Few subjects matter more than the future nature of Asia’s economic rise. But what of it’s history? A bumper month of Asian independence days culminates this weekend with the anniversary of Malaysia’s handover from Britain, on August 31 1957. And what better excuse for beyondbrics to run a rule over the dramatically different economic trajectories of a selection of Asian countries that emerged from European colonial rule in the decades following the second world war.
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The chart above shows the relative performance of our seven case studies. True, they are all very different in size and history, so comparisons are fraught. Nonetheless the difference in growth from broadly similar starting points remains striking. The two smallest, Singapore and Hong Kong, have risen to become rich; one, Malaysia, is now firmly a middle-income nation; the remainder are more or less poor.
Explaining this divergence is tricky, but there is at least one obvious link: the quality of political and financial institutions. Daron Acemoglu and James Robinson’s widely discussed book Why Nations Fail focused on this as an important explanation for the weak performance of many resource-rich developing economies. But the theory holds, in general terms, for more successful nations too, as they began to develop post-colonial systems of governance.
“What really jumps out is that high-quality public institutions make a huge difference, whether that is political governance or in the development of financial markets,” says economist Eswar Prasad of Cornell University. “A country like Singapore put a huge amount of effort into creating a reliable institutional framework that was able to manage growth and investment. Others were much less successful.”
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Asia’s rise has been closely linked to export industries, and in particular with the ability to develop and advance manufacturing sectors. First Japan, and then Korea, are the most celebrated examples. But the same pattern is also shown in this second chart of merchandise exports for each country.
You’d expect total exports to rise as each grows larger. Nonetheless there is a sharp difference between the more successful exporters, bunched towards the top of the graph — such as Malaysia, and more recently (and most strikingly) Vietnam — and the rest. South Asia, in particular, has proved relatively much less successful, notably India, even though it is the largest of the economies in question.
Exports also provide a rough proxy for globalisation, but here the question of whether openness to trade and investment is a good thing remains contested, not least by Cambridge University economist Ha-Joon Chang.
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“The idea of simple openness succeeding and being closed as bad is quite misleading,” he says. “Countries like Japan and Korea maintained high levels of protection in the beginning, but always with the intention of bringing it down when they became world-class exporters”. Malaysia was more open to foreign investment, but has become “stuck” in middle-income status, he continues, while India spent decades closed off from the world, with disastrous results. The conclusion? “Drawing general patterns is quite difficult.”
And what of people? China and India have the world’s largest diasporas, but in the absence of successful manufacturing economies it has been south Asia that has come to rely in particular on capital flows of its own populations abroad. India was the world’s largest recipient of remittances last year, with $71bn, an influx that helped swing its balance of payments into surplus, even at a moment when the country was suffering yawning trade and current account deficits.
Such flows touch on a broader topic, namely the extent to which developing countries should rely on external sources of capital at all. Mr Prasad, along with India’s current central bank head Raghuram Research co-authored a widely-cited paper in 2007. It argued, against what economic intuition might suggest, that developing nations which rely on foreign sources of capital tend to grow more slowly than those which tapped domestic savings.
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That analysis was in turn part of a wider puzzle, in which capital has tended to flow from poorer to richer economies in recent decades — much of it because of the relationship between the US and China. But a reliance on internal savings can also make a country less susceptible to economic shocks and capital flight, of the sort that struck many financially globalised east Asian nations such as Malaysia in the 1990s, and also struck countries such as India last year.
Tanks on the streets, or in the barracks? The military can play an important role in explaining the economic fortunes of some emerging Asian economies, especially those, such as Pakistan, that have swung back and forth between civilian rule and various forms of dictatorship throughout their independent history. On the one hand, armies are expensive, and their role in politics can be destabilising. On the other, many analysts look at China, and feel military backing can speed investment, reducing the muddle of democratic politics.
New York University political science professor Adam Przeworski, one of the most celebrated contributors to academic debates on economic growth, backs the view that democracies, in broad terms, at least grow no slower than other types of regimes. “We did not find a shred of evidence that democracy need be sacrificed on the altar of development,” he wrote in one exhaustive comparative study, responding in particular to the notion that dictatorships make more efficient investment decisions.
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As the chart above shows, the trend amongst these Asian countries has actually been for reduced spending relative to their growing economies over recent years. Whether that remains the case in the coming decades, as all Asian countries cope with an increasingly volatile regional balance of power, is much less likely.
Ultimately growth matters for what it delivers: better health, more schooling, and so on. Often these things track each other closely. Asia as a whole has seen a striking decline in poverty over recent decades. More than 600m have ceased to be classified as poor in China alone since 1981, according to the World Bank. As this graph shows, falls in child mortality have been steady in every country, too, with the likes of Singapore now indistinguishable from western nations.
Yet this often hides a more complex picture, especially in South Asia. As economist Amartya Sen argues, India’s recent two decades of rapid economic growth has come alongside much patchier performance on important indicators of human progress, compared with less economically successful neighbouring countries at least. It is a trend you can see on the chart above, as Bangladesh overtakes its much larger neighbour in improvements in child mortality during the last decade. Both, however, outpace Pakistan, which now suffers one of the world’s highest rates of infant deaths.
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