OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Asian Transformations OUP CORRECTED PROOF – FINAL, 05/08/19, SPi UNU World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its first research and training centre and started work in Helsinki, Finland, in 1985. The mandate of the institute is to undertake applied research and policy analysis on structural changes affecting developing and transitional economies, to provide a forum for the advocacy of policies leading to robust, equitable, and environmentally sustainable growth, and to promote capacity strengthening and training in the field of economic and social policymaking. Its work is carried out by staff researchers and visiting scholars in Helsinki and via networks of collaborating scholars and institutions around the world. United Nations University World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland <www.wider.unu.edu> OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Asian Transformations An Inquiry into the Development of Nations Edited by D E E PA K NAY YA R A study prepared for the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi 1 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. 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OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Foreword Gunnar Myrdal published his magnum opus Asian Drama: An Inquiry into the Poverty of Nations in 1968. Described by one of his peers as a cheerful pessimist, Myrdal was deeply negative about Asia’s development prospects and this pessimism was manifestly evident across the pages of his tome. However, the half-century since publication has witnessed a most remarkable social and economic transformation in Asia that would have been difficult for Myrdal to imagine, let alone predict, at the time of his writing. During discussions with Deepak Nayyar—a former Chair of the UNU-WIDER Advisory Board—he proposed an in-depth inquiry into the how and why of the dramatic transformations within Asia since Myrdal’s major work, looking at how nations can develop across time given their different national characteristics, political settlements, natural endowments, and starting points of development. As it turned out, that conversation pre-launched the UNU-WIDER research pro- ject, Asian Transformations—An Inquiry into the Development of Nations. The project maps and analyses the story of progress and economic development in Asia, with the region’s transformed significance in the world economy, and reflects on what future decades might hold. This book, with its comprehensive chapters by eminent economists and social scientists, is the distillation of the entire academic project, making it essential reading for economists, policymakers, and scholars and students of development. Valuable lessons can be drawn from the research—successes, failures, or mixed outcomes—that will help in thinking about the economic prospects of countries, whether leaders or laggards at the point of departure. I sincerely thank the contributors for their studies, which share with us their individual expertise, and particularly Deepak Nayyar for bringing this very rich academic inquiry to full fruition. UNU-WIDER gratefully acknowledges the support and financial contributions to its research programme by the governments of Finland, Sweden, in this case particularly the Swedish International Development Cooperation Agency—Sida, and the United Kingdom. Without this vital funding our research and policy analysis work would be impossible. Finn Tarp Director, UNU-WIDER Helsinki, December 2018 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Preface In early September 2016, I was browsing through the bookshelves in my study, when I spotted the three volumes of Gunnar Myrdal’s Asian Drama , which I had read as a graduate student in economics at Oxford soon after it was published. I had returned to it off and on while working on development or on India. But this time around, it was after a decade if not longer. I decided to re-read Appendix 3 on economic models, with its critique of capital–output ratios, in the context of development planning. This was, in fact, written by Paul Streeten, who was a part of the Myrdal team for Asian Drama . They were close friends for years, as Streeten had translated and edited Myrdal’s earlier work on economic theory and on methodological problems. Paul was also my supervisor as a doctoral student at Oxford. It was the beginning of our lifelong friendship. And I met Gunnar Myrdal once with Paul Streeten. The accidental browsing brought back memories from that time. It struck me that, in 2018, it will be fifty years since the book was pub- lished. This led me to think that a study, which analyses the story of economic development in Asia, over this span of half a century, would be a wonderful idea. As it happened, just a week later, I was participating in the WIDER Annual Conference at Helsinki. It occurred to me