Chris Manning. Routledge Handbook of Southeast Asian Economies

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1 bs_bs_banner BOOK REVIEW ESSAYS migrant workers in particular require greater protection in national legislation and bilateral and regional agreements. To sum up, these two books provide a refreshing new look at some of the employment issues faced mainly by developing countries in recent times and likely to be in the limelight in the coming decade or so. Both cover a wide range of empirical studies and data in a balanced way. For the most part, they present the results in an accessible form for most readers and not just economists. While the strong mandate of the ILO on decent work and employment protection is present in policy prescriptions, this for the most part does not restrict the data analysis. Both books make a compelling case for bringing employment back to centre stage in economic and social policy, which means notonlyabigtickforsustainingeconomic growth but also an endorsement of policies to improve equity. References Bernal-Verdugo, L., D.Furceri and D. Guillaume, 2012a. Crises, Labour Market Policy and Growth, IMF Working Paper, 12/218, IMF, Washington DC. Bernal-Verdugo, L., D. Furceri and D. Guillaume, 2012b. Labour Market Flexibility and Unemployment: New Evidence on Static and Dynamic Effects, IMF Working Paper 12/64, IMF, Washington DC. Suryahadi, A., Widyanti, W., Perwira, D. and Sumarto, S., Minimum Wage Policy and Its Impact on Employment in the Urban Formal Sector, Bulletin of Indonesian Economic Studies, 39(1): World Bank, The East Asian Miracle: Economic Growth and Public Policy, Oxford University Press, New York. World Bank, 2012a. World Development Report 2013, Jobs, World Bank, Washington DC. World Bank, 2012b. Indonesia Economic Quarterly, December, World Bank, Washington, DC: Chris Manning The Australian National University 12 Routledge Handbook of Southeast Asian Economies Ian Coxhead (ed.) Routledge, London and New York, 2015 Pp ISBN: Southeast Asia is one of the most dynamic regions in the world. From low levels of income per capita in the 1950s, it has experienced quite rapid growth and improvements in living standards, trailing East Asia but doing better than most other regions in the developing world. Its development success was achieved despite the very pessimistic predictions of early development economists. Southeast Asia includes six large economies (Indonesia, Singapore, Thailand, Malaysia, the Philippines, and Vietnam) and five smaller economies (Cambodia, Laos, Myanmar, Brunei, and East Timor). With the exception of Singapore, which broke into the ranks of high-income economies, the middle-income countries in the region are struggling to escape the middle-income trap. This handbook, edited by Ian Coxhead, charts the experiences of the countries in the region, providing a rich and comprehensive analysis of development trends and the factors that contribute to success or failure. It includes 19 contributions written by a roster of outstanding scholars and regional specialists. The book is divided into six main parts. The first part focuses on growth and development over the long-run. Parts II to IV discuss food and agriculture, trade and industrialisation, and population and human capital. Part V consists of two chapters on poverty reduction and political economy. The final section outlines challenges for the 21st century. All chapters are comparative in approach, including data on most Southeast Asian countries (with the exception of Brunei, East Timor, and Myanmar for which data are usually lacking). Generally, the contributors take a nuanced liberal approach to development. FDI and trade are seen as positive forces, economic nationalism, and excessive regulation as obstacles to development. The logical structure of the book is not quite clear. Part II focuses on two of the major sectors, 139

2 ASIAN-PACIFIC ECONOMIC LITERATURE Agriculture and Natural Resources. Part III is basically about global value chains, trade, and flows of capital. Industrialisation is discussed in the context of the excellent paper on global production sharing by Athukorala and Kohpaiboon. It is also prominent in the chapter by Fredrik Sjöholm on foreign direct investment. But a dedicated chapter on industrialisation is missing. Part IV can be seen as a section on labour inputs, with chapters on population, human capital, and migration. But it lacks a chapter on employment, unemployment, and labour market issues. It also includes a chapter on savings rates, which does not really belong there. A separate chapter on capital accumulation and capital inputs would have been useful. Part V includes two very different chapters, which have little in common. The first by Peter Warr focuses on socio-economic outcomes, namely, poverty and its drivers. The second by Hal Hill discusses the political economy of policy reform, which is more linked to the discussion