EAST ASIAN OVERVIEW : MEDIUM- AND LONG-TERM ECONOMIC GROWTH

Abstract

The rapid economic growth of the East Asian economies in the last two decades has attracted much interest to the study of the sources underlying the rapid pace of growth; as well as much speculation about the sustainability of economic growth in the East Asian region. This study sets out to investigate the issue of sustainability of economic growth by looking at the medium- and long-term growth prospects of ten East Asian countries. They are Japan, NIEs (Hong Kong, South Korea, Singapore, Taiwan), ASEAN (including Indonesia, Malaysia, Philippines and Thailand) and China. Four issues that I have focused on are (i) whether the sources of growth have reduced in number, (ii) which sources of growth will be important for East Asian economies in the future, (iii) whether there are regional factors which will enhance growth prospects, and (iv) whether there are sources of growth which have yet to be fully exploited. I have limited the period of study to 10 to 15 years to give more meaning to the analysis. Using an endogenous growth framework, I conducted an extensive study on the potential contribution of the various sources of economic growth, and compared my results with the growth projections of some economists. The findings of both methods suggest that Japan and NIEs are likely to experience slower economic growth, while ASEAN and China are likely to continue to grow rapidly in the medium- and long-term. The growth rate of the region as a whole is less certain, depending on whether the growth rate of the less developed ASEAN and China will be able to offset the declining growth rates of Japan and NIEs. Having reached these conclusions, I must however point out that economic forecasts are at best calculated guesses about the future. As government policies can have a significant impact on economic growth, and as there are untapped sources of growth in East Asian economies, there is a high possibility that medium­ and long-term prospects for economic growth could be improved by pursuing certain pro-growth policies. I therefore end my study by recommending several policies in which East Asian governments can pursue to improve medium- and long-term growth prospects. In suggesting these policies, I argue that governments in East Asia should play an active role in their economies. Governments should actively intervene in the market to ensure the optimal conditions for change in their economies, and also to ensure that local companies can compete effectively in an international market with rapid changing comparative advantage and technology. Keeping in mind that governments have a limited budget and have to prioritise their policies, I have recommended policies that are aimed at strengthening the foundations of their economies, and facilitating the better operation of the market, rather than targeting at specific industries. By pursuing these policies, it is possible that East Asian economies will experience more rapid growth than forecasted in the medium and long-term. Thus, it is still possible for individual economies, as well as the region as a whole to grow rapidly into the medium- and long-term.