that UNU-WIDER, located in the Nordic world, with its focus on development would be the perfect institutional base for such a study. And I mentioned this adventurous idea to Finn Tarp, Director of UNU-WIDER. He said that he would think about it and explore possibilities. Barely two months later, he was in touch with me to say that UNU- WIDER would like to collaborate on such a study. At a first step, I wrote a short concept note setting out the idea. In mid-February 2017, this was discussed in an informal brainstorming meeting with Ernest Aryeteey, Ronald Findlay, Justin Lin, Frances Stewart and Robert Wade, in Helsinki—Finn Tarp and Tony Addison were also present and participated in the discussions. The comments and suggestions from all the participants were most constructive. The study was then conceptualized in terms of structure and con- tents. The project began life in late March 2017 as authors were commissioned over the next three months. The complete first drafts of the papers written for the project were discussed at a workshop of authors at the Central Institute for Economic Management, in Hanoi, Vietnam, on 9–10 March 2018. The discus- sions were rich, engaging, and productive. Revised versions of the papers were discussed further at a second workshop of authors at Fudan University, Shanghai, China, on 29–30 June 2017, where Guanghua Wan, a contributor to this volume, was our gracious host. This meeting provided valuable suggestions for the authors OUP CORRECTED PROOF – FINAL, 05/08/19, SPi viii Preface and the editor. Selected aspects and highlights of the study were also presented at a plenary session of the WIDER Annual Conference in mid-September 2018, which was followed by a helpful discussion. I would also like to record my appre- ciation of the work done by referees, who reviewed draft papers at different stages. Their evaluation and comments helped improve the quality of the volume. Above all, I am grateful to the contributors for their patience, understanding, and effort in putting up with my demands for successive rounds of revisions. This book, and its companion volume, Resurgent Asia: Diversity in Development , are the outcome of the UNU-WIDER research project Asian Transformations. I am indebted to Finn Tarp for his acceptance of the idea and his commitment to what seemed an exceedingly difficult task at the time. Somewhat late in the lifecycle of the project, I also persuaded him to write a chapter on Vietnam for the volume. In the journey to completion, the unstinted support from Finn Tarp was invaluable. I owe a special word of thanks to the staff at UNU-WIDER in Helsinki, who lent wonderful support throughout over two years even though I lived in faraway New Delhi. Tony Addison, with his perceptive and interesting ideas, was a lively participant and discussant at all our meetings and workshops. Paul Silfvenius provided us with quiet, efficient, administrative support. Janis Vehmaan-Kreula, the project secretary, our anchor in Helsinki, was a pillar of support, with tireless effort and complete dedication, for me and for all the contributors spread across the globe. Lorraine Telfer-Taivainen, super efficient at whatever she does, helped us at the Shanghai workshop, and, most importantly, prepared the final manuscript for publication. The authors alone know how hard she worked. It is difficult for me to find the words to thank Rajeev Malhotra, who worked as my principal assistant on the project with a strong commitment that is worthy of praise. He was conscientious, meticulous, and efficient. It was multi-tasking in every sense of the word. He helped in preparing for our author workshops, mak- ing presentations for authors who were unable to come, acting as a discussant, or summing up sessions, and then assisting with follow-up. And he was a careful reader of papers. In fact, Rajeev provided valuable assistance whenever, and in whatever form, it was needed. It was gracious of him to find the time for these tasks, given his own academic obligations—I owe him a debt of gratitude. The object of this book is to analyse the development experience of Asia over the past five decades. There is no such study yet. And this is new. It should, at the same time, contribute to our understanding of the process of development. There are, perhaps, lessons that can be drawn from the Asian experience—successes, mixed outcomes, failures—which might help in thinking about economic pros- pects of countries in Asia and elsewhere that are latecomers to, or laggards in, development. In this half-century, the world has witnessed profound changes in economic development, social progress, and living standards. And, contrary to Myrdal’s expectations, Asia has been transformed beyond recognition. These transformations have been uneven across countries and unequal among people. OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Preface ix Yet, Asia’s remarkable development over