of drivers of growth in parts II, III, and IV. Part six contains several chapters that could just as well be added elsewhere in the book. Jenna Nobles article on health and ageing could have been included in part IV. Indeed there are overlaps with chapter 10 on population. The chapter by Hill and Menon on ASEAN would also fit well in section III on trade. Strangely enough, a study of the systematic contributions to growth is missing. We have chapters on population and labour, human capital, savings, and trade, but no summary chapter. Chapter 4 by Phung, Coxhead, and Liam on the internal and external sources of growth, though very interesting, provides some of what we need, but not enough. It is rather eclectic. It is more a specialist paper identifying a specific important element, namely, growth spillovers from East Asia, but not really an overview of the core elements: growth of labour, human capital, physical capital, structural change, R&D, and total factor productivity and their respective contributions. The volume is exceptionally rich in data. While this is one of the strengths of the book, it is potentially also a weakness. Data can rapidly become outdated and some of the chapters are excessively descriptive. The most interesting chapters of the book, which will have a longer shelf life, are those that link empirical description and analysis to underlying theoretical debates about the sources of development or stagnation in development economics. There are many such chapters in the book, some of them real gems. In this review, I focus on some of these chapters. The book opens with an excellent and erudite overview by the editor, Ian Coxhead. It documents how less than two generations ago Southeast Asians were generally very poor. Since then there has been a remarkable rate of growth and exceptionally speedy rates of structural transformation. The chapter also highlights the diversity of experiences, due to differences in initial resource endowments, systems of governance, development strategies, and integration into international markets. The Philippines lost its early lead. Vietnam and Laos joined late, but are transforming even more rapidly than other countries. Singapore had stellar performance and became a high-income country. Malaysia and Thailand performed better than most other countries in the region. The largest country in the region, Indonesia, had a long period of successful growth and development after 1966, but is nevertheless something of a laggard in comparative perspective. It is struggling to emerge from the lower-middle income category. The chapter also documents the role of external trade and regional integration in the fortunes of the region. What is especially interesting about the chapteristhatisshowshowearlygenerationsofdevelopment economists got almost everything wrong. They saw the prospects of development in the region as dim, seeing more future for West Africa. They saw Southeast Asia as caught in a Malthusian trap with no prospects for agricultural development. The Green Revolution was an astounding success despite the doubts of the early critics. Several resource-rich economies serve as counter examples to resource curse theory, showing that with appropriate policies resource-rich economies can transform their structure and reduce their dependence on primary exports (for example, Indonesia). Pessimistic predictions concerning the transition from 140

3 BOOK REVIEW ESSAYS planned to market economies were also off the mark, if we consider the success of Vietnam. Jeffrey Williamson has contributed a delightful chapter focusing on the role of trade in the long-run development of Southeast Asia from 1500 to He has a special knack of going beyond sometimes sparse empirical information to tackle and answer big theoretically relevant questions. Southeast Asia has always been a trading hub. The growth of trade in the 20th century is nothing exceptional. Rates of growth of trade in the 19th century were just as rapid, while GDP was growing more slowly. It was the nineteenth century that was the canonical globalisation epoch. The first trade boom began around Williamson argues that it was not advances in transport technology or increasing openness to trade that explained the boom. If this had been the case, price levels between the trading partners would have converged. They didn t. So, the main explanation lies in increasing the supply of tradeables in Southeast Asia and increasing the demand in the European economies. The early trade boom did not benefit Southeast Asian countries. Monopolistic practices by trading corporations depressed prices and there was oversupply because China withdrew from international trade. The second trade boom was from 1815 to Trade expanded for a variety of reasons, including declining transport costs, rapid growth in the industrialising advanced economies, openness to trade, and the Pax Britannica. The result was a huge