

2.96

3.56

2.81

2.96

Industrialized Countries

3.22

3.41

2.76

2.25

1.65

2.47

Developing Countries

5.36

3.59

4.66

6.48

4.96

4.53

Latin America

5.74

2.03

2.98

4.21

2.12

2.83

Africa

4.05

2.45

2.81

5.72

3.32

3.28

Asia

5.38

5.14

5.99

7.57

6.04

5.80

East Asia

7.24

9.39

8.21

8.95

6.77

8.21

Southeast Asia

6.89

5.10

4.41

5.70

5.07

5.33

South Asia

3.54

5.34

5.56

7.38

6.48

5.43

West Asia

4.66

1.30

3.78

5.93

4.44

3.20

GDP per capita

World

1.93

1.44

1.12

1.75

1.28

1.10

Industrialized Countries

2.48

2.85

2.15

1.70

1.26

1.86

Developing Countries

3.13

1.42

2.99

5.03

3.59

2.72

Latin America

3.03

−0.76

0.47

1.72

−0.46

0.21

Africa

1.72

0.44

1.17

4.43

2.18

1.57

Asia

3.25

3.07

4.40

6.35

4.96

4.10

East Asia

5.46

7.71

7.37

8.38

6.24

7.12

Southeast Asia

4.51

2.92

2.77

4.40

3.86

3.56

South Asia

1.17

2.97

3.58

5.75

5.14

3.41

West Asia

1.64

1.59

1.39

3.44

2.22

0.57

Note: GDP and GDP per capita are measured in constant 2010 US$. The average annual growth rates for each of the periods have been calculated by fitting a semi-log linear regression equation LnY = a + bt and estimating the value of b.

Source: United Nations, National Accounts Statistics.

It shows that GDP growth rates in Asia were consistently higher than in Africa, Latin America, developing countries, industrialized countries, and the world economy. This was so throughout in every sub-period. The differences vis-à-vis Africa and Latin America were most pronounced during 1981–1990 and 1991–2000, their lost decades, and during 2009–2016 after the slump in 2008. The differences vis-à-vis the industrialized countries increased during 1991–2000 and 2001–2008 but were most pronounced during 2009–2016 because of the Great Recession. Over a period that spanned almost five decades, 1970–2016, the GDP growth rate in Asia was 5.8 per cent per annum compared with 3 per cent per annum in the world economy, 2.5 per cent per annum in industrialized countries, 4.5 per cent per annum in developing countries (attributable essentially to Asia) and around 3 per cent per annum in Africa and Latin America. It is no surprise that, in world GDP, Asia increased its share at the expense of industrialized countries and accounted for almost the entire increase in the share of developing countries.

Similarly, GDP per capita growth rates in Asia were consistently higher than in other country-groups and the world economy throughout in every sub-period. The differences vis-à-vis Africa and Latin America were small in the 1970s but became substantial during 1981–1990 and 1991–2000, their lost decades, and mounted even further thereafter. The differences vis-à-vis industrialized countries were modest during 1971–1980 and 1981–1990, but as population growth slowed down in Asia and economic growth slowed down in the West, these differences grew wider, so much so that during 2009–2016, GDP per capita growth in Asia, at 5 per cent per annum, was almost four times that in industrialized countries at 1.3 per cent per annum. Over the entire period, 1970–2016, the GDP per capita growth rate in Asia was 4.1 per cent per annum, compared with 1.1 per cent per annum in the world economy, 1.9 per cent per annum in industrialized countries, 2.7 per cent per annum in developing countries (driven largely by Asia), 0.2 per cent per annum in Latin America, and 1.6 per cent per annum in Africa. Consequently, starting around 1990, GDP per capita in Asia witnessed a significant convergence towards GDP per capita in the world economy and caught up with and surpassed GDP per capita in developing countries, but the convergence towards GDP per capita in industrialized countries was far more limited. Insofar as Asia was a constituent of developing countries, the faster growth in its GDP per capita inevitably created divergences elsewhere in that country-group. Over this period, Africa experienced a significant divergence in per capita incomes, to replace Asia as the poorest continent in the world, while Latin America, at (p.44) much higher per capita income levels, witnessed neither convergence nor divergence to stay roughly where it was (Nayyar, 2013).

The disparities in GDP growth rates within Asia, between its constituent sub-regions, are just as striking, which are reflected in changes in their respective shares of GDP in developing countries and in the world. GDP growth rates in East Asia were much higher than in Asia, which in turn were significantly higher than elsewhere in the world, in every sub-period. GDP growth rates in Southeast Asia and South Asia were lower than in East Asia and Asia but were mostly higher than elsewhere in the world and that difference became larger after 2000. GDP growth rates in West Asia fluctuated. During 1970–2016, the GDP growth rate was 8.2 per cent per annum in East Asia, 5.3 per cent per annum in Southeast Asia, and 5.4 per cent per annum in South Asia, all distinctly higher than elsewhere in the world, while West Asia at 3.2 per cent per annum was closer to the rest of the world. Thus, while every sub-region of Asia increased its share in world GDP, of the total increase in Asia’s share, East Asia contributed two-thirds.

