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

Asia’s Economic Transformation Where to, How, and How Fast? Key Indicators for Asia and the Pacific 2013 Special Chapter Jesus Felipe Advisor to the Chief Economist Economics and Research Department Asian Development Bank 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 Output shares, 2010 or latest Employment shares, 2010 or latest (% of total) (% of total) 100% 100% 90% 90% 33 80% 80% 45 46 48 49 70% 70% 62 62 70 74 75 60% 60% 23 50% 50% 24 40% 40% 27 43 40 30% 30% 22 33 42 20% 20% 27 30 22 24 25 10% 10% 15 11 10 6 3 3 1 0% 0% Dev. LAC MENA OECD World Dev. LAC MENA OECD World Asia Asia Agriculture Industry Services Agriculture Industry Services LAC=Latin America and the Caribbean; MENA=Middle East and North Africa; OECD=Organisation of Economic Co-operation and Development members 3

The largest sector today and region’s averages Economies Agriculture Industry (8 economies) Services (31 economies) None Azerbaijan; Bhutan; Afghanistan; Armenia; Bangladesh; Cambodia; Fiji; where largest Indonesia; Papua New Georgia; Hong Kong, China; India; Japan; Kazakhstan; sector in GDP is Guinea; People’s Republic Kiribati; the Republic of Korea; the Kyrgyz Republic; Lao of China; Thailand; PDR; Malaysia; Maldives; Mongolia; Myanmar; Nepal; Turkmenistan; Viet Nam 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% Economies Agriculture (17 economies) Industry Services (15 economies) Armenia; Bangladesh; Bhutan; None Azerbaijan; Hong Kong, China; Indonesia; where where Cambodia; Georgia; India; Myanmar; Japan; Kazakhstan; Kiribati; the Republic of the largest Nepal; Pakistan; Papua New Guinea; Korea; the Kyrgyz Republic; Malaysia; sector in total People’s Republic of China; Samoa; Maldives; Mongolia; the Philippines; employment is Tajikistan; Thailand; Uzbekistan; Vanuatu; Singapore; Sri Lanka; Taipei,China; Viet Nam; Region’s averages 42.82% 23.62% 33.58% Note: (i ) Region’s averages exclude Japan (ii) In the past, industry has been the largest employer only once: Hong Kong, China in 1980 4

Industrialization, de-industrialization & non industrialization in Asia The 18% threshold ….and de -industrialized ……and have not de- have not industrialized industrialized Armenia, Azerbaijan, Hong O Cambodia, Indonesia, Korea, U Kong, China, Japan, Bangladesh, Georgia, India, Malaysia, Pakistan, Philippines, T Kyrgyzstan, Mongolia, Kazakhstan, Nepal, Papua New P Singapore, Sri Lanka, Thailand, China, People’s Republic of, Guinea U Viet Nam Taipei,China, Tajikistan, T E Armenia, Bangladesh, M Cambodia, China, People’s P Republic of, Georgia, India, L Azerbaijan, Hong Kong, Indonesia, Kazakhstan, O China, Japan, Korea, Malaysia, Sri Lanka Y Kyrgyzstan, Mongolia, Nepal, Singapore, Taipei,China M Pakistan, Papua New Guinea, E Philippines, Tajikistan, N Thailand, Viet Nam T 5

High-tech and Non High-tech Manufacturing Sectors Bangladesh, Indonesia, & the Republic of Korea (% total of manufacturing output and employment) Output Employment 1998 1998 BANGLADESH BANGLADESH 1985 1985 2007 2007 INDONESIA INDONESIA 1980 1980 1985 1985 KOREA KOREA 1970 1970 0 20 40 60 80 0 20 40 60 80 100 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 Change in the share of employment, 1995 and 2009 (percentage points) 20 15 10 9,3 3,5 11,9 5 8,3 9,3 6,8 0 -5 -10 -15 -20 People's Rep. of Indonesia India Japan Rep. of Korea Taipei,China China Primary Manufacturing Construction and public utilities Services 7

Needed: Further Structural Transformation Issues Questions • Agriculture: • What type of transformation 700 million workers is expected to take place in • Industrialization the coming decades? and the role of • How will the transformation Technology happen? • Service economies • How fast will Asia continue both GDP and changing? employment • Education

Agricultural output and employment shares, latest and projected for 2040 70 - Infrastructure PRC and India together - Modern technologies about 400 mill. workers 60 - GVCs - Agribusiness 50 Percentage 40 30 20 10 0 Reduction Reduction Projected for 2040 Latest Latest Projected for 2040 Employment Shares Output Shares 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.

