Resurgent Asia OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi Advance Praise for Resurgent Asia In this magisterial work, Deepak Nayyar discusses one of the most important socio- economic phenomena in human history - the (re-)rise of Asia since the 1950s. Based on a deep understanding of history, Nayyar provides a most profound analysis of this momentous event and a most thoughtful contemplation of the future of the region - and the world. His analysis is panoramic in scope but never loses sight of the diversity of the process and is always concerned with the welfare of real people. A singular achievement. HA-JOON CHANG University of Cambridge Author of Kicking Away the Ladder and Economics: The User ’ s Guide The decades since the end of the Second World War have seen the remarkable resurgence of the role of Asia in the world economy after centuries of subordination to the West. In this book Deepak Nayyar provides a brilliant overview of this process and its historical antecedents, with a masterly deployment of the relevant statistics and a wealth of sharp analytical insights. The incisive policy perspectives and critiques highlight the lessons that subsequent latecomers to this process can draw. The succinct analysis of development outcomes in Asia, which could not have been imagined fi fty years ago when Gunnar Myrdal published Asian Drama , is a fi tting tribute to the memory of the great Swedish scholar. It will be a major reference for decades to come. RONALD FINDLAY Ragnar Nurkse Professor Emeritus of Economics, Columbia University In this remarkable book, Deepak Nayyar analyses the economic rise of Asia over the past fi fty years, which has restored its historic signi fi cance in the world economy to where it was in the mid-nineteenth century. The resurgence of Asia is surprising and puzzling for the global development community, as most Asian countries followed heterodox paths for their rejuvenation. In the 1960s, the East Asian Tigers adopted an export-promotion strategy, instead of the then fashionable import-substitution strat- egy, to witness an economic transformation described as a miracle. During the 1980s, other Asian economies adopted a pragmatic piecemeal approach, instead of the shock- therapy advocated by the prevalent neoliberal thinking, to make a transition from planned economies to market economies rede fi ning the relationship between govern- ments and markets. The book is a must read for anyone who wants to understand Asia ’ s past, present and future, which could chart paths to prosperity in other parts of the developing world. JUSTIN YIFU LIN Dean and Professor, Institute of New Structural Economics, Peking University, and former chief economist, the World Bank OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi This is a fascinating book which provides an incisive analysis of the dramatic changes in the economic fortunes of Asia during the last fi fty years. It is conscious of history, informed by theory, and grounded in solid knowledge. The author unravels a success story that has de fi ed the pessimism implicit in Gunnar Myrdal ’ s Asian Drama and that has refused to be caught in paradigmatic straitjackets. Deepak Nayyar marshalls evidence with care, through the maze of diversity in a vast continent, to develop an understanding in a style that is engaging and accessible for readers. Lessons from experience are drawn for other countries, not to establish an ‘ Asian Model ’ , but to signal diversity, complexity, experimentation and context-speci fi city, while highlight- ing real ‘ fundamentals ’ of development. This book is essential reading for anyone who wants to understand, and learn from, the rise of Asia. I would particularly recommend the book to African readers engaged in the search for a way forward after the blinding decades of neoliberalism. THANDIKA MKANDAWIRE Chair and Professor of African Development, London School of Economics Deepak Nayyar ’ s Resurgent Asia is an outstanding analysis of the development of the world ’ s most dynamic economic region over the past fi ve decades. In historical terms, it shows that the strong economic growth and increasing role of Asia in the world economy is in sharp contrast to the ‘ Great Divergence ’ generated by imperialism since the early nineteenth century. In sharp contrast with orthodox views, it argues that Asia ’ s success was associated with a strategic rather than a passive integration into the world economy, in which sensible industrial policies implemented by effective gov- ernments played the critical role. It also presents an excellent view of diversity of development experiences in different sub-regions and countries, and a social pattern in which massive poverty reduction was accompanied by rising inequality within and among countries. It is a must read for development analysts and practitioners, but also for economic historians of the contemporary world. JOSE ANTONIO OCAMPO Member of the Board of the Central Bank of Colombia, Chair of the United Nations ’ Committee for Development Policy and Professor at Columbia University Gunnar Myrdal was famously wrong in his economic prognosis for Asia. Asian growth miracles have come in waves since the end of the Second World War, with each wave largely a surprise to the rest of the world. Japan was fi rst in the 1950s, followed by the Gang of Four (South Korea, Taiwan, Singapore, Hong Kong) in the 1960s and 1970s, Malaysia, Thailand, and Indonesia after the 1970s, China since the 1980s, Vietnam and India since the 1990s. Their experiences have often been analyzed through a lens that re fl ects the analyst ’ s predilections instead of the reality on the ground. Deepak Nayyar ’ s non-ideological, no-nonsense account avoids the common pitfalls and draws a comprehensive picture of the continent ’ s economic development. It provides a uni fi ed interpretation informed by a broad theoretical perspective, while doing justice to the diversity of the Asian experience. DANI RODRIK Professor of International Political Economy, Harvard University OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi iv In an impressive, wide-ranging and penetrating account, this book records and analyses the Asian Drama of the last fi fty years. Deepak Nayyar ’ s ambitious and exciting book examines the remarkable transformation of the continent, from its marginal signi fi cance in the global economy to a situation where it accounts for almost a third of world output, and from abysmally low health, education and income levels, to a situation where human development is converging to levels achieved in developed countries and income levels are converging towards the world average. The author points to differences as well as similarities in political conditions and economic performance across countries in Asia, to recognize diversity and analyse success. The book explains why the twenty- fi rst century might be termed ‘ the Asian century ’ , following two centuries of underdevelopment which was largely due to structures and policies imposed by Western colonialism. FRANCES STEWART Emeritus Professor of Development Economics, University of Oxford The last fi fty years have constituted a signi fi cant historical time-marker for Asia. Countries ceased to be colonies of Europe or Japan and became independent nations. The economic basis of the transformative change since then is admirably analyzed in this book with lucid explanations and persuasive arguments. This would be compre- hensible even to non-economists and other social scientists, such as sociologists, contemporary historians, commentators on politics, as well as general interested readers. What makes the book even more perceptive are the passing pointers to parallel concerns emanating from a variety of nationalisms affecting politics and democratic institutions, as also the imprint of change in social habits and cultural articulations. ROMILA THAPAR Professor Emeritus of History, Jawaharlal Nehru University OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi v UNU World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its fi rst 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 devel- oping 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 fi eld 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, 9/9/2019, SPi Resurgent Asia Diversity In Development D E E P A K N A Y Y A R A study prepared by the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi 3 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. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © United Nations University World Institute for Development Economics Research 2019 The moral rights of the author have been asserted First Edition published in 2019 Impression: 1 Some rights reserved. 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Enquiries concerning reproduction outside the scope of this licence should be sent to the Rights Department, Oxford University Press, at the address above Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2019909293 ISBN 978 – 0 – 19 – 884951 – 3 DOI: 10.1093/oso/9780198849513.001.0001 Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A. Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work. OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi For Rohini, Dhiraj, and Gaurav OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi Foreword Asian Drama: An Inquiry into the Poverty of Nations, Gunnar Myrdal ’ s magnum opus, was published in 1968. It would be an understatement to say that Myrdal was negative about Asia and the region ’ s development possibilities. However, the half-century since the publication of Asian Drama has seen the most astonishing social and economic transformation in Asia, a transformation that would have been dif fi cult for Myrdal to envisage, let alone predict, at the time of authoring his tome. Thus, as I was taking over the directorship of UNU-WIDER, I was very excited to learn that Deepak Nayyar — a former Chair of the UNU-WIDER Advisory Board — was working on a study, in two volumes, to analyse the process of economic development and social progress in Asia since the publication of Asian Drama by Gunnar Myrdal. Resurgent Asia: Diversity in Development provides a valuable complement to the comprehensive work Deepak and his project team — an esteemed group of economists and scholars — carried out in researching and producing the edited companion volume, Asian Transformations: An Inquiry into the Development of Nations . In this authored book, Deepak tells an engaging and fascinating story of progress and economic development in Asia, and contemplates what the future could hold for the region. I would like to sincerely thank Deepak for what I can only