The disparities in GDP per capita growth rates within Asia were even more pronounced, which are reflected in the timing, degree, and pace of convergence in per capita incomes for each of its constituent sub-regions relative to industrialized countries and the world. GDP per capita growth rates in East Asia were far higher than elsewhere in Asia, and the world outside, in every sub-period without exception. In Southeast Asia, GDP per capita growth rates were moderate by Asian standards and were lower than the Asian average during 1981–1990 and 1991–2000. In South Asia, GDP per capita growth rates were the lowest in Asia and in the world during 1971–1980, lower than the average for Asia and developing countries during 1981–1990, closer to the Asian average and higher than developing countries during 1991–2000, but were the highest in the world, excepting East Asia, during 2001–2008 and 2009–2016. West Asia was the exception insofar as GDP per capita growth rates were lower than almost every other part of Asia and the world. Over the entire period, 1970–2016, the GDP per capita growth rate was spectacular at 7.1 per cent per annum in East Asia (on average doubling its per capita income every ten years), respectable at 3.6 per cent per annum in Southeast Asia and 3.4 per cent per annum in South Asia (on average doubling per capita incomes every twenty years), but poor at 0.6 per cent per annum in West Asia (the lowest in the world except for Latin America where it was a mere 0.2 per cent per annum).

Thus, as the gap in GDP per capita growth rates widened, East Asia converged towards world per capita income, starting 1990, and almost caught up with it in 2016, just as it witnessed some convergence relative to industrialized countries starting 1990, which gathered pace after 2000 as industrialized countries slowed down but its extent was circumscribed by the initial income gap that was wide. Starting around 2000, Southeast Asia witnessed a significant convergence towards the world average and a rather limited convergence relative to industrialized (p.45) countries, despite its modest growth in GDP per capita, as their growth experienced a sharp slowdown. South Asia experienced a divergence in per capita incomes relative to both industrialized countries and the world economy during 1970–2000, despite its high GDP growth rates during 1981–2000 because of population growth, as its share in world population rose by 3.3 percentage points over three decades, so that the rapid growth in GDP per capita during 2000–2016 only reversed the earlier divergence, returning South Asia’s per capita income, relative to industrialized countries, in 2016 to where it was in 1970. West Asia was the other outlier, even if its per capita income levels were far higher than in the other sub-regions, as its GDP per capita fluctuated mostly in consonance with world oil prices, with no discernible convergence or divergence over the entire period.

5. Manufacturing and industrialization

The most visible outcome of industrialization is in output. But it is difficult to find time series evidence on industrial production for country-groups in the world economy. And there are problems that arise from the comparability of data over time. It is, therefore, simplest to consider manufacturing value-added in Asia for a comparison with other parts of the world. It is also useful to make such a comparison for manufactured exports, insofar as it reflects the ability of the industrial sector in Asia to compete in world markets.

Table 2.5 sets out the evidence on manufacturing value added in the world economy, industrialized countries and developing countries compared with Asia and its sub-regions, for selected benchmark years. Between 1970 and 2016, in current prices at market exchange rates, the share of industrialized countries fell from 70 per cent to 50 per cent while the share of developing countries rose from 10 per cent to 48 per cent. The share of developing countries rose by 38 per cent, of which 20 per cent was at the expense of industrialized countries while 18 per cent was at the expense of Eastern Europe and the former USSR. Asia’s share rose from 4 per cent to 41 per cent, which accounted for almost the entire increase in the developing-countries share, so that the share of Latin America and Africa taken together increased by only 1 percentage point. These trends emerge with much greater clarity from Figure 2.3a. It uses time series data to reveal two distinct phases: a steady increase during 1970–2003, followed by a step jump and a rapid rise thereafter so much so that, in 2015, the share of developing countries matched that of industrialized countries.

