Asia s Economic Transformation Where to, How, and How Fast? Key Indicators for Asia and the Pacific 13 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.
The Laws of Development Agriculture re Industry Services g p Agricultur e output (% of GD P) 3 0 6 80 9 In d u s try Service y o u tp u t (% o f G D P) 3 e s ou tp ut (% o f G 3 0 DP) 0 6 6 80 80 9 9 O U T P U T 1000 GDP per capita (constant 00 $'000) 00 49000 97000 73000 1000 GDP per capita (constant 00 $'000) 00 49000 97000 73000 1000 49000 97000 00 73000 GDP per capita (constant 00 $'000) Agr r iculture employmm e n t (% o f to ta l) 3 0 6 8 8 0 9 In dustry employm e n t (% o f to ta l) S ervices em ploym e n t (% o f to ta l) 3 3 0 0 6 6 80 80 9 9 E M P L O Y M E N T 1000 GDP per capita (constant 00 $'000) 00 49000 97000 73000 1000 GDP per capita (constant 00 $'000) 00 49000 97000 73000 1000 GDP per capita (constant 00 $'000) 00 49000 97000 73000 Developing Asia Rest of the world
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 intoservices Good quality education is essential for industrial diversificationifi 3
The largest sector today and region s averages Economies where largest sector in GDP is Agriculture Industry (8 economies) Services (31 economies) None Azerbaijan; Bhutan; Indonesia; Papua New Afghanistan; Armenia; Bangladesh; Cambodia; Fiji; Georgia; Hong Kong, China; India; Japan; Kazakhstan; 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 where the largest sector in total employment is Agriculture (17 economies) Industry Services (1 economies) Armenia; Bangladesh; Bhutan; Cambodia; Georgia; India; Myanmar; None Azerbaijan; Hong Kong, China; Indonesia; Japan; Kazakhstan; Kiribati; the Republic of Nepal; Pakistan; Papua New Guinea; Korea; the Kyrgyz Republic; Malaysia; People s Republic of China; Samoa; Maldives; Mongolia; the Philippines; Tajikistan; Thailand; Uzbekistan; Vanuatu; Singapore; Sri Lanka; Taipei,China; Viet Nam; Region s averages 42.82% 23.62% 33.8% 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 O Armenia, Azerbaijan, Hong U Kong, China, Japan, T Kyrgyzstan, Mongolia, P China, People s Republic of, U Taipei,China, Tajikistan, T Cambodia, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, SiL Sri Lanka, Thailand, Viet Nam Bangladesh, Georgia, India, Kazakhstan, Nepal, Papua New Guinea E M P L O Y M E N T Azerbaijan, Hong Kong, China, Japan, Korea, Singapore, Taipei,China Malaysia, Sri Lanka Armenia, Bangladesh, Cambodia, China, People s Republic of, Georgia, India, Indonesia, Kazakhstan, Kyrgyzstan, Mongolia, Nepal, Pakistan, Papua New Guinea, Philippines, Tajikistan, Thailand, Viet Nam
The service sector is the major absorber b of employment 1 10 0 10 1 9.3 People's Rep. of China Change in the share of employment, 199 and 09 (percentage points) 8.3 3. 9.3 11.9 6.8 Indonesia India Japan Rep. of Korea Taipei,China Primary Manufacturing Construction and public utilities Services Butmanufacturingisessential is to developa high quality service sector 6
Needed: Further Structural Transformation Issues Future is set : Service economies Agriculture: 700 million workers Industrialization Education GVCs Questions What type of transformation is expected to take place in the coming decades? How will the transformation happen? How fast will Asia continue changing?
Agricultural output and employment shares, latest andprojected for 40 70 PRC and India together Infrastructure 60 about 400 mill. workers Modern technologies GVCs Agribusiness 0 Percentage 40 30 10 0 Latest Reduction Projected for 40 Latest Reduction Projected for 40 Employment Shares Output Shares Note: Projected output and employment shares for 40 are less than % for Thailand and Malaysia. Bhutan, Georgia, Viet Nam, India, Bangladesh, Pakistan, Armenia, Samoa, PRC, Indonesia, and the Philippines are the countries with less than % projected output shares for 40.