describe as his labour, for no other word would be adequate. The phenomenal work and endless hours he has dedicated to this research has culminated in this very proli fi c academic inquiry for others to read, explore, ponder, and even enjoy. UNU-WIDER gratefully acknowledges the support and fi nancial 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 advisory work would be impossible. Kunal Sen Director, UNU-WIDER Helsinki April 2019 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi Preface At the outset, I would like to thank UNU-WIDER for their support, without which this study would not have been possible. I am particularly indebted to Finn Tarp, the then Director, for his acceptance of the idea and his commitment to what seemed an exceedingly dif fi cult task at the time. Kunal Sen, the Director now, has been just as enthusiastic and supportive. Tony Addison, the Deputy Director, has been engaged with the study from the beginning and contributed with his perceptive and interesting ideas. I owe a special word of thanks to the staff at UNU-WIDER in Helsinki, who lent wonderful support for two years even though I lived in faraway New Delhi. Janis Vehmaan-Kreula, the project secretary, provided solid administrative support, with complete dedication, through the life cycle of this study and its companion volume. Lorraine Telfer-Taivainen, super ef fi cient at whatever she does, helped in so many ways, with an initiative that is commendable and a response time that is incredible. Let me turn the clock back fi fty years, when I was a very young graduate student in Oxford, to record my intellectual debt to Paul Streeten, who was my supervisor and mentor as a doctoral student. He brought home to me the importance of questioning conventional wisdom and the signi fi cance of the heterodox or unorthodox in economics, particularly in thinking about development. This association exercised a profound in fl uence on me in times to come and it was the beginning of our lifelong friendship. Given his close association with Gunnar Myrdal and Asian Drama , I had hoped to discuss this study with Paul in early 2018, soon after he turned 100, but by then he was too frail for such a conversa- tion. Sadly, he passed away in early 2019. This book would have given him immense joy. Alas, it was not to be. Such academic pursuits are always associated with an accumulation of intel- lectual debts to professional colleagues. For thoughtful questions, helpful com- ments, and constructive suggestions, I am deeply indebted to Ha-Joon Chang, Ronald Findlay, and Jose Antonio Ocampo, who read the entire manuscript from beginning to end as it was being written. For engaging questions and valuable comments, I am similarly indebted to Romila Thapar, the distinguished historian, who found the time and made the effort to read the whole manuscript, providing the reality-check that economists need. Gaurav Nayyar, from the next generation of economists, also read the entire manuscript, as it was being written, to ask perceptive questions and make valuable suggestions. For stimulating conversa- tions, engaging discussion and innovative ideas, on some of the themes developed in this book, I would like to thank Joseph Stiglitz and Lance Taylor. OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi Some colleagues and friends — Amit Bhaduri, Prasenjit Duara, Padmanabha Gopinath, Sudipto Mundle, Anil Seal, Frances Stewart, and Peter Timmer — read a particular chapter that was of interest to them, to provide helpful comments. My discussion with contributors to the companion volume at different stages of the study, and in an informal brainstorming session during the second workshop of authors, at Shanghai in June 2018, to discuss the drafts of papers written for the companion volume, also provided valuable inputs for this study. I recall sugges- tions and ideas from Kaushik Basu, Amit Bhaduri, Prasenjit Duara, Rolph van der Hoeven, Ravi Kanbur, Mushtaq Khan, Justin Lin, Manuel Montes, Sudipto Mun- dle, Siddiqur Osmani, Frances Stewart, Finn Tarp, Peter Timmer, Rob Vos, Robert Wade and Guanghua Wan. There were many who helped me in the research process. Rana Hasan and Gaurav Nayyar helped in my search for information and sources. Ananya Ghosh- Dastidar assisted with work on historical statistics. I am most grateful to Rajeev Malhotra, who worked as my principal assistant on the project with a strong commitment that is worthy of praise. He provided valuable assistance whenever, and in whatever form, it was needed. He also read several chapters and made useful suggestions. It was multi-tasking in every sense of the word. Given his own academic obligations, it was gracious of him to fi nd the time for these tasks. I would especially like to thank my research assistant for this study, Atul Sanga- neria, who was conscientious, meticulous, and ef fi cient. The compiling of statistical information for this study, from diverse primary sources, was both painstaking and challenging. In this process, which was demanding in terms of both time and deadlines, his perseverance and patience were admirable. I would also like to thank K.K. Popli, who has been my secretary for more than three decades, for his superb support in everything he does. I owe him a debt of gratitude. It is dif fi cult for me to fi nd the words to describe the fantastic support