Income level and Industrialization across the world (109 economies) OUTPUT With a few HIGH-INCOME COUNTRIES exceptions, INDUSTRIALIZED DID NOT INDUSTRIALIZE no economy has INDUSTRIALIZED Austria, Australia, Belgium, Canada, Israel Denmark, Finland, France, Germany, Hong Kong, become high-income China , Ireland, Italy, Japan, Korea, Republic of, without Netherlands, Norway, Puerto Rico, Singapore , Spain, Sweden, Switzerland, Taipei,China, United industrializing Kingdom, United States E DID NOT United Arab Emirates -- M INDUSTRIALIZE P LOW MIDDLE-INCOME COUNTRIES L INDUSTRIALIZED Argentina, Belarus, Bolivia, Bulgaria, Colombia, Greece, Iran, Paraguay, Russia O Costa Rica, Croatia, Czech Republic, Dominican Y Republic, El Salvador, Guatemala, Hungary, Latvia, M Lithuania, Macedonia, Malaysia, Mexico, Moldova, Morocco, New Zealand, Peru, Poland, E Portugal, Romania, Serbia, Slovak Republic, N Slovenia, Sri Lanka, Tunisia, Turkey, Ukraine, T Uruguay DID NOT Albania, Armenia, Azerbaijan , Brazil, Cambodia, Algeria, Angola, Bangladesh, INDUSTRIALIZE Cameroon, Chile, China, People's Republic of, Botswana, Cuba, Ecuador, Egypt, Honduras, Indonesia, Kyrgyzstan, Lesotho, Ethiopia, Georgia , India, Iraq, Mongolia, Nicaragua, Pakistan, Philippines, South Jamaica, Kazakhstan, Africa, Syria, Tajikistan, Thailand , Venezuela, Viet Madagascar, Mali, Namibia, Nam, Yemen, Zambia Nepal , Nigeria, Oman, Panama, Papua New Guinea, Saudi Arabia, Sierra Leone, Tanzania

Probit regression of high-income status in 2010 (i.e., income above US$15,000) on industrialization in output dummy, together with the following control variables (one variable at a time) Percentile Industrialization (in output) and: 10 th 50 th 90 th Roads per capita (kms/'000 persons) actual 1.267 4.359 17.045 96 obs prob 16.00% 20.20% 44.50% Financial development (Liquid liabilities as percent of actual 17.37 36.625 75.74 GDP) prob 14.40% 22.30% 43.50% 95 obs Average years of schooling (No .of years) actual 2.631 6.186 9.853 110 obs prob 6.00% 21.00% 48.50% Share of manufacturing value added in high-tech sectors actual 10.507 36.128 52.389 (percent manufacturing value added) prob 59 obs 1.60% 33.80% 75.30% Share of manufacturing employment in high-tech sectors actual 13.226 34.402 49.395 (percent manufacturing employment) prob 60 obs 0.80% 2.75% 75.40% actual – actual value of the variable at each percentile prob – probability of being a high income economy

Change in employment share and Sectors that gained the most employment registered positive but relatively low productivity growth Productivity growth  Agriculture, Hunting, Forestry and Fishing, 0,12 Restructuring Dynamic Mining and Quarrying  Manufacturing 0,1  Construction and Public Productivity growth (% per year 1995-2009) Utilities PRC PRC  Wholesale and Retail 0,08 Trade, Hotels and PRC Restaurants 0,06  Transport, Storage and India Communication Indonesia 0,04  Finance, Real Estate and India Business Services India  Public Services Indonesia 0,02 Indonesia 0 Service sector employment remains much more dependent on domestic demand than -0,02 manufacturing employment and, as a consequence, the former is less globalized than the -0,04 latter -0,06 -0,2 -0,15 -0,1 -0,05 0 0,05 0,1 0,15 Percentage points change in employment share (1995 - 2009) Size of bubbles represents employment share in 2009 Countries: Indonesia, India, PRC, Japan, Korea, and Taipei,China

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