Table 2.5 Manufacturing value added in the world economy by country-groups compared with manufacturing value added in Asia and its sub-regions: 1970–2016

1970

1980

1990

2000

2010

2016

(in US$ billion)

World

846

2679

4575

5557

10,501

12,088

Industrialized Countries

594

1913

3623

4438

5866

6030

Developing Countries

83

385

705

1048

4359

5819

Asia

30

154

381

607

3444

4937

(as a percentage of World)

Industrialized Countries

70.2

71.4

79.2

79.9

55.9

49.9

Developing Countries

9.8

14.4

15.4

18.9

41.5

48.1

Asia

3.6

5.8

8.3

10.9

32.8

40.8

East Asia

0.6

1.4

3.0

4.4

22.5

29.9

Southeast Asia

0.7

1.4

1.9

2.9

4.3

4.4

South Asia

1.4

1.4

1.5

1.7

3.1

3.5

West Asia

0.9

1.5

1.9

2.0

2.9

2.9

Note: The data on manufacturing value added are in current prices at market exchange rates. The percentages have been calculated.

Source: United Nations, UNCTAD Stat, based on UN National Accounts Statistics.

The rise of Asia

Figure 2.3 Distribution of world manufacturing value added: 1970–2016 (in percentages)

Source: Same as Table 2.6.

The distribution of the rapidly rising manufacturing value-added within Asia was just as unequal between its sub-regions. Between 1970 and 2016, Asia’s share in the world rose by just over 37 percentage points, of which East Asia contributed more than three-fourths, while Southeast, South and West Asia together contributed one-fifth. Once again, these trends show up even more clearly in (p.46) Figure 2.3b. It reveals three discernible phases. During 1970–1985, the shares of the four sub-regions were very similar and moved together. East Asia began to move ahead starting 1985 and Southeast Asia began to move ahead starting 1990. Even so, until 2003, the shares of the sub-regions were close to each other, so that South Asia and West Asia were not much behind. There was a dramatic change beginning 2004 when East Asia raced ahead leaving the others far behind, so that, in 2016, just over a decade later, the share of East Asia in world manufacturing value-added exceeded the share of the other three sub-regions put together by 19 percentage points.

The story is similar for exports of manufactured goods, which were an outcome of industrialization in Asia. Table 2.6 presents available evidence on manufactured exports from Asia and its sub-regions compared with the world economy, industrialized countries and developing countries for selected benchmark years from 1995 to 2016. Over this period, the share of industrialized countries in world manufactured exports fell from 74 per cent to 55 per cent while that of developing countries rose from 25 per cent to 44 per cent. The entire increase in the share of developing countries was at the expense of industrialized countries. Asia’s share rose from 21 per cent to 39 per cent, so that the share of Latin America and Africa taken together increased from just 4 per cent to 5 per cent. Figure 2.4, which uses time-series data, shows that, over the two decades, there was a steady decrease in the share of industrialized countries and a steady, almost matching increase, in the share of developing countries, with much of the latter attributable to Asia.

Table 2.6 Manufactured exports in the world economy by country-groups compared with manufactured exports in Asia and its sub-regions: 1995–2016

1995

2000

2005

2010

2016

(in US$ billion)

World

3.7

4.7

7.4

10.0

11.3

Industrialized Countries

2.7

3.3

4.8

5.8

6.2

Developing Countries

0.9

1.4

2.5

4.0

5.0

Asia

0.8

1.1

2.1

3.5

4.4

(as a percentage of World)

Industrialized Countries

73.8

69.7

65.6

58.5

54.9

Developing Countries

25.3

29.3

33.2

40.3

44.0

Asia

21.5

24.2

28.5

35.5

39.2

East Asia

13.5

15.2

19.1

25.0

27.5

Southeast Asia

6.1

7.0

6.4

6.7

7.2

South Asia

0.8

0.9

1.2

1.6

1.9

West Asia

1.0

1.1

1.9

2.3

2.5

Note: The data on manufactured exports are in current prices at market exchange rates. In this table, manufactured exports are defined as the sum of SITC 5 (chemicals), SITC 6 (manufactured goods), SITC 7 (machinery and transport equipment), SITC 8 (miscellaneous manufactured articles) less SITC 68 (non-ferrous metals) and SITC 667 (pearls, precious and semi-precious stones). The percentages have been calculated.

Source: United Nations, UNCTADStat.

(p.47) This rapid growth in exports of manufactured goods from Asia was distributed in a most unequal manner among its sub-regions. Between 1995 and 2016, Asia’s share in the world rose by over 18 percentage points, of which East Asia contributed more than three-fourths, while Southeast Asia, South Asia and West Asia together contributed less than one-fourth. Figure 2.4b depicts the trends over time with clarity. The share of East Asia rose at a rapid pace starting in 2000. The share of Southeast Asia was stable, while the shares of South Asia and West Asia, at far lower levels, increased slowly.

The rise of Asia

Figure 2.4 Distribution of world manufactured exports: 1995–2016 (in percentages)

Source: Same as Table 2.7.