the past fifty years has also transformed its significance in the world economy. Thus, how the future unfolds in Asia over the next twenty-five years will have important implications for the world. Given the enormous diversity and massive size of Asia as a continent, this study is obviously an ambitious endeavour. It should come as no surprise that there are unexplored themes, unsettled issues, and unanswered questions. Even so, it is hoped that this book will contribute to our understanding of, and stimulate further thinking on, the subject. Deepak Nayyar New Delhi December 2018 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi OUP CORRECTED PROOF – FINAL, 05/08/19, SPi Table of Contents List of Figures xiii List of Tables xv List of Abbreviations xvii Notes on Contributors xxi PA RT I S E T T I N G T H E S TAG E 1. Rethinking Asian Drama : Fifty Years Later 3 Deepak Nayyar 2. Gunnar Myrdal and Asian Drama in Context 29 Ravi Kanbur 3. Myrdal’s Methodology and Approach Revisited 52 Frances Stewart 4. Asia and the World Economy in Historical Perspective 80 Ronald Findlay PA RT I I C R O S S - C O U N T RY T H E M AT IC S T U D I E S 5. The State and Development 109 Peter Evans and Patrick Heller 6. Economic Openness and Development 136 Richard Kozul-Wright and Daniel Poon 7. Agriculture, the Rural Sector, and Development 160 Rob Vos 8. Industrialization and Development 186 Ha-Joon Chang and Kiryl Zach 9. Macroeconomic Perspective on Development 216 Amit Bhaduri 10. Poverty and Inequality 240 Guanghua Wan and Chen Wang 11. Education and Health 267 Sudipto Mundle OUP CORRECTED PROOF – FINAL, 05/08/19, SPi xii Table of Contents 12. Unemployment, Employment, and Development 297 Rolph van der Hoeven 13. Institutions and Development 321 Mushtaq H. Khan 14. Nationalism and Development 346 Prasenjit Duara PA RT I I I C O U N T RY A N D SU B - R E G IO N S T U D I E S Country Studies 15. China 377 Justin Lin Yifu 16. India 401 Kaushik Basu 17. Indonesia 424 C. Peter Timmer 18. Vietnam 450 Finn Tarp Sub-Region Studies 19. East Asia 477 Robert H. Wade 20. Southeast Asia 504 Manuel F. Montes 21. South Asia 531 S.R. Osmani Index 557 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi List of Figures 3.1 GDP per capita, 1967–2017 (constant 2010 US$) 65 3.2 Infant mortality rate, 1967–2017 65 6.1 Domestic value-added share of gross exports in computers, electronics, and optical equipment for selected countries, 1995–2011 148 6.2 Electronics industry trade flows and structure for selected countries, 1990–2016 149 6.3 Role of national development banks, 1994–2016 153 7.1 Convergence of declining agricultural value added and employment shares with rising income per capita in China, India, Indonesia, Rep. of Korea, Malaysia, Philippines, Thailand, and Vietnam, 1950–2016 163 7.2 From more food to different foods: the dietary transition by Asia in comparison to the rest of the world, 1961–2013 167 7.3 Land versus agricultural labour productivity in selected Asian countries, 1980–2015 169 7.4 Agricultural and rural development support indicators in selected Asian countries, 1970–2015 170 8.1 Per capita MVA in selected East Asian economies (in constant 2005 US$) 194 10.1 Growth of per capita GDP: Asia and sub-regions 243 10.2 Regional inequality in Asia 244 10.3 Regional inequality in Asia: Theil index decomposition 245 10.4 Asia’s poverty 248 10.5 Poverty decomposition 250 11.1 Achieved standards and public expenditure shares of education and health in Asian countries 292 13.1 Myrdal’s institutional analysis 324 13.2 Political settlements and institutional outcomes 332 15.1 Compositions of GDP, employment, and population 379 15.2 China’s corporate, household, and government savings as percentage of GDP 390 15.3 Components of GDP growth 393 17.1 Long-run patterns of structural transformation in Indonesia, 1880–2016 426 20.1 Structural change in Southeast Asia: percentage of GDP in agriculture and manufacturing 510 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi OUP CORRECTED PROOF – FINAL, 05/08/19, SPi List of Tables 6.1 Changes in value-added shares in gross exports, 1995–2014, percentage points 150 8.1 Comparing developing Asia in 1970 and 2015 188 8.2 Structure of production in selected Asian countries, 1950–2005 (gross value added in main sectors of the economy as % of GDP at current prices) 190 8.3 Peaks in manufacturing employment share in total employment and in total population in selected Asian economies (employment, population, and MVA growth prior to and after reaching the manufacturing employment ‘peak’ relative to total population) 192 8.4 Technology intensity of top five exports in selected countries in 1965 and 2016 (SITC4 classification) 197 8.5 Merchandise export shares of selected commodity groups in selected Asian economies 1965–2016 200 10.1 Drivers of poverty 254 10.2 Drivers of inequality 257 10.3 The effect of inequality on growth 260 10.4 The impact of inequality