Asia's Economic Transformation: Where to, How and How Fast?

ADB's Jesus Felipe is author of the Key Indicators for Asia and the Pacific 2013 special chapter: Asia’s Economic Transformation: Where to, How and How Fast? The report was published on 21 August.

Mr. Felipe discussed the report and the challenges for developing Asian nations as they seek to emulate the wealthy economies of Asia, such as Japan; Korea; Hong Kong, China; and Singapore.

Date: 05 September 2013

Giovanni Verlini: Hello and welcome to today’s ADB live chat " Asia's Economic Transformation: Where to, How and How Fast?" I am Giovanni Verlini from ADB's Department of External Relations.

I'm joined today by Jesus Felipe, who is Advisor to the Chief Economist in ADB's Economics and Research Department.

Mr. Felipe is also author of the Key Indicators for Asia and the Pacific 2013 special chapter: Asia’s Economic Transformation: Where to, How and How Fast? The report was published on 21 August and is now available for free download at: http://www.adb.org/publications/key-indicators-asia-and-pacific-2013

We’re here to discuss the report’s findings and the challenges for developing Asian nations as they seek to emulate the wealthy economies of Asia such as Japan, the Republic of Korea, Hong Kong, China, and Singapore.

We have Mr. Felipe with us for one hour so, without further ado, I am delighted to open the discussion to our online community.

Giovanni Verlini: We have one question from "M"

M: How does ADB see the role of ICT in industrializing the agriculture sector?

Jesus Felipe: The modernization of agriculture (including use of modern technologies) is key in many Asian countries, especially those where agriculture still comprises a large share of GDP or employment (or both). Historically, industrialization was preceded by advances in agriculture

Giovanni Verlini: Thank you Mr. Felipe. Now we move on to a more general question sent by Lily Argueta, who is following us from El Salvador: "Which elements are essential to start a process of inclusive growth in a small and very open economy?"

Jesus Felipe: (i) Continue being an open economy; (ii) What is the state of agriculture? Upgrade (get into agribusiness); (iii) Follow your comparative advantage (labor-intensive activities...) but start thinking of new activities higher up in the value chain; (iii) develop infrastructure (choose some labor-intensive projects); (iv) Use smart and modern industrial policy tools; (v) What sort of policies is the Central Bank following: do they support the creation of employment?

Giovanni Verlini: Now a comment from Eranda Ginige

Eranda Ginige: Hi, it's estimated that in 2020, 2/3 of the world's population will live in Asia. Coupled with the impending "grey bubble", what are the key things that we need to do to maintain growth in Asia?

Jesus Felipe: If the employment-to-population ratio declines, it is obvious that "it all" hinges on productivity: this is the best recipe for growth. Countries need to discover niches of high-productivity growth.

Giovanni Verlini: A question received through ADB's Facebook profile, coming from the Bertelmann Transformation Index fan page.

"What are the general implications of stuttering growth engines in major (Asian) economies?"

Jesus Felipe: This is not good news, obviously. The most important effect will probably be on employment creation. Policy makers know this well and this is why some of them needed to keep their economies running very fast during the last decades. Also, of course, incomes will increase at a lower pace.

Paolo G. Montecillo: Hi, just want to ask if you saw any problems about the Philippines' consumption-driven growth in the mid- to long-term. Can the country sustain growth without developing its manufacturing sector? How can the Philippines create more jobs and reduce poverty?

Jesus Felipe: The Philippines has done well recently and I am optimistic about the future of the economy. My suggestion to ensure that growth continues is to develop a larger manufacturing base. I know that the Government is working on a manufacturing road map. This is a welcome effort. What it needs to do is to implement it successfully. This is the surest way to create employment and reduce poverty.

Giovanni Verlini: Just received via email: "Does it still make sense to talk about trends in "Asia's" rapid economic transformation given the diversity of the region's economies?"

Jesus Felipe: Good point! Asia is so large and has had such diverse outcomes that it is certainly dangerous to talk about "Asia"... Which one of them? As we document in this year's special chapter, transformation has been very fast in some economies but not in others.

Giovanni Verlini: Another question via email, this time from Jeffrey: "In ADB's Key Indicators 2013, you write that industrialization is "a necessary path to prosperity" for Asian countries. Does this concept apply to all countries? Wouldn't you agree that perhaps past is not always prologue, ie, that development patterns do not always repeat themselves?"

Jesus Felipe: Thanks, a couple of clarifications: (i) we argue that industrialization is necessary but not sufficient, and provide empirical evidence of how other complementary variables/policies do matter; (ii) we clarify that industrialization will be a difficult path for, for example, small island economies; (iii) Agree that development patterns do not repeat....and we say so when we argue that many Asian countries will find it difficult to industrialize in the coming decades precisely because today's world is very different from that the Republic of Korea or Singapore faced in the 1970s-1908s.

