A previous post analyzing the economics of the pandemic for 2020 documented widely divergent experiences in Asia with respect to case numbers, mobility loss, and export impact, and showed all three of these factors to be systematically related to GDP growth. A follow-up post on fiscal policy found those economies with ample fiscal space used it to ramp up spending, and a post on monetary policy showed central bank balance sheets expanding under supportive global conditions. In this post, we revisit the analytics using preliminary data for 2021 for 14 Asian economies.
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Asia's response to the pandemic has rested largely on fiscal policy with monetary policy playing a facilitating role to varying degree. Fiscal policy is the subject of the second post in this series. The first post looks at factors influencing the impact of the pandemic on GDP growth, specifically, infection incidence, mobility loss due to transmission mitigation measures, and export decline.
Asian economies have been hit differently by the pandemic and have responded differently by way of fiscal and monetary policy. The first post in this series traces differences in economic impact to differences in infection incidence, mobility loss due to transmission mitigation measures, and export decline. This post on fiscal policy and the next on monetary policy look at macro policy responses within the context of policy space.
Why have the economies of Asia fared so differently under the pandemic? In 2020, the economy of the Philippines contracted by 9.5 percent and that of India by 8.0 percent. Meanwhile, Bangladesh achieved growth of 3.8 percent, Taiwan 3.1 percent, Vietnam 2.9 percent, and China 2.3 percent.
This post looks at three channels through which the pandemic impacted economic activity: infection incidence; mobility loss due to transmission mitigation measures; and export decline. Subsequent posts consider fiscal and monetary policy responses.
Co-Author: Roberto Meurer
The conclusion of the previous post in this series is that East Asia has worked out a policy routine for managing exchange rates in service to macroeconomic stabilization. For Latin America, by contrast, such a routine is not in evidence.
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
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:
Cambridge University Press, 2019.
The received image of catch-up growth has developing countries following steadfastly along a path trodden by their predecessors. Keun Lee, professor of economics at Seoul National University and 2014 winner of the Schumpeter Prize, upends that image arguing that if latecomers aim merely to follow in the footsteps of countries that have gone before, they will never catch up. Rather, each country must find its own way to advance based on cutting-edge innovation along ever shifting frontiers.
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.
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.