KUALA LUMPUR – East Asia’s remarkably successful development model – a combination of outward-oriented growth, human capital development, and sound economic governance – needs to be adjusted to effectively address emerging external and internal challenges, a new World Bank report says.
A Resurgent East Asia, Navigating a Changing World argues that the tremendous progress seen in the region is not guaranteed in the future. The development model that spurred the so-called East Asian Miracle will have to adapt to changing technologies, slowing trade growth, and changing country circumstances, if progress is to be sustained.
“Developing East Asia has been the most successful region over the last quarter century. Since 2000, its GDP has risen more than three-fold, lifting over a billion people out of poverty. Despite this progress, countries in the region still have significant gaps in labor productivity, human capital, and living standards compared to high-income countries,” said Victoria Kwakwa, World Bank Vice President for East Asia and the Pacific. “This new study is about recognizing that what has worked so well so far may not be sufficient going forward, as countries in the region seek to transition from middle-income to high-income status.”
A half century ago, many countries in the region were poor agricultural economies, struggling to overcome legacies of conflict or central planning. Today, however, the region is bustling with economic activity—reflecting a mix of high- and middle-income economies that account collectively for nearly one-third of global GDP. More than 90 percent of East Asia’s population now live in 10 middle-income countries–Cambodia, China, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, the Philippines, Thailand, and Vietnam–many of which can realistically aspire to high-income status in the next generation or two.
“A combination of policies that fostered outward-oriented, labor-intensive growth, while strengthening basic human capital and providing sound economic governance, has delivered rapid and sustained growth and has been instrumental in moving hundreds of millions of people in East Asia out of poverty and into economic security,” said Sudhir Shetty, World Bank Chief Economist for East Asia and the Pacific. “But building on those gains may prove particularly challenging in the face of rapid changes in the world and in the region. Policy makers will need to adapt elements of the traditional East Asian development model to effectively meet these emerging challenges.”
The report examines the nature of these challenges and delineates how policy makers across developing East Asia can address them in the coming decade. It identifies a combination of both new and familiar policy priorities in five key areas:
- Promoting economic competitiveness. In addition to continuing to strengthen the business and regulatory environments, emerging priorities include service sector reforms, deepening trade agreements, broader innovation policies, and improved access to finance, especially for small- and medium-sized enterprises.
- Building skills. Beyond their current focus on basic human capital, it will be increasingly important to support development of advanced skills, including socio-emotional skills and digital literacy.
- Fostering inclusion. In addition to traditional social protection programs, programs to transition vulnerable workers to new job opportunities and to ensure affordable access to digital technologies will be needed.
- Strengthening state institutions. Countries will need to increase state effectiveness through enhanced citizen voice and participation, increased transparency, and greater government accountability.
- Financing the transition to high-income status. Governments will need to find ways to finance these more ambitious policy agendas for achieving high-income status by increasing domestic revenue mobilization.
Although the precise nature and pace of change remain uncertain, the reality is that change is happening and ignoring it is not an option. A Resurgent East Asia concludes that unless policy makers in the region act decisively, they run the risk of missing opportunities to sustain East Asia’s remarkable development performance.
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