The quarter century since 1990 witnessed a dramatic increase in the share of Asia in world manufacturing value added, at the expense of industrialized (p.48) countries and transition economies, and in world manufactured exports largely at the expense of industrialized countries. This catch-up in industrialization was led and dominated by East Asia. Southeast Asia was a distant second, while South Asia and West Asia made progress that was, at best, modest. A comparison with the past is instructive. There are no separate estimates for the share of Asia, but the share of China and India taken together in world manufacturing production is estimated at 47.4 per cent in 1830 and 28.3 per cent in 1860 (Table 1.4), so that the share of Asia was probably a little higher. By comparison, in 2016, the share of Asia in world manufacturing valued added was 41 per cent. Therefore, it is plausible to suggest that, in 2016, the share of Asia in world industrial production was close to its level around 1850.10 Clearly, the end of colonialism, which meant political independence for Asian countries, made an enormous difference in their pursuit of industrialization. Of course, this would not have been possible without a sustained increase in agricultural productivity, which is discussed later in the book.

6. Engagement with the world economy

The economic significance of Asia in the global context is also shaped by the nature and degree of interaction with the outside world. The broad contours of the (p.49) main channels of engagement—international trade, international investment, and international migration—are explored briefly in this section.

On international trade, Table 2.7 sets out data on the value of merchandise exports and imports in the world economy, industrialized countries and developing countries compared with Asia and its sub-regions, for selected benchmark years.11

Table 2.7 Merchandise trade in the world economy compared with merchandise trade in Asia and its sub-regions: 1970–2016

1970

1980

1990

2000

2010

2016

Exports

(in US$ billion)

World

318

2050

3496

6452

15,302

15,986

Industrialized Countries

243

1356

2534

4243

8255

8550

Developing Countries

61

608

843

2060

6438

6988

Asia

27

373

590

1538

5016

5743

(as a percentage of World)

Asia

8.4

18.0

17.0

24.0

33.0

36.0

East Asia

2.2

3.8

8.0

12.1

17.8

21.3

Southeast Asia

2.0

3.5

4.1

6.7

6.9

7.2

South Asia

1.1

0.7

0.8

1.0

1.8

2.1

West Asia

3.1

10.2

3.9

4.1

6.3

5.4

1970

1980

1990

2000

2010

2016

Imports

(in US$ billion)

World

330

2091

3609

6655

15,421

16,150

Industrialized Countries

255

1505

2669

4645

8947

9183

Developing Countries

61

502

800

1918

6020

6591

Asia

28

279

575

1393

4631

5154

(as a percentage of World)

Asia

8.4

13.3

15.9

20.9

30.0

31.9

East Asia

2.7

4.2

7.4

11.2

16.4

17.3

Southeast Asia

2.5

3.1

4.5

5.7

6.2

6.7

South Asia

1.3

1.2

1.1

1.2

2.9

3.0

West Asia

2.0

5.0

2.9

2.8

4.6

4.9

Note: The data on absolute values of merchandise exports and imports are in current prices at market exchange rates. The percentages have been calculated.

Source: United Nations, UNCTADStat, based on UN International Trade Statistics.

Between 1970 and 2016, the share of Asia in world exports rose from 8 per cent to 36 per cent, the share of developing countries rose from 19 per cent to 44 per cent, while the share of industrialized countries fell from 76 per cent to 53 per cent. Thus, the increase in Asia’s share of world exports was largely at the expense (p.50) of industrialized countries (23 per cent), but it was also at the expense of other developing countries (Latin America and Africa, 3 per cent) and of the residual country-group made up of Eastern Europe and the former USSR (2 per cent). The distribution of the massive increase in exports within Asia was just as unequal between its sub-regions. Between 1970 and 2016, of the 28 percentage points increase in Asia’s share of world exports, East Asia contributed two-thirds, while Southeast Asia, South Asia and West Asia together contributed one-third. Over time, the share of Asia and East Asia rose rapidly, and the share of Southeast Asia increased steadily, while the share of South Asia stagnated until 2000 to increase modestly thereafter, and the share of West Asia fluctuated with oil prices.

(p.51) The picture is similar on the other side of the trade coin. Between 1970 and 2016, the share of Asia in world imports rose from 8 per cent to 32 per cent, the share of developing countries rose from 18 per cent to 41 per cent, while the share of industrialized countries fell from 77 per cent to 57 per cent. The increase in Asia’s share of world imports was largely at the expense of industrialized countries (20 per cent) and the residual country-group made up of Eastern Europe and former USSR (3 per cent), but in very small part also at the expense of other developing countries (Latin America and Africa, less than 1 per cent). The distribution of the increased import share of Asia among its sub-regions was less unequal. Between 1970 and 2016, of the 23.5 percentage points increase in Asia’s share of world imports, East Asia contributed three-fifths, while Southeast Asia, South Asia and West Asia together contributed two-fifths. East Asia was dominant but not as much as in exports. Over time, the share of Asia as a whole rose faster than that of East Asia, the share of Southeast Asia increased until the late 1990s to stabilize thereafter, while the share of South Asia remained unchanged for decades to increase from 2000, and the share of West Asia fluctuated presumably as changes in oil prices affected incomes.