improvement in Southeast Asia s terms of trade. Elaborating on the argument of his 2011 book, Trade and Poverty, Williamson explains how improving terms of trade promoted de-industrialisation in Asia. Prebisch and Singer got it all wrong. The problem for the developing world was not declining terms of trade but improving terms of trade and Dutch disease effects. My only quibble with this article is that Williamson seems to argue that, by and large, technological advances and trade openness had little to do with the expansion of trade. This may well be true for the earlier period, but not for the late-19th century. He does mention technology and openness, but does not give them much emphasis in his summing up. Trade also surfaces as an important driver of growth in the chapters by Phung, Coxhead, and Liam on growth since 1970 (chapter 4) and Athukorala and Kohpaiboon on global production sharing and industrialisation (chapter 7). Chapter 4 provides an interesting econometric analysis of the sources of growth, with some new elements added to a standard Solow-type growth specification. The novelties include better measurement of trade openness and allowing for spatial growth spillovers using measures derived from gravity models. I especially liked the interaction term, where the inverse of distance is weighted by GDP, multiplied by trade openness. The authors show quite convincingly that the good performance of Southeast Asia is explained in part by growth spillovers from East Asia. The economic boom in East Asia accelerated growth in Southeast Asia ( luck ). Growth spillovers have significantly larger effects in Southeast Asia than elsewhere, especially in the countries most receptive to trade and FDI flows. A related argument is developed in a nice paper by Athukorala and Kohpaiboon. This paper focuses on the change in the pattern of trade in the second half of the 20th century. While earlier trade flows involved final goods, the emergence of distributed production resulted in trade fragmentation. The content of trade shifted to components, parts, and functions. The authors use the term global production sharing. They show how the emergence of global production sharing created special opportunities for industrialisation in Southeast Asia. The chapter opens with a brief history of production sharing. It started with the use of cheap labour for the assembly of electronic devices, but gradually shifted towards the production of parts and components. Initially, the emergence of China as the workshop of the world was seen as a huge threat to labour-intensive assembly activities in Southeast Asia. This threat turned out to be unfounded. While there was significant contraction in the finally assembly of electronics and electrical goods as a result of competitive pressures, one sees the emergence of complementarity within global production systems. Assembly in China created new demand for parts and components. The 141

4 ASIAN-PACIFIC ECONOMIC LITERATURE more successful countries in Southeast Asia restructured, moving into high-value tasks. Singapore became the hub of this Asian trade network, with multinationals shifting headquarters and R&D facilities to Singapore. Of course, some countries succeeded better than others in upgrading. Thus Malaysia and Thailand profited hugely, while Indonesia remained stuck in assembly and was more negatively affected by the rise of China. The authors also conclude that FDI has played a decisively positive role in Southeast Asia. MNEs are less footloose than commonly assumed, are deeply embedded in the local economy, and have higher wages and better working conditions than their domestic counterparts. In his chapter on FDI, Fredrik Sjöholm focuses on the determinants and impacts of FDI. I found the description of the drivers of FDI especially fascinating. In Singapore, the loss of the domestic market after partition drove policy makers to welcome FDI. In Malaysia, preferential treatment of Bumiputeras discouraged Chinese investors, as a result of which Mahathir turned to foreign investors. In Indonesia, Sukarno choked off foreign investment, while it became the lynchpin of Suharto s economic policies. From the late 1980s, Southeast Asia became one of the preferred destinations for FDI, a lot of which originated in Asia. On balance, Sjöholm concludes that the effects of FDI are positive. It provides access to global markets, access to foreign technologies and increased competition. Admittedly, the effects on domestic firms are not always positive. But the author tends to pooh pooh perhaps a little too easily the econometric evidence on the absence of horizontal spillovers. One shortcoming of this interesting chapter is the neglect of statistics on greenfield investment. The author complains that FDI statistics are not directly connected to productive economic activity. Statistics on greenfield investment are much more informative in this respect (see Naudé et