SOUTH AND EAST ASIA: LEADING THE WORLD ECONOMY by Professor Lawrence R. Klein, Nobel Laureate in Economic Sciences

United Nations Conference Trade Development 13th Raú Prebisch Lecture South East Asia: Leading World Economy Professor Lawrence . Klein Nobel Laureate Economic Sciences Geneva, 2 November 2005 Check delivery South East Asia: Leading World Economy great honor giving lecture home UNCTAD, annual meetings Project LINK cooperation United Nations held. encounter United Nations place Lake Success ( interesting early site United Nations work world diverse fields). encounter involved economic outlook major industrial countries, years cooperation UNCTAD UN Secretariat, extremely fruitful working relationship academia international civil service improve understanding functioning total world economy, simply leading industrial countries led visit Lake Success early work United Nations. main interest Raú Prebisch efforts knowledge performance World Economy improve relative status developing world. Times changed greatly, assess World economic prospects time developing countries star performers. years, approached meetings thought main, sole locomotive World economy, situation run , motive power presently China India, economy United States stumbling twin deficits, elevated inflation rate, costly war, unexpected casualty rate .. World Summary tables Project LINK meetings changed strong growth China India, high figures, moderately high growth figures developing countries unusually weak growth figures advanced industrial countries. , poor performers developing world moderately good figures advanced industrial countries. , developing actions sight high levels; part enjoy impressive growth. Dr. Prebisch , , interesting papers published American Economic Review, looked world economy : called advanced countries industrial center developing countries periphery.1 pay special attention centrally planned economies, grouping, (China) locomotive role, Russia major power source world train world' largest oil exporter. economies transition, encompassing China Russia, striking turnaround efforts rank today leaders. grouping called BRICs, Brazil included developing country, India, Russia, China. plausible "real" BRICK offing, adding Korea (ROK). 1959, Raú Prebisch stressed role large income elasticities imports periphery, Latin America, vis-à-vis elasticity demand 1 Raú Prebisch, “International Trade Payments Era Coexistence: Commercial Policy Underdeveloped Countries”, American Economic Review, 49, , 1959, 251-73. 2 agricultural imports part industrial center. fight imbalance Dr Prebisch , “… import substitution … correct effects peripheral growth…” era globalization, advanced technology, tripartite world economy – advanced industrial countries, transition countries, developing countries – find interesting arrangement import substitution answer. answers differ Prebisch’ vision provide hope countries periphery dealing prospects economic gain sort Prebisch wanted developing countries. Globalization stay, fact, today’ order tapped advancement entire world economy peaceful economic efforts. target developing countries generating higher higher added output, time improving productivity , primary production sectors, exclusively . world economy excellent examples countries excel primary products, accomplishments sector bring groupings advanced industrial nations. mind Netherlands, Denmark, Zealand prosperous wealthy countries technical expertise finance, shipping, advanced branches manufacturing, higher education prevail important scales. focused agricultural skills brought top grouping, fact produce broad span goods services consumption world large, trade, brought positions high rank world scale material . conference year economists Latin America Caribbean (LAC) Costa Rica, speaker lamented economies native area reach markets world efficiently produced items higher added. Chile, , praise falls advanced market reforms, supplying fine wines world, sending Southern Hemisphere fruits vegetables North cold winter months , supplying world’ primary copper economist sons position economic ranking great deal higher supply higher -added products impressive list exports. economists higher values total factor productivity (TFP) required ingredient import substitution. Paul Krugman declared late 90s, considerable foresight, Asian Miracle mirage production elevated great heights increases TFP. drew partly work Lawrence Lau, crisis situations Asian development, Mexico’ crisis 1994-95, refined productivity analysis developing Asian countries TFP embedded productivity allowed production specification. , Asian countries foolishly pegged currencies US dollar 90s, avoided worst damages crisis. 