On international investment, Table 2.8 presents evidence on trends in foreign direct investment, inward and outward, in terms of average annual inflows and outflows, during the periods 1981–1990, 1991–2000, 2001–2010 and 2010–2015, in the world economy, industrialized countries and developing countries, compared with Asia and its sub-regions. It shows that Asia was not as dominant as it was in the sphere of trade although East Asia was just as dominant among its sub-regions.

Table 2.8 Flows of foreign direct investment in Asia and the world economy (1981–2015: in US$ billion: annual averages)

1981–1990

1991–2000

2001–2010

2011–2015

Inward Flows

(in US$ billion)

World

108.0

513.1

1097.6

1545.0

Industrialized Countries

84.7

373.9

663.1

783.0

Developing Countries

23.2

134.6

385.9

698.0

Asia

14.0

82.1

251.5

446.0

(as a percentage of World)

Asia

13.0

16.0

22.9

28.9

East Asia

5.2

10.3

11.9

16.1

Southeast Asia

4.7

4.6

4.6

7.6

South Asia

0.3

0.5

2.0

2.4

West Asia

2.9

0.6

4.4

2.8

1981–1990

1991–2000

2001–2010

2011–2015

Outward Flows

(in US$ billion)

World

127.2

554.6

1210.9

1418.0

Industrialized Countries

119.8

500.4

965.4

958.0

Developing Countries

7.4

52.4

212.4

412.0

Asia

6.2

45.3

169.1

356.0

(as a percentage of World)

Asia

4.8

8.2

14.0

25.1

East Asia

3.8

6.1

8.7

17.9

Southeast Asia

0.6

1.9

2.8

4.5

South Asia

0.0

0.1

0.9

0.5

West Asia

0.3

0.1

1.5

2.3

Note: The percentages have been calculated from absolute values in US$.

Source: United Nations, UNCTAD, Foreign Direct Investment Online Database.

Between 1981–1990 and 2010–2015, the share of industrialized countries in average annual inflows fell from 78 per cent to 51 per cent, while the share of developing countries rose from 21 per cent to 45 per cent and the share of Asia rose from 13 per cent to 29 per cent. The share of industrialized countries dropped by 27 percentage points, which accrued mostly to developing countries (24 per cent) and in small part to the residual country-group of Eastern Europe and former USSR (3 per cent). Of the increase in the share of developing countries, Asia accounted for two-thirds (16 per cent) while Latin America and Africa accounted for one-third (8 per cent). The share of Asia as a destination for foreign direct investment inflows in the world rose by 16 percentage points, of which East Asia contributed two-thirds.

Between 1981–1990 and 2010–2015, the share of industrialized countries in average annual outflows decreased from 94 per cent to 68 per cent, while the share of developing countries increased from 6 per cent to 29 per cent, of which the share of Asia rose from 5 per cent to 25 per cent while the share of Latin America and Africa increased from 1 per cent to 4 per cent. Yet, for outward flows of foreign direct investment, industrialized countries remained the primary source in the world, and Asia remained the main source from the developing world (p.52) accounting for four-fifths. The distribution among sub-regions of Asia was unequal. The share of Asia as a source of foreign direct investment outflows in the world rose by 20 percentage points, of which East Asia contributed more than two-thirds.

On international migration, statistical information is scarce. There is some evidence on the numbers of international migrants across country-groups and regions in the world and on their proportion in the total population of host countries (Nayyar, 2013). But there is no evidence on flows of international migrants by destination or source. To some extent, however, the relative importance of countries of origin is reflected in remittances from international migrants.

(p.53) Table 2.9 presents available evidence on remittances in the world economy, by country-groups, compared with Asia and its sub-regions, during the period from 1980 to 2016. Over this period, the share of industrialized countries fell from 49 per cent to 24 per cent, while the share of developing countries rose from 51 per cent to 70 per cent. The share of Asia rose from 30 per cent to 46 per cent, once again at the expense of industrialized countries. Yet the story was different from that of trade and investment. For one, the share of other developing countries—Latin America and Africa—was significant and rose from 21 per cent to 24 per cent. For another, the share of the residual country-group—Eastern Europe and former USSR—rose from zero in 1980 to 6 per cent in 2016. Figure 2.5a using time-series data shows clearly that Asia, while significant, was not dominant, as the absolute value of remittances to developing countries rose faster than remittances to Asia throughout the period. The distribution of remittances within Asia, among its constituent sub-regions, was also rather different from that in trade and investment. Figure 2.5b, based on time-series data, shows that in total remittances to Asia, South Asia had the largest share throughout, while Southeast Asia was next until 2005 when East Asia picked up, and the share of West Asia declined after 2000. It would seem that the story of remittances is different from that of trade and investment, insofar as Asia was not dominant in the developing world and East Asia was not dominant in Asia. This might be partly attributable to the fact that international migration, driven by ‘push’ or ‘pull’ factors, could be concentrated in low-income countries that send out more (p.54) migrants. But it cannot be a complete explanation, because the factors underlying international migration during the post-colonial era are more complex and have changed over time.

