Asia Economics Blog

Around 7,000 years ago in today’s East Africa, the donkey, equus asinus, was domesticated, marking a turning point in human productivity and mobility. To the present day, the donkey plays a vital economic role on the African continent, especially in remote and impoverished areas.

Around 3,000 years ago in today’s Dong’e County of China’s Shandong Province, an elixir for youthful vigor and feminine beauty, ‘ejiao’ (阿胶), or ‘donkey gelatin’, was concocted. The key ingredient in ejiao is donkey hide collagen.

ASEAN countries are characterized by considerable diversity but share an outward-oriented development strategy. While intra-regional economic cooperation over the past two decades has been important, global, not regional, interaction has been the key to ASEAN’s success story. Hence, the strong policy headwinds facing globalization in the post-Covid period threaten continued growth and prosperity in the region. Proposals in major markets to protect domestic industries by raising obstacles to trade vary from sectoral protection to more comprehensive “geopolitical” or “geoeconomic” approaches, such as: (1) re-shoring to encourage local production; (2) near-shoring to encourage trade with regional partners; and (3) friend-shoring to support trade with political and diplomatic allies at the expense of others. The result could be “geoeconomic fragmentation” (Aiyar, et. al., 2023).

These fragmentation scenarios would leave ASEAN economies particularly exposed. Re-shoring negatively affects small, open economies the most. The large share of extra-regional markets for its exports makes ASEAN vulnerable to near-shoring, and as a basically non-aligned region, its members could well be excluded as “friends” from key markets. One goal of the paper on which this post is based, Petri and Plummer (2023), is to estimate what effects these global scenarios would have on ASEAN incomes, trade, and participation in global value chains (GVCs).

Co-authors: Souleima El Achkar Hilal; Ian Nicole Generalao; and Rosa Mia Arao
 
This post draws from a paper presented in the ACAES session at the 2022 Allied Social Science Association Annual Meeting, program here. Youtube recording here.
 
The Covid-19 pandemic has had a devastating impact on labor markets worldwide, Southeast Asia included. There is clear evidence that the pandemic-induced job losses in the region have been highly unequal—disproportionately affecting the youth, women, low-skilled, informal, temporary, and casual workers.

Using the latest available Labor Force Surveys of Indonesia, the Philippines, Thailand, and Viet Nam, our analysis shows that youth and women bore the brunt of job losses. Young workers, who represent only 10–15% of the workforce in the four countries, accounted for a disproportionate share of job losses at 22–45% at the height of the pandemic’s impact on labor markets. This is due to their overrepresentation in heavily hit sectors like food and accommodation services, wholesale and retail trade, and “other services,” and because they were more likely to lose their jobs than more mature workers in these same sectors. Figure 1 gives details by sector.

Co-author: Inkyung Yoo.
 
With the gender gap in educational attainment narrowing, “child penalty” – the effect of parenthood on labor market outcomes – is considered the largest remaining obstacle in eliminating the gender pay gap in developed countries. Recent studies show that women’s earnings drop significantly following first childbirth whereas men’s earnings remain largely unaffected. Various policies are being discussed and studied with the goal of reducing the child penalty.

However, from an individual woman's perspective, there is a sure way to avoid the child penalty – to not have any children. Among OECD countries, the fertility rate is indeed lower in places with societal characteristics associated with heavier child penalties, such as less generous family policies, more traditional gender norms, and inflexible labor markets. But cross-country correlations do not provide insight into how the child penalty might evolve as childlessness increases. Would the child penalty also decline in low-fertility regions, leading to convergence across both gender and countries? Or could a large child penalty affect the composition of mothers so as to further increase the child penalty?

Co-authors: Norma Mansor; Halimah Awang
 
Malaysia is experiencing a demographic transition characterized by a steady increase in the number and proportion of elderly persons in the population. The share of population over age 65 is projected to rise from 7.5 percent in 2020 to 14.5 percent in 2040. Yet even as health and longevity have improved greatly, employment rates among older workers have declined.