3 policy prevailed time dollar strong priced world market. Latin America, Brazil, BRICs, advances coffee, sugar, iron ore, soybeans, orange juice grow sustained rates 5% efforts secondary sector, producing aircraft, cars, computers, products higher -added. Mexico, Venezuela, Ecuador, Colombia vast resources oil, ecotourism , , advance higher sustained rates, realizing full potential. LAC Conference Costa Rica, watched listened area’ economists lament fact making sufficient progress attachment -added activities, waited patiently vain mention military spending. speaker line reasoning, Costa Rican economists asked speak day concept PEACE DIVIDEND. show contrasts Central American nations sizable defense outlays, Costa Rica, host country, standing army, defense spending economic performance. Costa Rica simply follow path negligible military spending, order enhance economic performance, good results ecotourism traditional Central American products, order gain striking economic improvement. Asian Miracle appeared; central characters BRIC members, India China. specializations economic performance establishing impressive records. long histories cooperation international research activities Project LINK, meeting United Nations Geneva, ascension heights national economic performance international setting watch, study, emulate, admire, congratulate. China Story: (2005), people witnesses, scholars, investors Chinese economy interpretations place reform 1978 heading present time. fit primarily concept import substitution; , years, case export-led growth, immediately. interpretation guidance Deng Xiao Peng, China set grow concept market-socialism, Chinese flavor. observers participants market-socialism oxymoron concept; fact . conceded logic mathematical general equilibrium systems , principle, target, argued economic literature 1930s, private ownership lack innovation logic general equilibrium realized practice complicated, IT era. interpretation China adopted policies step--step gradualism -party environment introducing economic land reform, special economic zones ( important international trade features), opened academic centers (including elementary primary education) cultural revolution. early steps solved basic food supply problem. visits period judged agriculture put 3% stronger growth path, basic 4 food problem managed. top approach, significant demographic policy child family ( exceptions). steps gradualism approach freeing- small enterprises manufacturing, retailing, controlled trade. important feature economic stage appearance Town--Village Enterprises (TVEs), meshed -season activities predominantly agricultural economy. economic trends contributed smooth improvement. rising inflationary pressure accompanied demonstrations Tiananmen Square, disturbances overcome , inflation concerned, turned , interruption year, steps infrastructure investment put modern facilities place. early expansion reform period, structures world-class. looked stages , period years highways, bridges, buildings, tourist facilities world-class. Computers, laboratory equipment, electronic communication world standards. Reservation systems installed; aircraft modern; fleets cars trucks totally changed; research laboratories progressively equipment. 1994, system exchange rates consolidated uniform rate; foreign direct investment attracted large scale developing country, financial system started reformed. China admitted WTO membership achieved Permanent Normal Trade Relationship (PNTR) United States; yearly renewal Favored Nation Treatment changed permanent status. Economic policy support growth diversified western interior parts China – extreme coastal areas dominated early expansionary policy. , steps degree flexibility exchange rate policy. cry economic status performance China period immediately reform, 1978. , step--step procedure China elapsed period growth rate real GDP 8% 10%, remarkable quantitative record 25 years strong. Western economists argued statistical record exaggerated. strongly disagree, advanced developed economies complain China overly strong competitor, adjustments China’ inflation rate calculations, account rapid improvement quality life, reasons ( methods) Boskin Committee United States mark US rate inflation early part century, estimate China’ adjusted growth rate 1.0% official estimates, due downward adjustment curve price increase. time East Asian financial crisis 1997-98, great concern part countries China capturing large part export market causing trade current account balances deteriorate crisis proportions. estimate China’ exchange rate consolidation, 1994- 97, Chinese currency cheaper US dollar terms, , noted , East Asian countries clung dollar peg priced 5 market. China, , grew fast strong appetite imported products global market place exports China , due , helped countries, Latin America, great locomotive strength China’ imports partner countries, including East Asia, Latin America . Maquiladora enterprises US/Mexico border, experience, time, East Asian countries. export side, China grown fast member WTO restrained textile exports quota lifted. partner members felt loss activity China’ exports overwhelmed market, starting January, 2005, China shown renewed restraint feared countries sector trade activity. China’ textile, , exports adequately restrained exchange rate pressure currency float upward. basic