Table 2.9 Remittances in world economy by country-groups compared with remittances to Asia and its sub-regions: 1980–2016

1980

1990

2000

2010

2016

(in US$ billion)

World

35

63

125

464

581

Industrialized Countries

17

32

47

117

141

Developing Countries

18

31

74

312

405

of which

Africa

5.7

8.7

9.4

53.9

61.9

Latin America

1.8

5.8

21.0

58.5

77.4

Asia

10.5

16.5

43.6

199.9

265.9

(as a percentage of World)

Asia

29.9

26.3

34.8

43.1

45.8

East Asia

1.6

3.9

4.2

12.8

11.8

Southeast Asia

2.9

4.5

9.3

8.8

11.0

South Asia

15.0

8.9

13.7

17.7

19.0

West Asia

10.4

9.0

7.5

3.9

4.0

Note: The figures on remittances are in current prices and at market exchange rates.

Source: United Nations, UNCTADStat, based on IMF Balance of Payments Statistics, World Bank Migration and Remittances, Economist Intelligence Unit Country Data, and national sources.

The rise of Asia

Figure 2.5 Remittances to Asia and its sub-regions compared with developing countries and the world economy: 1980–2016

Source: Same as Table 2.10.

During the period 1950–1975, international migration from Asian countries, was made up of unskilled or semi-skilled workers destined for Western Europe to meet the demand for labour-shortages. Colonial ties and a common language were the factors that shaped these flows. For example, Britain imported workers from the Indian sub-continent, while the Netherlands imported workers from Indonesia. During 1975–2000, there have been two streams of international migration from Asian countries. First, there was a permanent emigration of people with professional qualifications or technical skills to the United States, (p.55) made possible by a change in immigration laws, which extended to Canada and Australia. Second, there was a temporary migration of unskilled or semi-skilled workers in manual or clerical occupations from South Asian and Southeast Asian countries to the high-income, labour-scarce, oil-exporting countries in West Asia, followed by more recent imports of temporary workers by labour-scarce countries in East Asia. This international migration from Asia was an important factor underlying productivity increase and economic dynamism in industrialized countries, while remittance inflows from migrants eased macroeconomic constraints on growth in their home countries.

The spread of globalization, which gathered momentum from 1990, has also made it easier to move people across borders, whether guest workers or illegal immigrants, many of whom come from Asia and some of them stay on in industrialized countries often in an incarnation of small entrepreneurs. On a smaller scale, there is a movement of professionals from developing countries who can migrate permanently, live abroad temporarily, or stay at home and travel frequently for business. These people are almost as mobile as capital. This phenomenon is associated with their rise as managers to the top echelons of the corporate world in the age of shareholder capitalism. The most striking example is the substantial presence of professionals from India in the United States and Europe. For example, the CEOs of Google, and Microsoft at present are persons of Indian origin. This has also been so for Pepsi and Deutsche Bank in the recent past. Of course, there are similar professionals from other Asian countries, such as South Korea, Vietnam, Philippines, and now China too, particularly in the United States.12

It is interesting to juxtapose the past and the present in international migration. There is a connection that is attributable to the diaspora from the past and to globalization in the present. The diaspora from India and China, beyond its traditional meaning of Jews in exile, has its historical origins in indentured labour. There is a significant presence of this diaspora from the two Asian giants across the world not only in industrialized countries but also in developing countries. This is associated with entrepreneurial capitalism, Indian and Chinese, across the world. Migrants from other Asian countries are entrepreneurs too but, for historical reasons, the number of people whose origins lie in India or China is so much larger.

In sum, it would seem that there has been a remarkable increase in Asia’s engagement with the world economy over the past fifty years, which is reflected in its growing relative importance in every dimension. The dominance of Asia, led by East Asia, is particularly striking in international trade flows, where both have expanded at the expense of all other country-groups and regions of the world. However, even though Asia and East Asia are significant in other spheres, such a dominance is not visible in international investment and international migration.