al. 2015). In an interesting chapter, Peter Warr searches for the drivers of poverty reduction. Southeast Asian countries have achieved substantial progress in reducing poverty. Using simple but clear econometric specifications, Warr examines the relationship between poverty reduction (change in the poverty headcount) and three drivers: economic growth, relative prices of food products, and the sectoral composition of the economy. Given the general tendency to disparage growth in the wake of the Stiglitz, Sen and Fitoussi report (2009), his first conclusion is important. Poverty reduction depends to a very great extent on growth of GDP per capita. The second conclusion is that reductions in relative prices of food are good for poverty reduction (contradicting the notion that agricultural protection and increased prices of food reduce poverty through their effects on small producers). The third conclusion is that growth of per capita agricultural output has a very significant effect on poverty reduction, while growth of industrial output does not. Though I like the analysis, I disagree strongly with this conclusion. We know that in the medium term there is a very strong correlation between reductions in the share of agriculture in GDP and higher levels of per capita income (and lower poverty). If agricultural output per capita is increasing more rapidly than that of other sectors, this is a recipe for continued poverty. More dynamic models will have to be developed to capture these relationships. It would also have been useful if the author had included changes in the degree of inequality in his specifications. In a refreshing and quite innovative chapter on the political economy of reform, Hal Hill examines why and how reform defined as a durable policy change that improves policy outcomes can be achieved. He argues that Southeast Asian economic performance has been significantly better than the developing world average. At least in part this is related to reforms, although there is a great variety of reform experiences. Hill examines three of the lower-middle income countries, Indonesia, the Philippines, and Vietnam, focusing on macro-economic and trade policy reforms. Some of his conclusions include: the importance of ideas to drive an intellectual agenda; political leadership, responses to negative exogenous shocks and crises, and the fact that reforms have to deliver and win a constituency of support. They should be reasonably comprehensive and have a long time horizon. 142

5 BOOK REVIEW ESSAYS He criticises Rodrik s contention that highquality institutions are critical for reform. This, in my view, is based on a misreading of Rodrik s more recent work. Rodrik argues that reforms do not involve fundamental institutional overhaul, but focus on the most binding constraints: an important concept not discussed by Hill. Sometimes fairly modest reforms can unleash growth accelerations that buy time for more comprehensive reforms at a later stage. It is impossible to summarise all articles of a long book in a single review, but the selections above should give the reader an idea of the richness and quality of the volume. On a critical note, I do not think the volume quite achieves the aim of a comprehensive handbook. This, in my view, would also have included country chapters and would require a more comprehensive approach, with chapters on all the crucial sectors (including services and manufacturing) and all the drivers (including capital, more detail on structural change, and total factor productivity). Also, there is some ambiguity concerning the degree of success of Southeast Asian development. In the introduction and in many of the chapters, the regional experience is described as a success story of better-than-average performance. In other chapters (for instance, the chapter on educational shortcomings by Phan and Coxhead and the concluding chapter), it is a story of disappointing performance, with most countries caught in a middle-income trap from which it is not easy to escape. But, critical quibbles aside, this is a very valuable book, which includes a great number of excellent contributions and lots of food for thought. It is a pleasure to read, and it makes an important contribution to Southeast Asian scholarship. Any researcher working in Southeast Asian studies will have to consult this volume. References Stiglitz, J.E., A. K. Sen, and J.-P. Fitoussi, Report by the Commission on the Measurement of Economic Performance and Social Progress, www. stiglitz-sen-fitoussi.fr Naudé, W., Szirmai, A. and Lavopa, A., Industrialisation and Technological Change in the BRICS. The Role of Foreign and Domestic Investment, in W. Naudé, A. Szirmai and N. Haraguchi (eds), Structural Change and Industrial Development in the BRICS, Oxford University Press, Oxford: Williamson, J.G., Trade and Poverty. When the Third World Fell Behind, The MIT Press, Cambridge, MA. Adam Szirmai UNU-MERIT 143