reason wage differential China trading partners large contribution price advantage favor China’ exports, sectors, dominates currency movements time. World Bank’ World Development Indicators 2002, show China’ labor costs (1995-99) 1/40 US values. general estimation large advantage dwindled ratio nearer 1/20, judgment continue change, favor Chinese workers. addition, China encouraging supporting Chinese imports consumer goods permission foreign tourism Chinese people, carrying generous allowances international currency transfers. China started introduce reforms, diplomatic relations started US, group American economists visited country order establish contact Chinese economists. chairman delegation selected colleague, Irving Kravis, University Pennsylvania important member military experience China World War II specialized comparing countries, world , relative positions compilation GDP capita countries. step 1979, carefully comparing China rest world eventually raised extreme interest China’ relative position. Professor Kravis, pioneering effort, stimulated careful discussion China’ role world economy. put China’ real capita GDP 1975 12.3% US ; Philippines 13.2% double India’ position 6.6%. Resident Chinese economists protested estimate China high, sparked start careful measurement. US scholars, marked beginning careful quantitative study Chinese macro economy. Professor Kravis' pioneering studies quantitative features China dealt macroeconomic aspects, important distributional achievement place. hundreds million Chinese citizens lifted POVERTY status – main economic targets world' multinational institutions. noteworthy China stood, Professor Kravis’ figures, ranking India GDP metric. India studied 6 economies world, quantitative economic terms, broad social scale World War II. spite accumulation great deal knowledge India, noticeable spurt performance Indian economy, . years Chinese reform, 1978, economic delegations traveled directions China India, learning ; , India starting attract world wide attention form economic growth figures opinion center Asian economic growth, positive . India long victim natural forces imposed periodic fluctuations economic activity good bad monsoons. time curves sectoral production India show agricultural crises poor economic activity economy, beginning 1990s services sector stabilizing force presence agricultural troubles. India gradually offshoring center software, business services, eventually medical health services immediately thrown crisis poor monsoons. - reasons offshoring services, United States, advanced economies, smoothes repercussions fluctuations agriculture. Industry maintain stable activity result service sector support. matter sustained export business software services, financial health sector services. Indian workers excel activities command English language scientific engineering training educational institutions built strong British foundations. , China, vast overseas Indian population, overseas Chinese, put resources work lands origins. Indian life bureaucratic tendencies. persist, reforms introduced Indian life economy efficient. China, significant, moderate, wage differential advanced economies. Chinese labor costs 1/40 US labor costs 1990s, Indian ratio 1/25. expanding software sector ratio 1/20 1/10. Asian giants spectacular huge populations. China’ birth rate managed, India’ , 1 billion persons total population count. expected India eventually overtake China, largest country world. respect, instructive demographics East Asian country, Japan. free choice, Japanese families, World War II, elected children. attitude persisted, immigration restrictive, Japan world' aged populations. brought national savings rate Japan bears responsibility lost decade 1990' slow growth 21st century. China avoid Japanese pitfall Future demographic policy clear, India heading direction. problem HIV-AIDS India exposure 7 Asian epidemics, indication workers support expanding group aged citizens. economic issue turned advantage India, flow IT services domestic economy. present, software related service sectors constitute growing export sector India, seeking billions US dollars annually growing, protectionist attitudes built abeyance. , , economic target India, , turning IT prowess domestic economy. Indian policy makers aware contribution IT-centers US lifting curve productivity gains American industry 1980s, 90s century. beginning happen India, promising . time quality life visibly improving India. title presentation refers South East Asia (India China), economies Southeast Asia Northeast Asia performing economic sphere, crisis 1997-98, realize gains Raú Prebisch dreamed periphery, extended eventually Latin America. -endowed West Asia North Africa, countries manage natural endowments , find sustained economic life. case Africa, , route living conditions undoubtedly tortuous. gains conquering poverty Africa, impressive scale China, good side globalization turned Africa, hope improved economic conditions – future, massive scale – eventually . 8