(p.56) 7. From regions to countries

It is important to recognize that aggregates for Asia could be deceptive because it is such a large and diverse continent. Therefore, the analysis in this chapter also disaggregated Asia into its four constituent sub-regions. It revealed that changes in aggregate output and income levels over time were uneven between East, Southeast, South and West Asia. The rising share of Asia in world industrial production and manufactured exports, too, was distributed in a most unequal manner among these sub-regions. Their growing engagement with the world economy, despite many similarities, was inevitably characterized by significant differences. It should come as no surprise if development was just as uneven between countries within, or across, the sub-regions. Clearly, a further disaggregation beyond regions, by countries, is as necessary. This is indeed essential because a meaningful analysis of development, which is difficult for sub-regions defined by geography, is both more feasible and more appropriate at the level of countries.

The choice of countries is based on three simple criteria: economic significance in development, demographic size in terms population, and representative of diversity. If the number is to be kept within manageable proportions, this choice is almost automatic, although there could be minor differences in judgement about inclusion and exclusion. Based on these criteria, the study will focus on fourteen selected economies in Asia: China, South Korea, and Taiwan in East Asia; Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam in Southeast Asia; Bangladesh, India, Pakistan, and Sri Lanka in South Asia; and Turkey in West Asia, which are described as the Asian-14.

Table 2.10 presents evidence on the share of the selected fourteen countries in the population and GDP of Asia for 1970, 1990, and 2016. Over this period, taken together, these countries accounted for around 90 per cent of population and more than 80 per cent of GDP in Asia. Between 1970 and 1990, seven economies (Korea, Taiwan, Indonesia, Malaysia, Singapore, Thailand, and Turkey) increased their share in Asia’s GDP, while seven economies (China, Philippines, Vietnam, Bangladesh, India, Pakistan, and Sri Lanka) experienced a decrease in their share of Asia’s GDP. This reflects differences in rates of economic growth for the two sets of countries. Between 1990 and 2016, only China increased its share in Asia’s GDP, whereas all other countries witnessed a decrease in their share. This reflects the rapid growth in, and the economic size of, China as its share in Asia’s GDP rose from 17 per cent to almost 50 per cent, so that diminished shares for others were inevitable, although Asia’s share in world GDP also rose rapidly during 1990–2016.

Table 2.10 Economic significance of the selected 14 countries in Asia (as a percentage of the total for Asia)

1970

1990

2016

Population

GDP

Population

GDP

Population

GDP

China

41.5

30.3

38.7

17.0

32.4

49.7

Korea

1.6

3.0

1.4

11.9

1.2

6.2

Taiwan

0.7

2.0

0.7

7.1

0.5

2.3

Indonesia

5.8

3.5

6.0

5.7

6.0

4.1

Malaysia

0.5

1.3

0.6

1.9

0.7

1.3

Philippines

1.8

2.5

1.3

2.1

2.4

1.4

Singapore

0.1

0.6

0.1

1.7

0.1

1.3

Thailand

1.9

2.5

1.9

3.8

1.6

1.8

Vietnam

2.2

0.9

2.3

0.3

2.2

0.9

Bangladesh

3.3

2.1

3.5

1.2

3.8

1.0

India

27.9

20.2

28.7

13.5

30.6

10.0

Pakistan

2.9

4.4

3.6

2.2

4.5

1.3

Sri Lanka

0.6

1.0

0.6

0.4

0.5

0.4

Turkey

1.8

8.5

1.8

8.9

1.8

3.8

Total above

92.6

82.8

91.0

77.6

88.2

85.5

Asia

100.0

100.0

100.0

100.0

100.0

100.0

Note: The percentages have been calculated.

Source: United Nations, National Accounts Statistics and Population Statistics.

The oil-exporting countries of West Asia are not included because, as natural-resource-based economies, they are very different from the rest of Asia. Bahrain, (p.57) Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates accounted for just over half the population of West Asia, while their share in its GDP, significantly influenced by world oil prices, was higher at roughly three-fourths in 1990 compared with about two-thirds in 2016. These eight countries accounted for around 3.5 per cent of Asia’s population, contributing 14 per cent of its GDP in 1990 and 9 per cent of its GDP in 2016, determined essentially by oil prices.

There is a high degree of concentration among the Asian-14, not only in terms of their size, reflected in population and GDP, but also in terms of industrialization, reflected in manufacturing value added, and engagement with the world economy, reflected in international trade, investment, and migration. Such concentration among a few is matched by a diversity within the few in terms of the very same attributes. Moreover, this group of countries is diverse in the three dimensions of history, geography, and economics, so that it represents the diversity of Asia. It needs to be said that a focus on the Asian-14 serves an analytical purpose to foster an understanding of the economic transformation in Asia over the past fifty years, but the study will refer to the sub-regions, as also other countries, whenever necessary and appropriate.