Extension of the working life would benefit older persons by augmenting income security and providing a sense of fulfillment. It would benefit society at large by mitigating worker shortages and reducing the burden of elder care. Many countries have raised or are considering raising the statutory retirement age. However, extending the retirement age is a viable policy option only insofar as improved health of older persons allows them to be productive without risk to their well-being. We estimate the potential for longer working lives by treating a drop in mortality among older persons as a proxy for improved health and employment capacity.

Co-authors: Wong Koi Nyen; Goh Soo Khoon

A large and young labor force has been instrumental in China's economic growth for several decades. The age structure of the population is shifting, however, with the population in the working age range of 15 to 64 declining steadily since 2015. A decades-long fertility rate of below replacement level and increasing life expectancy have produced a dramatic ageing of the population. Despite the government's introduction of pro-birth policies, the fertility rate remains low in 2023 at 1.7 per woman. The shrinking workforce is putting upward pressure on wages causing China to lose the low-cost advantage that has propelled its growth for so long. The rapid “graying” of the workforce over the next decade raises concerns about the future pace of economic growth. Such concerns were galvanized in 2022 when China's population declined year on year from 1.4126 billion to 1.4118 billion.

Co-authors:  John R. Birge; Zi'ang Wang; Jing Wu
 
This post draws from a paper to be presented in the ACAES session on Asian Economies in Global Supply Chains at the 2023 Allied Social Science Association Annual Meeting, program here.

The vulnerability of global supply chains and their impact on the economy has become a central issue during the current COVID-19 pandemic. While global supply chains allow firms to outsource production more cost effectively, they also expose firms to developments in the local economies where supply chain partners are located. During the recent COVID-19 pandemic, countries took measures to contain the pandemic through shutdowns and social distancing mandates. These measures created disruptions for local firms and their supply chain partners located in different regions. Disruptions in supply chains adversely affected production for downstream firms, and financial flows for upstream firms, creating major vulnerabilities for firms connected within a production network.

The news from Brunei Darussalam is grim. The small Southeast Asian, oil and gas-rich country, has announced plans to implement a new legal code that, among other things, calls for amputation for those convicted of theft and for death by stoning for homosexual acts. After an international outcry, the Government has delayed the imposition of the death penalty, but it maintains the laws as the presumptive legal framework.

These laws violate basic human rights, but from experience, I realize that this argument doesn’t seem to be convincing to everyone. As a development economist, I then thought, what are the economic costs of this? Particularly, I wondered if there was likely to be an impact on the broader economy of restrictions on the lesbian, gay, bisexual, and transgender (LGBT) community. As I discuss below, the answer is, ‘yes, over the long-run, a lack of freedom for the LGBT community is associated with a less entrepreneurial economy—a less dynamic economy.’

Oxford University Press, May 2020.

As much as China's crash has been predicted, someone needed to explain why it hasn't happened. And no one could be more credible in doing so than Tom Orlik who has reported insightfully on China since 2011, first with the Wall Street Journal, then with Bloomberg where he is now Chief Economist. 

This post follows up on my review of Tom Orlik's wonderful book "China: The Bubble that Never Pops". The book explains why constant predictions of China's economic collapse due to mounting debt and financial risk have not been borne out, and the explanation is altogether compelling. My one quibble with the book regards Orlik's view of the underlying driver of the saving/consumption imbalances that motivated debt driven stimulus. Orlik emphasizes China's one-child policy as the source of the imbalances, going so far as to call it China's original sin in an interview. The argument is that with China's weak social welfare system, having only one child makes for insecurity about old age that induces parents to save more during their working years. I'm not convinced that this holds up as a reason for China's imbalances. Let me hasten to add that, regardless, the book's original contribution in explaining why no crash has occurred holds up very well. The source of the imbalances is a separate issue, but one worth pursuing in its own right.

