Written by Cyn-Young Park, Assistant Chief Economist
Developing economies in Asia and the Pacific (developing Asia) have registered remarkable growth over the past few decades. During 1980–2010, developing Asia’s real gross domestic product (GDP) grew 7.1% annually on average, compared to the world average of 2.8%. The region’s real per capita GDP (in constant 2000 U.S. dollars) climbed from about $257.26 in 1980 to $1,420.14 in 2010. That is an increase of more than five times, compared with about 1.5 times for the world’s per capita GDP during the same period. By 2010, the region accounted for 32.3% of world GDP; including Japan, the share reached 42.1%.
Strong growth combined with visible reductions in poverty has encountered a setback during the global financial crisis. The cumulative impact of the food, fuel and financial crises since 2007 is being felt across the region in the form of lower production and exports, losses of jobs, credit constraints, and slower growth together with higher cost of living and worsening inequalities.
With the threat of a prolonged recession (or at least very slow growth) in the global economy, the region needs to rethink about its more traditional growth paradigm of relying on exports. Factory Asia for Western Consumers is no longer an option for sustained high growth for the region. Very soon, Asian consumers would have much greater purchasing power than their counterparts in the advanced economies.
So why not taking advantage of being in the most dynamic region? Greater regional cooperation holds a key to unlocking the growth potential beyond what we can produce and sell now. Economic integration will help create a common ground for the region’s diverse economies to produce, trade, invest, and share the benefits of growth, maximizing the use of the region’s limited resources for shared growth. Boosting intraregional trade and finance is often the easiest and most obvious step toward this direction. Beyond the active trade of manufacturing goods, policy interventions should aim at accelerating the liberalization of agriculture and services trade and easing impediments to the cross-border flow of labor and capital. Policy priorities should also focus on increasing the synergies of domestic efforts to enhance human capital. Opening labor markets is an essential part of economic integration as well and will enhance competitiveness and productivity. Effective cross-border policy coordination can also provide an impetus to push reforms conducive to an enabling business and investment environment, both regionally and nationally.
Much more can be done. There are many remaining behind-the-border distortions and impediments to trade—especially those associated with labor mobility and capital flows. Principles of trade liberalization—together with best practices—must be actively applied to trade in services as well. Specific policy interventions can aim at reducing the costs of doing business across the region by reducing red tape, simplifying and harmonizing customs procedures, and agreeing on product standards, among other actions.
There are great opportunities to be exploited with further regional cooperation for shared prosperity and the region should forge a more forceful collaboration to realize them. First, connectivity, both physical and human, can allow the region to take advantage of its expanding economic and social network, enhancing job opportunities and improving their welfare. Second, international migration should be given particular policy attention, given the underexploited potential benefits for both receiving and sending countries. Third, effective investment in regional public goods will help improve the region’s competitiveness and attraction for business, investment, and living.
Finally, prerequisites for effective integration are political will based on mutual interests and common goals, macroeconomic policy cooperation, and harmonization (or at least mutual recognition) of rules. Establishing an appropriate regional institutional framework for a level playing field and good governance is an essential element of effective integration and the streamlining of regional agreements into national policies. This will also promote accountability, transparency, and respect for the rule of law, hence fostering an enabling environment. The region’s common market, where goods and services trade at the lowest cost and where factors of production (labor, capital, energy, and other inputs) move freely can offer best opportunities to all.