(p.58)

Notes:

(1.) The disaggregation of sub-regions in the text above lists forty countries. However, in the United Nations classification of countries, Hong Kong and Macao are listed as Special Administrative Regions of China while Taiwan is listed as a Province of China.

(2.) These islands include: Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. Timor-Leste is included in Southeast Asia only because it was a province of Indonesia until 2002.

(p.247) (3.) This description is illustrated by a map of South Asia in Myrdal (1968), which includes all the selected countries (volume I, pp. 4–5). The scope and coverage of the study is also set out in the text (volume I, pp. 39–41). Among the country-specific chapters, there were separate chapters on India and Pakistan, but there was just one chapter on the rest in which there were three separate sections on: (i) Ceylon, (ii) Burma and Indonesia, and (iii) the remaining countries in Southeast Asia mentioned above (volume I, chapters 7, 8, and 9).

(4.) For an elaboration of these ideas, see Myrdal (1968, volume III, appendix 2, pp. 1843–78). For a critical evaluation, see Stewart (2019) and Nayyar (2019b).

(5.) There is a detailed assessment of possibilities and constraints for the countries studied: India (volume I, chapter 7; Pakistan (volume I, chapter 8); Ceylon and Southeast Asia (volume I, chapter 9). For each country, there is also a summary of the prospects: India (pp. 300–3), Pakistan (pp. 338–41), Ceylon (pp. 356–8), Burma and Indonesia (pp. 373–81), Malaysia (pp. 384–6), Philippines (pp. 389–90), Thailand (pp. 393–4), Cambodia (pp. 396–7), Laos (pp. 397–8) and Vietnam (pp. 398–409, although this thinking was strongly influenced by the wars that spanned decades: the first with France during 1945–1954 and the second, in effect, with the United States during 1954–1975).

(6.) This marked difference in comparison with Asia as a whole was attributable to West Asia where, in 1970, the share of the primary sector in GDP was only 9 per cent but the sub-region accounted for 44 per cent of Asia’s GDP.

(7.) See Maddison Project Database, Version 2018, 1990 international $ benchmark (www.ggdc.net/maddison). This database provides GDP per capita in 1990 international dollars, updating the Maddison set up to 2016. GDP per capita figures for 2016 are available for 166 countries. This series was multiplied by population (using data from Maddison Project Database, Version 2018) to obtain GDP figures (in 1990$) for each country. The share of Asia in world GDP is the total GDP of thirty-five Asian countries (excluding Japan) expressed as a percentage of world GDP (total GDP of 166 countries).

(8.) Author’s calculations from www.ggdc.net/maddison. GDP per capita for the country-groups has been calculated by estimating the total GDP in 1990$ for the country-group and dividing that figure by the total population of all the countries in the group.

(9.) Once again, a comparison with the past is instructive. The difference between East Asia and South Asia is mirrored in the difference between China and India. In terms of Maddison PPP statistics, in 1990 international (Geary–Khamis) dollars, in 2016, the share of China in world GDP was 20.2 per cent while that of India was 8.7 per cent. For China, its share of world GDP was 33 per cent in 1820 and 17.1 per cent in 1870. For India, its share of world GDP was 8.6 per cent in 1900. In 2016, GDP per capita as a proportion of that in Western Europe and Western Offshoots was 37.4 per cent for China and 17.4 per cent for India. For China, this GDP per capita ratio was 25.9 per cent in 1870 and 50.2 per cent in 1820. For India, this GDP per capita ratio was 18.8 per cent in 1900. Therefore, it is plausible to suggest that in terms of their shares in world GDP and GDP per capita ratios compared with industrialized countries, in 2016, China was roughly where it was in the mid-nineteenth century, whereas India was roughly where it was at the end of the nineteenth century. The figures for 2016 are calculated from www.ggdc.net/maddison while the figures for the past are from Tables 1.1 and 1.2.

(p.248) (10.) In 1830, the share of Latin America, Africa, and Asia, together, in world manufacturing production was 60.5 per cent, while that of China and India, together, was 47.4 per cent (Table 1.4). In 1860, the share of Latin America, Africa, and Asia, together, was 36.6 per cent, while that of China and India, together, was 28.3 per cent. If one-third these differences of 13.1 per cent and 8.3 per cent respectively were attributable to other Asian countries, the share of Asia as a whole would have been around 51.7 per cent in 1830 and 39.4 per cent in 1860.

(11.) The focus here is on merchandise trade and on the dimensions of such trade. However, trade in services became more significant over time. The composition of merchandise exports and imports also changed significantly over time. Both these aspects are considered in Chapter 5.

(12.) International migration and economic development has been analysed at length elsewhere by the author (Nayyar, 2008c and 2013).