There is a sense in which I agree that the one-child policy has been a factor in China's high saving. The exceptionally sharp decline in the birth rate in China's case accentuated the demographic transition that is common among countries during economic development. A couple of decades on, the drop in the birth rate brings a bulging labor force relative to a shrinking share of old and young age dependents in the population. Per the life cycle hypothesis of Modigliani (1970), saving is done by those in their working years who generate income whereas the young and old consume without producing any income from which to save. The decline in China's dependent share was particularly steep in the 2000-aughts and relatedly, so was the rise in the saving rate, as shown by Bonham and Wiemer (2013). So while the one-child policy mattered, it did not matter until two decades after it was introduced and not because it prompted precautionary saving to provide security in old age but because of the long-run demographic forces it intensified.

Japan has, for several decades, experienced a toxic combination of an aging and shrinking population, slow growth, and very large fiscal deficits and debt. Looking forward, Japan’s potential growth is expected to approach zero, in large part owing to its demographic profile (see IMF).

These interrelated issues have led policy-makers in Japan on a search for meaningful structural reforms to raise potential growth and offset the impact of eventual fiscal adjustment. One area that has received significant attention has been the Japanese  labor market, which is characterized by low female labor force participation; a significant duality between heavily-protected workers and “non-regular” workers with few protections and lower productivity; and limited flexibility regarding working conditions and modalities (Figure 1).

published by the University of the Philippines, Center for Integrative and Development Studies, 2018. pdf download

The lackluster development performance of the Philippines over the span of many decades is routinely blamed on "weak institutions" by Filipinos. In this thought-provoking book, University of the Philippines economics professor and Philippine National Scientist Raul Fabella advises on how to overcome the curse of weak institutions to achieve robust growth with poverty reduction.

In the book Capitalism and Inclusion under Weak Institutions, reviewed in a previous post, author Raul Fabella points to a lack of social coherence in the Philippines as undermining economic progress and contrasts this with the Chinese case where "a strong sense of identity and mission" has propelled phenomenal economic growth. Judging by differences in receptivity to the statement "most people can be trusted", Fabella may be onto something. Survey results presented in Figure 1 show 62.7% of Chinese agreeing with this statement versus just 2.8% of Filipinos. Personally, I am mystified by these results having spent many years in both countries and not finding Filipinos any less trustworthy than Chinese. Yet the results do lend credence to Fabella's thesis.

Co-authors: Fushu Luan; Ming He; and Donghyun Park 

This post draws on a paper presented at the Allied Social Science Association Annual Meeting in a session sponsored by the American Committee on Asian Economic Studies on "Economics of Innovation in Asia", 3 January 2021, video here.   

The 'new fiscal consensus' holds that major advanced economies have the fiscal space to go big on stimulus and should do so in response to the pandemic. In a recent webinar sponsored by the Ashoka Centre for Economic Policy in Haryana, India, Olivier Blanchard made the case for the new fiscal consensus and Arvind Subramanian then responded on the relevance for emerging market economies such as India. This post extends elements of their analysis to the major emerging economies of Southeast Asia: Indonesia; Malaysia; the Philippines; Thailand; and Vietnam.

Blanchard explained that to preserve a stable debt/GDP ratio, the following condition must hold:

China has long gotten a bad rap on currency manipulation. The fact is, however, that China is no different from other East Asian economies when it comes to exchange rate management.

The essence of the East Asian model is to steer the exchange rate along a steady long-run course, erring toward undervaluation in the face of uncertainties about the future. Any perception of overvaluation runs

Co-Authors: Peter A. Petri; Fan Zhai    

In December 2015 the ASEAN Economic Community (AEC) went into effect. It was the culmination of a process that began with the Bangkok Declaration in 1967 and represents the most significant economic integration initiative among developing economies in the world. A notable milestone to be sure, but the region has a long way to go before it will be able to attain its original goal of creating a 21st century single market and production base. Meanwhile, ASEAN needs to nest the next stage of its cooperation program in the context of emerging megaregional trade arrangements, namely, the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), and the future expansions of both. In addition, it has to do this at a challenging time for the global trading system upon which it depends; the US-China trade war continues with no clear resolution on the horizon, the World Trade Organisation is at an impasse, and the Covid-19 pandemic has decimated global trade in the short run and may have long-term implications (UNCTAD 2020).