on poverty (in millions) 261 11.1 Primary education 270 11.2 Secondary and tertiary education 272 11.3 Health indicators 279 11.4 Nutrition indicators 280 12.1 Country classifications by economic growth: 1965–2015 and 1986–2015 305 12.2 Country classifications by growth and labour market regime: 1986–2015 307 12.3 Female and male unemployment rates: 1996–2015 308 16.1 India’s growth and investment rates 408 17.1 Decadal data used in Figure 17.1 427 17.2 Long-run patterns of pro-poor growth in Indonesia 431 17.3 Measures of inequality and poverty in Indonesia, 1932–2016 433 17.4 Economic growth in Indonesia, 1880–2016 438 19.1 Comparison of income and investment in Asian countries 479 20.1 Economic growth indicators, % 506 20.2 Ratio of female-to-male labour force participation rate: national estimates, % 521 21.1 Growth performance of South Asia: 1966–2015 536 21.2 Correlates of economic growth in South Asia 552 OUP CORRECTED PROOF – FINAL, 05/08/19, SPi OUP CORRECTED PROOF – FINAL, 05/08/19, SPi List of Abbreviations ADB Asian Development Bank AFTA ASEAN Free Trade Area APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations ATC Agreement on Textiles and Clothing BIMAS Behavior Intervention Monitoring Assessment System BJP Bharatiya Janata Party BoP Balance of Payments BPHS Basic Package of Hospital Services BRAC Bangladesh Rural Advancement Committee BRIC Brazil, Russia, India, China CCP Chinese Communist Party CDs communicable diseases CDB China Development Bank CEXIM Export–Import Bank of China CMS Cooperative Medical System CPV Communist Party of Vietnam DFI Development Finance Institution DPP Democratic Progressive Party ECE Economic Commission for Europe EPB Economic Planning Board EPHS Essential Package of Hospital Services EPZ export processing zone FDI foreign direct investment GATT General Agreement on Tariffs and Trade GDP gross domestic product GER gross enrolment rate GFCF gross fixed capital formation GNH gross national happiness GNI gross national income GNP gross national product GRI government research institute GVCs global value chains HIDZ high-technology industrial development zone HYVs high-yielding varieties ICICI Industrial Credit and Investment Corporation of India ICT Information and Communications Technology IDBI Industrial Development Bank of India OUP CORRECTED PROOF – FINAL, 05/08/19, SPi xviii List of Abbreviations IFCI Industrial Finance Corporation of India IFI international financial institution ILO International Labour Organization IMF International Monetary Fund IMR infant mortality rate IPPG Index of Pro-Poor Growth IRRI International Rice Research Institute IS import substitution ITRI Industrial Technology Research Institute IVA industrial value-added JKN Jaminan Kesehatan Nasional (Scheme) Jokowi Joko Widodo KMT Kuomintang Lao PDR Lao People’s Democratic Republic LDCs Least Developed Countries MDGs Millennium Development Goals MEXIM Export–Import Bank of Malaysia MFA multi-fibre arrangement MMR maternal mortality rate MNC multinational corporation MVA manufacturing value-added NCD non-communicable disease NDB National Development Bank NER net enrolment rate NICs newly industrializing countries NIEs newly industrializing economies NIF National Investment Fund NIP new industrial policy NREGA National Rural Employment Guarantee Act NU Nahdlatul Ulama (Indonesia’s largest Islamic organization) ODA official development assistance OECD Organisation for Economic Cooperation and Development OOP Out-Of-Pocket (spending) PAP People’s Action Party PCR primary completion rate PER primary enrolment rate PISA Programme for International Students Assessment PPP purchasing power parity PRC People’s Republic of China PRSP Poverty Reduction Strategy Paper PWT Penn World Tables R&D research and development ROC Republic of China (Taiwan) ROK Republic of Korea RRA relative rate of assistance OUP CORRECTED PROOF – FINAL, 05/08/19, SPi List of Abbreviations xix SAM social accounting matrix SAPs structural adjustment programmes SBY Susilo Bambang Yudhoyono SDGs Sustainable Development Goals SER secondary enrolment rate SEZ special economic zone SI social insurance SLFP Sri Lanka Freedom Party SMERU Social Monitoring and Evaluation Research Unit SMEs small and medium-sized enterprises SOEs state-owned enterprises SSA sub-Saharan Africa STAG Science and Technology Advisory Group SUSENAS Indonesia National Socio-Economic Survey TER tertiary enrolment rate TFP total factor productivity TPP Trans-Pacific Partnership TVE Technical and Vocational Education UMNO United Malays National Organisation UNCTAD United Nations Conference on Trade and Development UNP United National Party UPFA United People’s Freedom Alliance VA value added VARHS Vietnam Access to Resources Household Survey VHLSS Vietnam Household Living Standard Survey WDI World Development Indicators WID World Inequality Database WIID UNU-WIDER World Income Inequality Database WTO World Trade Organization