By the middle of this century, an additional 3 billion Asians could enjoy higher living standards, but only if Asia sustains its present growth momentum and addresses daunting multigenerational challenges and risks, says a new report commissioned by the Asian Development Bank (ADB).
Asia’s rise will be led by China, India, Indonesia, Japan, Republic of Korea, Malaysia, and Thailand. In 2010 these seven economies had a combined total population of 3.1 billion (78 percent of Asia) and a GDP of $14.2 trillion (87 percent of Asia). By 2050 their share in population is expected to fall to 73 percent of Asia, while the share of GDP rises to 90 percent. These seven economies alone will account for 45 percent of global GDP. Their average per capita income of $45,800 (PPP) would be 25 percent higher than the global average of $36,600.
The draft report compares the potential outcomes for Asia under two competing scenarios: the Asian Century and the Middle Income Trap. In the more optimistic Asian Century scenario, the region’s gross domestic product (GDP) would soar to $148 trillion and account for 51% of global output in 2050. On a purchasing power parity basis, GDP per capita in Asia would rise to $38,600, compared with the projected 2050 global average of $36,600.
The alternative scenario assumes that Asia’s fast-growing economies—the PRC, India, Indonesia, and Viet Nam—will fall into the middle income trap of slowing growth rates and stagnating income levels over the next 5 to 10 years. Furthermore, none of Asia’s slow-growing economies would manage to accelerate its growth rate under this scenario. If these events occur, Asia would account for only 32%, or $61 trillion, of global GDP in 2050. On a purchasing power parity basis, GDP per capita would rise to only $20,300, or just over half of that under the Asian Century scenario.
The contours of the major changes necessary for the region along three dimensions: (i) national strategic and policy actions; (ii) collective regional actions to bridge the national and global agendas; and (iii) Asia’s interactions with the global community
Middle Income Trap
The Middle Income Trap refers to countries stagnating and not growing to advanced country levels. This is illustrated in the figure, which plots the per capita incomes of three middle income countries between 1975 and 2005. In a steadily growing economy, the per capita GDP would rise continuously over time, towards higher incomes. That is the experience of Republic of Korea. But many middle income countries do not follow this pattern. Instead, they have short periods of growth followed by periods of stagnation or even decline, or are stuck at low growth rates.
They are caught in the Middle Income Trap— unable to compete with low income, low wage economies in manufacturing exports and unable to compete with advanced economies in high skill innovations. Put another way, such countries cannot make a timely transition from resource driven growth, with low cost labor and capital, to productivity-driven growth.
Growth with inclusion. Growth and inclusion need not be mutually exclusive; indeed they can be mutually reinforcing.
Financial transformation. Asia must avoid falling prey to another bubble of excessively exuberant expectations. It will need to formulate its own financial model, avoiding both the overreliance on self-regulation by markets—that caused the Great Recession—and the current excessive central government control of banking dominated financial systems in many parts of Asia, and becoming more open to institutional innovation. There is also an urgent need to develop financial instruments and create an enabling environment for financing Asia’s massive infrastructure and urbanization needs through public-private partnerships and public financial markets
Managing massive urbanization. Asia must take advantage of being early on its urbanization growth curve, to manage its coming rapid urbanization by promoting compact, energy-efficient, safe and livable cities—more reliant on mass transit than on cars. It must also manage some significant risks, particularly those associated with inequality, slums and a breakdown of social cohesion. Better financing and management of cities will require long-term planning and visionary leadership, further decentralization of responsibility to local governments, more local accountability and greater market financing of urban capital investments.
Radical reduction in the intensity of energy and natural resource use. will need to take the lead in radical energy efficiency and diversification programs based on eliminating energy subsidies and switching from fossil fuels to renewable [or clean nuclear] energy. There will be similar issues for most other natural resources, including water and fertile land for food production. The only way out is a combination of price increases, technological breakthroughs and changes in consumption patterns.
Entrepreneurship, innovation and technological development. the converging Asian economies and, particularly, China and India must move from catch-up to frontier entrepreneurship and innovation to create breakthroughs in science and technology, joining the ranks of Japan, Republic of Korea and other high-income economies
Governance and institutions. All countries must improve governance and continually
transform their institutions.
From growth to well-being.