Routledge, May 2021.

Isabella M. Weber’s “How China Escaped Shock Therapy” is a painstakingly researched but fundamentally flawed account of one key thread of the economic reform debates that took place in China during the 1980’s. For those who are already familiar with those debates it is a useful and often engrossing account of the nitty gritty details of the process by which price policy was determined. For those who are not familiar, the flawed underlying argument of the book poses the risk of creating considerable misunderstanding.

As we stumble out of the global COVID-19 pandemic, we need to examine how our economies have changed. In East Asia, the pandemic may result in higher costs for travel. In addition, the well-publicized disruptions to supply chains may not prove transitory. As a result, the East Asian development model of manufacturing goods for export may be less reliable.

This suggests a need to review contemporary economic policy. This piece looks at the shortcomings of exchange rate policy in Southeast Asia. A longer paper is available that provides full references to the relevant literature.

This post draws from a paper to be presented in the ACAES session on Asian Economies in Global Supply Chains at the 2023 Allied Social Science Association Annual Meeting, program here.

International supply chains are dependent on ease of crossing borders and efficient connectivity in terms of price, speed, and reliability. The intensification of international supply chains during the last four decades has been easier in some parts of the world than others and so-called global value chains have been primarily regional value chains (RVCs), centered on East Asia, Europe, and North America (Johnson & Noguera, 2017). The RVCs were only linked at the final step of sending finished products to markets in high-income countries, typically by ocean shipping. The Eurasian rail Landbridge established the first major overland link between RVCs, and traffic grew rapidly from 2011 to 2021.

US interest rate hikes in 2022 have drawn global capital away from the rest of the world to put downward pressure on currency values vis a vis the dollar. To defend their exchange rates, many Asian central banks have sold off reserves. A future post will provide an overview of the situation as data become more broadly available. For Taiwan, data already in hand reveal a surge in capital outflows. For the first half of 2022, net portfolio outflows reached $77 billion versus average full-year magnitudes hovering around $60-80 billion for most of the past decade. Even in the context of a rush of global capital out of emerging markets, the Taiwan case is extreme. Nevertheless, a modest accumulation of official reserves has continued to prevail on the balance of payments.

When: 1 November 2022, 8:45-10:30am Vietnam time (GMT+7)

Speakers: Roger Strange, University of Sussex; Calla Wiemer, ACAES; Cong Pham, Deakin University; Dung Tran, Global Logistics Management Institute

When:  3 October 2022, 10:00-11:30am Singapore time (GMT+8)

Sponsors:  ISEAS - Yusof Ishak Institute & Cambodia Development Research Institute

When:  7 April 2022, 1:00pm US Pacific Daylight Time (GMT-7)

Sponsor:  University of California San Diego, 21st Century China Center

When: 23 February 2022, 10:00am Philippine time (GMT+8)

Speaker: Hall Hill, Australian National University

When: 20 January 2022, 8:00-9:30pm Hong Kong time (GMT+8)

Sponsor: Hong Kong University of Science & Technology

When:  4 January 2022, 9:00-10:30am US EST (GMT-5)

Sponsor:  International Economic Association

When:  10 November 2021, 4:00pm US Pacific Standard Time (GMT-8)

Speaker:  Barry Naughton, University of California, San Diego

When: 22 June 2021, 5:00pm Hong Kong Time (GMT+8)

Speaker:  Edwin L.C. Lai, Hong Kong University of Science and Technology

When:  27 May 2021, 2:00-3:30pm US EDT(GMT-4)

