While Western governments had stepped in with considerable vigour during other similar crises in the past, particularly in Latin America, the Asian catastrophe saw much no such response. Asia was largely left to manage on its own. The region had little option other than devising collective responses. This was reflected in a flurry of intra-regional trade agreements. They were also reflected in the currency swap arrangements, the Chiang Mai Initiative and the tentative move towards an Asian bond market.
An important aspect of the Asian recovery after the crisis was the dual emphasis on intra-regional and extra-regional linkages. While formalisation of economic and trade agreements within the region increased, there was a simultaneous emphasis on deepening links in non-regional markets. Western markets remained major sources of inspiration for Asian economies. Indeed, the onset of the robust economic cycle that the world witnessed from the early years of this decade was sustained by steady feeding of Asian exports to North American and European markets.
The situation, this time around, is different. The latest crisis was not a regional crisis like in 1997. It was a trans-Atlantic setback that matured into a contagion and affected Asia. The region is fighting a crisis that is not of its own making. As a result, it realises that the response also needs to be different. Unlike the last time, when Asia followed an ‘open’ regionalism model by reaching out to non-regional markets as well, should it do the same this time?
This question will agitate policy-makers from the region for a long time to come. Open regionalism might appear much less attractive now compared to the past. Far-reaching changes have taken place in Asia’s economic equation with the West. In 1998, Western markets were buoyant. Asian exports could rely on them for regional recovery. This time it is not so. The region cannot expect Western markets to handhold its turnaround. Depressed conditions in North American and European markets have forced the region to think whether export orientation will continue to deliver benefits.
Fundamental changes have also occurred in the balance of economic power within the region. In 1998, Japan was the largest economy in the region. It accounted for 14.5 per cent of the world GDP. China was the second largest with 3.3 per cent of world GDP. ASEAN (Indonesia, Thailand, Singapore, Malaysia and the Philippines), India and Korea followed with 1.7, 1.5 and 1.3 per cent of world GDP, respectively. A decade later, the balance has changed considerably. Japan is still the largest regional economy. But now it contributes only 8.8 per cent of world GDP. China has inched closer to Japan by contributing 8.3 per cent of world GDP. The ASEAN five and India now contribute 2.2 per cent each to world GDP, while Korea contributes 1.4 per cent.
The greater China-centric character of the region will play a critical role in determining whether Asia continues to follow open regionalism. China may not decide to be as open to extra-regional actors as Japan has been. China’s economic links with other major economic entities in the region have deepened considerably over the last decade. It may decide to deepen these links further, given the subdued conditions in western markets. China has also decided to consciously energise domestic consumption and demand as major engines of growth. It is likely to import much more than it did in the past. These imports will largely come from neighbouring Asian countries producing cheap commodities. These countries will also supply considerable raw material and intermediates, as China pursues large-scale infrastructure development. China’s heavy import of iron-ore from India is a case in point.
Asia may, therefore, see a much different regional response to the post-crisis scenario as opposed to what it witnessed a decade ago. A relatively inward-looking regional approach is likely to appeal to all other major economies in the region, such as ASEAN, India and Korea. They all stand to benefit from synergies created by a quick turnaround of economic activity in the region.
Amitendu Palit is Head (Development & Programmes) & Visiting Research Fellow at the Institute of South Asian Studies (ISAS) at the National University of Singapore. He was earlier with ICRIER, New Delhi and the Ministry of Finance, India.
Engagement with all economies on the basis of evolving comparative advantage remains the correct policy option for Asian economies.
It continues to be appropriate to reduced obstacles to international commerce with other Asian trading partners. But it does not make sense to use preferential arrangements to divert activity away from the rest of the world.
The concluding remark is not likely to prove correct. Even India has mada a decisive move away from inward looking policies. Its leaders will realise that a prosperous India cannot be accommodated in anything less than a global economy.
A relatively inward-looking regional approach is likely to appeal to all other major economies in the region, such as ASEAN, India and Korea.
Engagement with all economies on the basis of evolving comparative advantage remains the correct policy option for Asian economies.
It continues to be appropriate to reduced obstacles to international commerce with other Asian trading partners. But it does not make sense to use preferential arrangements to divert activity away from the rest of the world.
The concluding remark:
“A relatively inward-looking regional approach is likely to appeal to all other major economies in the region, such as ASEAN, India and Korea.”
is not likely to prove correct.
Even India has mada a decisive move away from inward looking policies. Its leaders will realise that a prosperous India cannot be accommodated in anything less than a global economy.
is not likely to prove correct. Even India has mada a decisive move away from inward looking policies. Its leaders will realise that a prosperous India cannot be accommodated in anything less than a global economy.
A relatively inward-looking regional approach is likely to appeal to all other major economies in the region, such as ASEAN, India and Korea.
is not likely to prove correct. Even India has mada a decisive move away from inward looking policies. Its leaders will realise that a prosperous India cannot be accommodated in anything less than a global economy.
A relatively inward-looking regional approach is likely to appeal to all other major economies in the region, such as ASEAN, India and Korea.
To me, it is not a question of should or not, it is natural and optimal.
It is only a rational response to changed world economic situations but not a change to open regionalism per se.
With policies of open to every opportunity, Asian countries will of course also look at intra regional trade to enhance mutual growth and prosperity.
Further, the Greece debt problems and its implications also mean a need to further strengthen regional institutions to complement other international organisations such as the IMF, because the latter may not necessarily be able to work best to suit all regional needs for one reason or another, as history has demonstrated.
The idea is well taken. I strongly believe to look within Asia in the years to come should be tranlated into the establishment of Asia regional economic community. The establishment free trade area let say for the Asia should be accelerated.The Multilaralism of Chiang Mai Initiative should be considered as early step towards the establishment of financial stability institution for the region. Unfortunetely that this region so far are lacking with regional ledership. So many good visions have been put on the table, what we urge now “leaders in this region” assertively manage to realize that vision ie establishing the the Asian Economic Community
The cross-country comparisons given in this paper give a misleading impression of the relative size of the leading Asian economies.
According to Angus Maddison’s estimates (“Statistics of World Population, GDP and Per capita GDP, 1-2008 AD”, on his website), China’s GDP in 1998 was already 45% greater than Japan’s, and by 2008 China’s total GDP was more than three times greater than Japan’s. These estimates also show India’s GDP as being some 18% greater than Japan’s in 2008.
It is true that the official PPP-based comparisons from the IMF, which draw on the latest estimates from the International Comparison Program (ICP), put the GDPs of China and India at a much lower level than the estimates made by Maddison. However, these official estimates still put China’s current GDP at well over twice that of Japan’s, and India’s as nearly 90% of Japan’s.
It is therefore incorrect to argue that “Japan is still the largest regional economy.” Such comparisons err by converting nominal GDPs into a common unit using exchange rates – an invalid procedure which assumes, contrary to the fact, that the average price level in all countries is the same.
For a detailed discussion of the reasons for using PPP converters rather than exchange rates in cross-country GDP comparisons, see Ian Castles and David Henderson, “International Comparisons of GDP”, “World Economics”, Jan-Mar 2005 (available at http://dspace.anu.edu.au/bitstream/1885/43016/1/CH.Wld.Economics.2.pdf ). For a listing of Maddison’s reasons for preferring his estimates to the IMF/IPC PPP estimates and, a fortiori, to the official Chinese numbers converted using exchange rates, see Angus Maddison and Harry Wu, “Measuring China’s Economic Performance”, “World Economics”, Apr-Jun 2008: 35-36.