East Asia: History and Opportunities

East Asia: History and Opportunities Norman Loayza Research Group, World Bank Labuan IBFC 25 th Anniversary Conference

The world in 1990

% Increase in Consumer Prices 8000 6000 4000 2000 0 Hyperinflation in Peru 1986 1987 1988 1989 1990 1991

The world in 1990 From chaos to transformation and progress

By 1990, East Asia had already found its path to growth

Long-term GDP growth trends: before and after 1990 12 10 8 6 4 2 0 China Indonesia Korea, Rep. Malaysia Philippines Singapore Thailand Vietnam 1975-1989 1990-2014

Other developing regions were looking to follow East Asia 7 6 5 4 3 2 1 0 Latin America & Caribbean Sub-Saharan Africa East Asia 1975-1989 1990-2014

Declining poverty rates since 1990 Poverty headcount ratio at $3.10 a day (2011 PPP) (% of population) 90 80 70 60 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Malaysia China Vietnam

Stock Market Capitalization Average 2000-2012 (% of GDP) 140 120 Market capitalization of listed companies (% of GDP) 100 80 60 40 20 0 Malaysia China East Asia High income Middle income

Private Credit Average 2000-2012 (% of GDP) 160 Domestic credit to private sector (% of GDP) 140 120 100 80 60 40 20 0 Malaysia China East Asia High income Middle income

But paradise is yet to come: Growth interrupted by crises

1998 Crisis 10 5 0-5 -10-15 1996 1997 1998 1999 2000 Malaysia Indonesia Brazil Turkey

2008-09 Financial Crisis 10 5 0-5 -10-15 2007 2008 2009 2010 2011 Malaysia Indonesia Brazil Turkey

2014 Commodity Crisis 7 6 5 4 3 2 1 0-1 -2 2012 2013 2014 2015 (forecast) Malaysia Indonesia Brazil Turkey

Effect of 3 Crises: Malaysia 10 8 6 4 2 0-2 -4-6 -8-2 -1 Crisis Year 1 2 1998 Crisis 2009 Crisis 2014 Crisis *2015 & 2016 forecast

Effect of 3 Crises: Indonesia 10 5 0-5 -10-15 -2-1 Crisis Year 1 2 1998 Crisis 2009 Crisis 2014 Crisis *2015 & 2016 forecast

Managing risk and crisis: Preparation in good times through prudent macroeconomic and financial policies, targeted social insurance and protection, and flexible private sector

Looking at the future: The key to growth is productivity especially for mature economies

Productivity has been growing Relative Total Factor Productivity (TFP) 0.6 0.5 0.4 0.3 0.2 0.1 1975 1980 1985 1990 1995 2000 2005 2010 Brazil Chile Korea, Rep. Malaysia

Productivity: key to growth 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% GDP per capita Capital Labor Population TFP 1975-1989 1990-2011

What is productivity? Productivity is the value of product per unit of input INPUTS Low Productivity PRODUCT

What is productivity? Productivity is the value of product per unit of input INPUTS High Productivity PRODUCT

Components of productivity Innovation Education Infrastructure & Finance Efficiency

Components of productivity 1) Innovation: Creation of new technologies, products and processes 2) Education: Development of workers and young people s knowledge and skills 3) Efficiency: Appropriate distribution and use of productive resources 4) Infrastructure: Public goods and services that support the economy 5) Finance: Intermediation of savings to fund new projects

Example: Peruvian Cebiche

Innovation A genius invents cebiche combining its ingredients using a new recipe

Education The recipe for preparing cebiche is gradually taught throughout Peru

Efficiency Problem: Fish on the coast, limes in the north, onions in the south... nobody can make cebiche Solution: Efficient distribution of ingredients

Infrastructure & Finance Highways between towns and producing regions are built Funds are mobilized to initiate trade and production

Cebiche!

Components of productivity Innovation Education Infrastructure & Finance Efficiency

Competitiveness/Productivity Health, Education and Training Efficiency Institutions 0 10 20 30 40 50 60 70 80 90 100 Infrastructure Macroeconomic environment Innovation Financial market development Technological readiness Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Vietnam

Innovation Education Infrastructure & Finance Efficiency

Innovation PCT patents, applications/million pop. Availability of scientists and engineers Capacity for innovation 0 10 20 30 40 50 60 70 80 90 100 Quality of scientific research institutions Company spending on R&D Gov t procurement of advanced tech products University-industry collaboration in R&D Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Vietnam

Technological Readiness Availability of latest technologies 0 Mobile broadband subscriptions/100 pop. Int l Internet bandwidth, kb/s per user 20 40 60 80 100 120 140 Firm-level technology absorption FDI and technology transfer Fixed broadband Internet subscriptions/100 pop. % Individuals using Internet Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Vietnam