from my family over the past two years in which this study was my life. I recall conversa- tions with my elder son, Dhiraj, about the nature of politics in India and elsewhere in the world, or even the best restaurants and travel destinations, just to unwind and getaway from thinking about the book. It was a particularly dif fi cult period for my wife, Rohini, who was immobilized for much of the time, as a consequence of two accidents. Her patience and courage during this period of recovery and convalescence was an inspiration. In addition to her own health problems, she had to put up with an obsessive, sometimes dif fi cult, man. Even so, she has waited patiently for my return from an emotional exile, sequestered in my study for almost twelve hours everyday, during the past six months. And she has been an incredible source of strength in the hours of frustration and moments of despair that are an integral part of the lives of authors. I hope that she will enjoy reading the book. It will be the fi rst that she has not read while it was being written. Deepak Nayyar New Delhi March 2019 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi xiv Contents List of fi gures xvii List of tables xix Prologue 1 1 Historical perspective and initial conditions 7 2 The rise of Asia 29 3 Macroeconomics of growth 59 4 Structural change and economic transformation 92 5 Openness and industrialization 115 6 Markets, governments, and politics 153 7 Unequal outcomes for countries and people 178 8 Asian development and the world economy 201 9 Contemplating the future 222 Appendix: Statistical sources and notes 235 Endnotes 245 References 265 Index 279 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi List of fi gures 1.1a. Shares of Asia, Africa and Latin America in world GDP and population: 1820 – 1962 11 1.1b. Shares of China, India and Indonesia in world GDP and population: 1820 – 1962 11 2.1. Rising signi fi cance of Asia in the world economy: 1970 – 2016 37 2.2. Asia and its sub-regions compared with the world economy: 1970 – 2016 40 2.3. Distribution of world manufacturing value added: 1970 – 2016 47 2.4. Distribution of world manufactured exports: 1995 – 2016 49 2.5. Remittances to Asia and its sub-regions compared with developing countries and the world economy: 1980 – 2016 54 3.1. Decomposition of aggregate demand into its principal components for the Asian-14 72 3.2. Investment growth, export growth and GDP growth 78 3.3a. GDP growth and employment growth in industry and services for nine Asian countries: 1971 – 1990 89 3.3b. GDP growth and employment growth in industry and services for the Asian-14: 1991 – 2016 89 5.1. Growth in manufacturing value added per capita in the Asian-14: 1970 – 2016 130 5.2. Changes in the composition of merchandise exports from the Asian-14: 1980 – 2016 134 5.3. Changes in the composition of merchandise imports from the Asian-14: 1980 – 2016 136 7.1. GDP per capita for the Asian-14 in East Asia and South Asia: convergence and divergence: 1970 – 2016 180 7.2. GDP per capita for the Asian-14 in Southeast Asia and Turkey: beginnings of convergence: 1970 – 2016 181 7.3. GDP per capita of selected country-groups in Asia as a percentage of GDP per capita in the world economy: 1970 – 2016 186 7.4. Trends in GDP per capita for the Asian-14: 1970 – 2016 187 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi List of tables 1.1. Shares of the West and the Rest in world population and world GDP: 1820 – 1962 9 1.2. Divergence in GDP per capita between Western Europe – Western Offshoots and rest of the world: 1820 – 1962 13 1.3. Growth rates in the world economy by regions: 1820 – 1962 14 1.4. Distribution of manufacturing production in the world economy: 1750 – 1963 19 1.5. Selected indicators of initial conditions in Asia: 1965 and 1970 24 2.1. Social and economic transformation in Asia: 1965 – 2016 33 2.2. Asia in the world economy: 1970 – 2016 35 2.3. Asia disaggregated by sub-regions: population, GDP and GDP per capita in comparison with the world: 1970 – 2016 39 2.4. Growth rates in the world economy by country-groups and regions compared with growth rates in Asia and its sub-regions: 1970 – 2016 42 2.5. Manufacturing value added in the world economy by country-groups compared with manufacturing value added in Asia and its sub-regions: 1970 – 2016 46 2.6. Manufactured exports in the world economy by country-groups compared with manufactured exports in Asia and its sub-regions: 1995 – 2016 48 2.7. Merchandise trade in the world economy compared with merchandise trade in Asia and its sub-regions: 1970 – 2016 50 2.8. Flows of foreign direct investment in Asia and the world economy: 1981 – 2015 52 2.9. Remittances in world economy by country-groups compared with remittances to Asia and its sub-regions: 1980 – 2016 53 2.10. Economic signi fi cance of the selected 14 countries in Asia 57 3.1. GDP growth rates in the Asian-14: 1970 – 2016 61 3.2. GDP per capita growth rates in the Asian-14: 1970 – 2016 63 3.3. Country classi fi cation of the Asian-14 by growth rates 65 3.4. Investment in the Asian-14: 1970 – 2016 66 3.5. Estimated gross domestic savings in the Asian-14: 1970 – 2015 69 3.6. Growth rates in the Asian-14: gross domestic product, gross capital formation and exports 77 3.7. Macroeconomic balances in the Asian-14: 1985 – 2016 82 OUP CORRECTED PROOF – FINAL, 9/9/2019, SPi