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The Asian Dynamo

January 26th, 2004 · No Comments

Rediff has excerpts from an NK Singh (who is a Planning Commission member) speech sourced from Business Standard wherein he discusses the reasons behind the rapid growth of the Asian countries:

Several key economic factors will drive the “Asian dynamo.” First, regional trade is on the rise and I expect this trend to continue over the coming years. Developing and transition countries in East Asia, in particular, have seen regional exports rise by 520 per cent since 1985, more than twice the growth rate of exports to the rest of the world. Half of East Asia’s exports now go to other Asian countries.

While this trade is in some part consumer goods — as we would expect given the rising incomes of the large and growing middle class — trade in parts has been one of the fastest-growing shares of intra-regional trade. The fact that intra-regional exports of parts and components increased by more than 35 per cent over 1995-2001 suggests a growing integration of industrial production. Trade links between East Asia and South Asia are also rapidly deepening. Trade between India and China crossed the $5 billion mark for the first time this year, with $5.33 billion worth of bilateral trade recorded from January to September of this year. This marks a nearly 55 per cent increase over the same period last year. India’s exports to China, at $2.95 billion during this time period, were over 85 per cent higher than the corresponding period in 2002.

Second, several countries in the region have important demographic advantages. While Japan and China’s societies are aging relatively quickly, United Nations Population Division projections show that India will have an increasing proportion of working age adults (15-59) in its population until at least 2020. The country is expected to have an additional 47 million people of working age (15-59) by then. The proportion of working age adults in the population is expected to be over 60 per cent for nearly the next five decades. Bangladesh and the Philippines, similarly, are projected to have a high ratio of working-age population to dependent youth and senior citizens. The relatively young labour force also has the important advantage of being freshly educated, thus more likely to be skilled in the most current technologies.

Third, the process of globalisation and increasing market orientation of these societies is unleashing the entrepreneurial spirit and in that way driving growth. Small and medium enterprises are increasingly able to obtain financing, both domestically and internationally. Legal and institutional are providing greater protection for intellectual property rights. Infrastructure improvements have contributed to more efficient production processes. All of the changes are ongoing but, with the pent-up innovative ingenuity, every incremental change brings added growth enhancement.

Finally, the “new Asia” dynamo is driven by comparatively rapid absorption of the latest technologies for infrastructure as well as in the manufacturing and service industries. “Technology leapfrog” is an important advantage of relatively under-developed infrastructure and production facilities. Mobile phones in China and India, for example, are rapidly creating greater connectivity between rural and urban areas, at much less capital cost than expanding traditional landlines. Cisco reports that businesses in Asia are rapidly adopting business-to-business software and systems integration technologies, leaping directly from more traditional personal relations to the technological frontier.

These technological changes not only increase labour productivity in the directly affected industries, but can spill over to upstream suppliers. The adoption of modern manufacturing technology in the Indian automobile and defence industries, for example, has created pressure on the Indian machine tool industry to develop new products to meet their changing needs.

The Asian dynamo is thus driven by a combination of economic and political factors. The region has important natural advantages in the sheer size of some of its countries’ labour forces and the geographical proximity of its most dynamic growth centres.

Tags: Emerging Markets

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