R&D Expenditure 4 R&D Expenditure(% of GDP, avg. 2000-2012) 3.5 3 2.5 2 1.5 1 0.5 0 BDI KOR SVN CHN CZE EST RUS ESP BRA PRT HUN UKR MNE HRV IND TUN ZAF MYS LTU KEN BLR MAR IRN SRB TUR POL GRC BWA BGR GAB ARG LVA SVK MLT MLI TZA MOZ SEN MDA ROM PRI CRI UGA JOR MEX CHL URY CYP PAK GHA MUS BFA BOL ARMEGY PRY ALB ECU DZA AZE ZAR ETH KGZ GEO MNG THA MKD MDG NPL NGA PAN SYC TGO NAM KAZ VNM PHL LKA PER COL OMN GMB KHM TJKLSO LAO ZMB NIC HND IDN GTM CPV SLV BIHJAM IRQ VCT TTO SAU FIN SWE JPN ISL DNK CHE DEUUSA AUT FRA SGP BEL AUS NLD CAN GBR IRL ITA NZL HKG ARE KWT BRN MAC 5 6 7 8 9 10 11 12 ln (GDP per capita, 2013) NOR LUX Source: WDI, World Bank

Innovation Education Infrastructure & Finance Efficiency

Education: PISA 2012 Results 610 CHN Aveage PISA Scores 2012 560 510 460 410 360 VNM HKG SGP KOR JPN POL EST FIN DEUIRL NLD CAN MAC CHE NZL BEL AUS CZE LVA SVN GBR FRA AUT DNK HUN HRV RUS LTU PRT ESP ITA USA NOR ISL LUX SWE SVK ISR TUR GRC SRB THA BGR ROM CYP ARE CHL CRI MYS 2009 MYS 2012 MNE MEX KAZ URY TUN ALBJOR BRA COL ARG IDN QAT PER 310 7 8 9 10 11 12 ln(pbi per capita)

Innovation Education Infrastructure & Finance Efficiency

Efficiency Women in labor force, ratio to men Intensity of local competition 0 20 40 60 80 100 120 140 No. procedures to start a business Pay and productivity Trade tariffs, % duty Redundancy costs Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Philippines Singapore

Innovation Infrastructure & Finance Education Efficiency

Quality of infrastructure in East Asia is remarkable, particularly considering countries income level Infrastructure (Global Competitiveness Index) 7 6 5 4 3 2 1 GDP per capita (current US$, 2013) HKG SGP ARE JPN NLD CHE DEU ESP FRA GBR USA KOR AUT CAN BEL AUS LUX PRT MYS ITA ISL FIN DNK QAT SWE BHR SAU NZL IRL RUS OMN NOR PAN EST GRC MLT ISR CHN MUS HRV SVN LTU CZE CYP IDN THA HUN LVA MAR TUR TTO GEO CHL SLV SYC JOR MNE ZAF MEX URY PRI KWT GTM NAM IRN AZE BGR CRI KAZ POL SVK LKA UKR SRB VNM TUN BRA MDA ARM JAM COL MKD IND CIV PHL SUR ALB PER ARG LAO BTN GMB MLI KEN SWZ EGY DOM NIC HND KHM CPV RWA DZA BWA SEN GHA LBY KGZ BOL MNG GAB TJK LSO GUY PAK PRY LBN ETH ZWE ZMB VEN MRT MOZ BGD CMR TZA MWI UGA NPL NGA BDI MDG SLE HTI AGO BFA YEM GIN TCD 5 6 7 8 9 10 11 12 ln(gdp per capita)

Though there is room for improvement in the emerging economies Quality of overall infrastructure 0 20 40 Quality of air transport infrastructure 60 80 100 Quality of roads 120 Quality of port infrastructure Quality of railroad infrastructure Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Philippines

Public Institutions Property rights 0 20 40 60 Security 80 100 Ethics and corruption 120 Government efficiency Undue influence Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Thailand

Innovation Infrastructure & Finance Education Efficiency

Financial Market Development Affordability of financial services 0 Legal rights index Regulation of securities exchanges 20 40 60 80 100 120 140 Availability of financial services Financing through local equity market Soundness of banks Ease of access to loans Venture capital availability Source: Global Competitiveness Index, World Economic Forum 2015 China Malaysia Singapore Vietnam

Componente de Productividad To improve: Needs to improve? How? Innovation A bit IT to the people Education Yes Basic education Efficiency Yes Reduce trade protection. More women in labor force Infrastructure / Public Institutions Finance A bit Stay the course Rights for all

A great opportunity: The Trans-Pacific Partnership

TPP Signatories Australia Brunei Darussalam Canada Chile Japan Malaysia Mexico New Zealand Peru Singapore United States Vietnam

Trans-Pacific Partnership Largest regional trade agreement in history 12 countries that account for one-third of world GDP and trade East Asia Oceania America Brunei Darussalam Japan Malaysia Singapore Vietnam Australia New Zealand Canada Chile Mexico Peru United States Long-run impact: about 20% of GDP in Malaysia and Vietnam! (Kawasaki, 2015)

Challenges are also opportunities: Only openness and integration can sustain progress

Thanks!