Growth lessons of the Asian Tigers

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DAN STEINBOCK

After a stunning growth performance, the tiger economies are maturing. In the absence of policy changes, they are facing relative stagnation.

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IN the Philippines, policymakers are often reminded of the growth lessons of Singapore, Hong Kong, South Korea, and Taiwan. Certainly, there is much to learn about the rapid development of these four tiger economies.

But there is something to be learned about their more recent experiences as well.

Rapid growth
In the early 1990s, US academic Ezra Vogel argued that Taiwan, South Korea, Hong Kong, and Singapore were newly industrialized economies, which had followed Japan’s export-led growth model to prosperity. Unlike major advanced economies, which established their position in a century or two, these four tiger economies made their mark in just a few decades (see figure).

Today, the tigers look different. There is a common denominator behind Hong Kong’s economic and political malaise, Taiwan President Tsai Ing-wen’s effort to lean on the White House, South Korea’s impeachment of President Park Geun-hye and Singapore’s Future Committee’s attempt to accelerate economic growth.

The common denominator is political friction, which usually follows in aging and slowing economies.

The tigers began rapid industrialization starting with Hong Kong’s textile industry in the 1960s, followed by the export-oriented industrialization in Lee Kuan Yew’s Singapore, modernization and export expansion in the Kuomintang’s Taiwan and Park Chung-hee’s South Korea. From the early 1960s to the 1990s, the tigers enjoyed high growth rates. In the process, they leapt “from the Third World to the First” within one generation, as Lee later put it.

Usually, most economies’ internal engines decelerate after high growth associated with industrialization. However, the tigers were in the right place at the right time and made the right growth choices. When China began its economic reforms and opening-up policies, it supported their growth for another three decades.

In 1960, living standards, as measured by GDP per capita, were still well behind those in Japan (where the then-per capita income was 45 percent lower than in the US). Today, average per capita incomes in these economies, except for South Korea, are relatively higher than in Japan, which has been overwhelmed by economic stagnation. In Singapore, they are more than 30 percent higher than in the US; and Hong Kong has caught up with as well.

But easy catch-up growth is over.

Progressive deceleration
In 2017, real GDP growth in Singapore, which has been coping with economic malaise, is estimated at 2.9 percent. In addition to modernization at home, it seeks growth in China and emerging Asia. Yet, trade outlook is uncertain and the Fed’s rate hikes loom ahead.

Hong Kong’s growth has lingered at around 2 to 2.5 percent, with a future overshadowed by political angst. Like Singapore, it is exposed to global liquidity swings, US trade protectionism and China’s rebalancing. It has also suffered from failures to participate in pro-growth integration opportunities, although growth prospects look more promising today.

South Korea’s growth rate is around 2.7 to 2.9 percent, despite the moderation of economic momentum and geopolitical risks. Neither foreign trade, which is constrained by international environment, nor domestic demand, which suffers from indebted households, has been adequate to support strong growth.

Despite improved forecasts, Taiwanese growth rate for 2017 is estimated at around 2.1 percent. Like Hong Kong, it has struggled with economic and political malaise but is trying to seek growth in emerging Asia.

What’s ahead
In brief, the four tiger economies are aging and slowing, as evidenced by steady and occasionally steep deceleration of growth in each. With the maturation of the economy, growth and productivity are decelerating.

With demographic transition, birth and death rates are slowing, as evidenced by the rise of median age, which is highest in Hong Kong (45), close to that of Japan and Germany which are facing population decline. South Korea (43), Taiwan (40) and Singapore (40) follow in their footprints.

Worse, average per capita incomes tend to mask broadening income polarization in the tigers. Among major advanced economies, income inequality, as measured by Gini coefficient, is the highest in the financial hubs of Hong Kong (54) and Singapore (46), as opposed to high-tech giants Taiwan (34) and South Korea (30).

All tigers need structural reforms and inclusive pro-growth policies, including greater productivity and innovation; more dynamic competition and new enterprises; higher retirement ages, accelerated skills-based immigration, drastically reduced policy barriers to boost female labor participation; and greater efficiency of public spending.

A greater stress on human capital requires more progressive taxation, aggressive measures to reduce income inequality; and adequate job protection.

As the tigers’ internal growth engines are slowing, they must aggressively seek new market opportunities, including economic integration regionally and international trading arrangements. In the absence of such changes, all tigers could face creeping stagnation.

The moral of the story: Young tigers leap; aging tigers growl.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

Source: IMF

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