Change in employment share and Productivity growth Sectors that gained the most employment registered positive but relatively low productivity growth Prod ductivity grow wth (% per year 199 09) 0.12 0.1 008 0.08 0.06 0.04 0.02 0 0.02 0.04 Restructuring t Dynamic PRC India Indonesia Service sector employment remains much more dependent on domestic demand than manufacturing employment and, as a consequence, the former is less globalized than the latter India PRC PRC India Indonesia Agriculture, Hunting, Fores try and Fishing, Mining and Quarrying Manufacturing Construction and Public Utilities Wholesale and Retail Trade, Hotels and Restaurants Transport, Storage and Communication Finance, Real Estate and Business Services Public Services 0.0606 0.2 0.1 0.1 0.0 0 0.0 0.1 0.1 Percentage points change in employment share (199 09) Size of bubbles represents employment share in 09 Countries: Indonesia, India, PRC, Japan, Korea, and Taipei,China
Probit regression of high income status in 10 (i.e., income above US$1,000) on industrialization in output dummy, together with the following control variables (one variable at a time): Industrialization (in output) and: Roads per capita (kms/'000 persons) 96 obs Financial development (Liquid liabilities as percent of GDP) 9 obs Average years of schooling (No.of years) 110 obs Share of manufacturing value added in high tech sectors (percent manufacturing value added) 9 obs Percentile 10 th 0 th 90 th actual 1.267 4.39 17.04 prob 16.00%.% 44.0% actual 17.37 36.62 7.74 prob 14.40% 22.30% 43.0% actual 2.631 6.186 9.83 prob 6.00% 21.00% 48.0% actual 10.07 36.128 2.389 prob 1.60% 33.80% 7.30% Share of manufacturing employment in high tech sectors actual 13.226 34.402 49.39 (percent manufacturing employment) 60 obs prob 0.80% 2.7% 7.40% t l t l l f th i bl t h til actual actual value of the variable at each percentile prob probability of being a high income economy
Education and Diversification (RCA) are positively correlated.but there is a lot of noise 7 Education and Export Diversification (00) 6 Log(nu umber of pr roducts wit th RCA>1) 4 3 2 1 0 Is Diversification a path dependent process? The role of education Diversification is path dependent : countries tend to develop comparative advantage in small steps y = 0.189x + 3.26 R² = 0.271 Quantity or Quality of education? The quality of education matters more than the quantity for economic diversification 0 2 4 6 8 10 12 14 But high quality education allows countries to take bigger steps and reduce the effect of path dependence Average number of years of schooling
How do sectors rank in terms of educational attainment? 1 = most educated sector 1 = least educated sector
Priorities for Asia s transformation by region Economies with agriculture as the largest sector that have failed to industrialize that diversified that are still low income rich in natural resources that are small il islands Priorities must develop sectors outside the countryside to absorb labor and industrialize the country side must develop a deeper and broader industrial base must upgrade industries to avoid middle income trap should follow their comparative advantage, and also facilitate t the accumulation of capabilities, foster diversification and upgrading, and target activities in some advanced industries must make efforts to diversify the economy will probably bypass industrialization. They should nurture niches ih in services
Summing Up: Where to, How, and How Fast? Where to? Higher Income.. Over 700 million people employed in agriculture Services already the largest sector in Asia s GDP But services will become the largest employer Dilemma: But what type of services? How? There is no one size fits all package of policies and institutions to expedite transformation Industrial Policy, if well designed,, can help expedite transformation (INNOVATION UPGRADING) How Fast? It will be difficult for many countries to reproduce the experiences of the NIEs 14
Thank you http://www.adb.org/sites/default/files/pub/1 3/ki13 special chapter chapter_0.pdf pdf Jesus Felipe: jfelipe@adb.org 1