Author:  Isabella M. Weber, University of Massachusetts Amherst

When:  4 May 2021, 12:30-2:00pm US EDT (GMT-4)

Speaker:  Isabella M. Weber, University of Massachusetts Amherst

When:  29 April 2021, 11:00am-noon US EDT (GMT-4)

Speakers:  Charles Goodhart and Manoj Pradhan, Authors, The Great Demographic Reversal 

When:  21 April 2021, 11am Manila time (GMT+8)

Speaker:  Benjamin E. Diokno, Governor, Philippine Central Bank

The western Pacific Ocean is not literally pacific—it is not peaceful. In the south, overlapping claims to rocky islets have led to clashes over oil and gas reserves and fishery resources between a half dozen countries. In the north, there are also conflicting claims to maritime features. Across the region low-level hostility is not uncommon.

Problems between Japan and South Korea are particularly thorny. Recently, before the current COVID-19 pandemic, tensions mounted, partly reflecting South Korean resentment over Japanese treatment of Korean women during World War II and Japanese reluctance to recognize this issue. Japanese claims to the South Korean administered island of Dokdo (Takeshima in Japanese) are a continuing touchstone inflaming the discussion.

When:  4 February 2021, 4:00pm US Pacific Time (GMT-8)

Speaker:  Scott Rozelle, Stanford University

When:  28 January 2021, 6:30pm India time (GMT+5.5)

Speakers:  Olivier Blanchard & Aravind Subramanian

When:  29 January 2021, 10:00am Singapore time (GMT+8)

Speaker:  David Dollar, Brookings Institution

When:  28 January 2021, 3:30-5:00pm US Pacific Time (GMT-8)

Speaker:  Andrew Batson, Gavekal Dragonomics, Beijing, China

When:  19 Tuesday 2021, 9:30pm Hong Kong time (GMT+8)

Speaker:  Emily Breza, Harvard University

When:  9-13 November 2020

Sponsor:  Philippine Economic Society

With the August 28 announcement by Prime Minister Abe of his intention to step down from his position within weeks, his record in a number of areas will inevitably face scrutiny and evaluation. Here, I lay out, in brief, my views on his government’s macroeconomic policies, which quickly became known as Abenomics. Like most governments, his had both successes and missed opportunities. But Japan clearly has changed as a result of his economic policies. And the debate around Abenomics anticipated issues that remain highly relevant in the current global policy debate.

The context

When:  22-24 August 2020, 8:30am-- Hong Kong time (GMT+8)

Sponsors: Chinese University of Hong Kong & Tsinghua University

When: 13-15 August 2020, 8:00am-1:50pm US Eastern Daylight Time (GMT–4)

Announcement:  here

Co-Author: Madan Dhanora

“Need to focus on 5 things to bring India back on growth path – Intent, Inclusion, Investment, Infrastructure and Innovation,” Prime Minister Narendra Modi said while delivering the inaugural address at the Confederation of Indian Industry Annual Session 2020 – “Getting Growth Back”. Among the 5 I’s, we focus on innovation in the private sector which is stalling in India. As per the Department of Science and Technology, only 42% of total R&D spending was by the private sector during 2016-17, while in developed economies like the United States and another emerging economy, China, a larger share of R&D spending comes from business enterprises – upwards of 60-70% of total R&D expenditure in each. The contribution of 42% in India, though not on par with international magnitudes, has increased considerably from 19% in 2001-02. This increase may be attributable to liberalization and other policy initiatives to stimulate innovation including reforms in intellectual property rights.

Co-Author:  Monzur Hossain

Small businesses in Bangladesh are usually started out of necessity and operate informally. They generally lack access to bank credit, possess little capital, and sell their output locally. The very nature of these small businesses makes them extremely vulnerable to the shock of COVID-19.

When: 14 July 2020, 11:30am-12:30pm Hong Kong time (GMT+8)

Speaker: Yogita Shamdasani, National University of Singapore