Ramon: "You mention in your report that changes in manufacturing processes are likely to benefit developed countries first and foremost. Why is it that lower-income countries cannot leapfrog into new technologies?"

Jesus Felipe: Deep point...:(i) all fancy and most advanced technologies (bio-... and nano-...) are being developed by developed countries. I do think that they will be the first ones to benefit from them; (ii) There is no such thing as leapfrogging. The evidence that we have is that learning is a slow and painstaking process (and see also the evidence in the chapter on the relationship between education and industrial diversification: we show that countries do not 'teleport' (leapfrog) themselves. This does not mean that developing countries will not benefit... all we say is that they will have to wait and that there is no leapfrogging.

Giovanni Verlini: May I remind our audience that the report Key Indicators for Asia and the Pacific 2013 was published on 21 August and is now available for free download at: http://www.adb.org/publications/key-indicators-asia-and-pacific-2013

Prime Sarmiento: What can emerging Asian economies learn from the success of the People's Republic of China, Japan and the Republic of Korea?

Jesus Felipe: This is a six-million-dollar question and the answers are country-specific, but: (i) Do not neglect agriculture. This is where development starts; (ii) Achieve a significant level of industrialization; (ii) Focus efforts on the quality of primary and secondary education. The Special Chapter goes deep into these issues and I would refer you to it.

Jesse: What's the best lesson the Philippines can learn from Hong Kong, China?

Jesus Felipe: I do not think Hong Kong, China is the Philippines' best "model". The former is a 7-million city with a very peculiar history... very different from that of the Philippines. There are better examples the Philippines can take a look at in the region (Malaysia, Republic of Korea...)

Giovanni Verlini: Just received via email: “You write that agriculture needs to modernize (I take it you mean it needs to mechanize across the chain) and also that innovation in manufacturing will be technology intensive, ie, it will not generate many jobs. Do you really think that the service sector will be able to absorb Asia's vast workforce? Quite simply, where will the jobs be coming from?”

Jesus Felipe: Yes I do... it is already happening: the service sector is the major creator of employment. Where? Hotels and restaurants, wholesale and retail trade, public sector, transport, etc. The jobs are coming. The question is that often (we document this) these are low-productivity jobs. Developing Asia is already a service region from the GDP Point of view. It will also be so from the employment point of view.

Andrew Chan: What role do cities play in a country's development? Most capital cities like Kuala Lumpur, Manila and Bangkok are more developed than the rest of the country.

Jesus Felipe: Urbanization (i.e., people and activities moving to cities) is a stylized fact of development. Why? (i) Agglomeration economies; (ii) Cities produce goods and services with higher value-added than the goods produced by the country side (agricultural products). This is unstoppable. It is happening in Asia and the trend will continue.

Emilia David: What can countries that are reliant on services do to expand and diversify their economy for more sustainable growth? How can manufacturing be pushed in these countries?

Jesus Felipe: There is nothing intrinsically wrong with services... except when countries get into the low-productivity segments of services (e.g., personal services like barbershops!). If, however, a country specializes in dynamic and high-productivity services (logistics, business services), there is no problem. The key is that dynamic services tend to be complementary of manufacturing. This means that it will be difficult to develop them without a sound manufacturing base.

Giovanni Verlini: We have time for one final question, sent to us by Woan-Jin: "Education comes up over and over again as key to economic development. Yet, it is often said that markets do not have the capacity to absorb the number of graduates churned out by the region's universities. Is there a contradiction here?"

Jesus Felipe: Woops... another 6-million dollar question. Economies today do not create jobs that require 16 years of education. Many people and Governments get this wrong and hence we end up with a futile debate about education. We live in a world of "inflation of education". Very few jobs today (just walk around...) require college education; much less a Ph.D.

Giovanni Verlini: Dear participants, time is up, I am afraid.

I would like to thank Mr. Felipe for dedicating one hour of his busy schedule to take part in this chat.

Unfortunately, we did not have time to answer all the questions that we received. Please, send unanswered questions to me at: gverlini@adb.org. I will forward them to Mr. Felipe who will then answer you directly.

Thank you all for participating in this ADB Live Online Chat.

May I take this opportunity to invite you all to follow our next online chat entitled "Fuel for Myanmar's Growth." Details about time and date will soon follow.

To the next one!

Jesse (Quezon City, PH): Thanks, Mr. Felipe, and thanks, ADB! Let's have more of this.

Jesus Felipe
Jesus Felipe is Advisor to the Chief Economist in ADB's Economics and Research Department. He has held academic positions with the Hong Kong University of Science and Technology and with the Georgia Institute of Technology in Atlanta. Mr Felipe's research interests include inclusive growth, the dynamics of structural change, industrial policy, the functional distribution of income, business cycles, and the path of profit rates. He holds M.A. degrees from the International University of Japan and from the University of Pennsylvania, and a Ph.D. from the University of Pennsylvania.
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