Part I - Trends
• Developing Asia remains the fastest growing region, with an expected growth rate similar to that of 2015, of around 5 per cent. China and India may escape the worst of the adverse external environment due to their expanding domestic markets. South East Asia is likely to maintain a growth rate above 4 per cent, based mostly on domestic consumption and investment demand (table 1.1). Instead, West Asia growth will fall to around 2 per cent in 2016.
• The commodity cycle is in its second year of a sharp downturn; this has been particularly damageable for exporters of oil and mining products (mostly from West Asia), but benefited many Asian commodity importers (table 1.3).
• Developing countries in general have become increasingly vulnerable to volatile global financial markets, especially in Asia. Net capital flows turned negative in the second quarter of 2014, and amounted to -$656 billion in 2015 and -$185 billion in the first quarter of 2016 for developing countries. The reversal was most pronounced in Asia, especially China, which accounts for the bulk of the negative net capital flows since 2014 (chart 1.3).
• In large Asian countries investment shares have remained at relatively high levels over the past 40 years (chart 5.3B, C, D). Investment declined in those countries hit but the 1997-1998 crisis, but has gradually recovered in most of these countries, stabilizing at 25-30 per cent of GDP, and this helps explain the solid GDP growth performance of these economies.
• In Asia, as in other developed and developing regions, the investment-to-profit ratio tends to decline, sometimes strongly (Malaysia, Rep. of Korea, Thailand, Turkey), but is some cases the ratio remains over 100% (China, India, Rep. of Korea) (table 5.3).
Part II – Industrialization and productivity growth has been more resilient in Asia than in other developing regions
• Over the past half century, East, South and South-East Asian countries experienced the greatest structural change as well as a stronger increase in productivity levels. They did so by shifting employment from low (agriculture) to higher productivity sectors (manufacturing and services), but also by improving productivity within those sectors, on the base of high investment levels (chart 3.3C, table 3.4).
• The share of manufacturing in total value added and employment remained relatively high in most Asian countries (unlike other developing regions), although it declined since 2007 in some of them. Some countries (e.g. the Rep. of Korea and China) have successfully managed to industrialize, managing to expand productivity and employment in manufacturing for long periods of time, while others in South East Asia and South Asia face the risk of stalling industrialization, as they cannot expand both variables at the same time (chart 3.4).
• Exports of manufactures had a higher impact on industrialization in Asia than in other developing regions. First, Asian countries account for 90 % of developing country exports of manufactures to the world; second, they managed establishing production and learning linkages between exporting sectors and the rest of the economy, contrasting with African and Latin a American countries where manufacture exports expansion are checked by the increase of manufacture imports (Chart 4.3).
• When increasing the share of foreign value-added of exports occurs alongside greater production and exports of manufactures (eg Cambodia, Vietnam), GVCs can complement industrialization and development. However this does not occur when participation is linked with reduced use of domestically sourced inputs to the production process, or the creation of enclaves with few domestic linkages.
• Reappraising the export-led model through a gendered lens is raising concerns that women often bear the costs of failures of this model. The share of women in employment in industry is falling fast in Asia as elsewhere (Box 4.1) as industry is becoming "defeminised" in comparison to previous decades where exporters in labour-intensive manufacturing sectors relied heavily on hiring (lower-paid) women. South Asia is an exception as female employment in manufacturing is rising in Bangladesh, India, Nepal and India.
Part III – Policy
• The "export-led growth" model is losing its effectiveness, even in Asia. Today demand and market conditions are substantially changed. Markets in developed countries are losing steam, and there is a strong export competition from countries trying to emulate those earlier successes. If an ever crowded field of exporters pursue the same export-led strategy, it will compress price and eventually wages growth. Turning more towards domestic and regional markets and supply chains in the South may offer important diversification and trade opportunities (table 4.1 and Chart 4.2).
• Strengthening the investment-profit nexus in important in all countries, so corporations re-invest profits into productive investments that generate jobs and growth.
• Government procurement continues to be a powerful policy tool, whether to boost basic manufacturing and industrialization processes in the absence of other sources of demand; or to spark innovation and technological advances. The primary sector in commodity-rich countries can provide fiscal revenues to finance economic diversification, crowd in private investment, and generate backward and forward linkages to the manufacturing sector. State Owned Enterprises and Sovereign Wealth Funds also still have an important role to invest in activities in developing countries that would boost industrialisation.
• Government attention will also be needed to help raise productivity in the rural economy in parallel with developing manufacturing activities in urban agglomerates, strengthening integration and creating linkages among those activities. Complementary policies will also be needed to safeguard livelihoods that would be jeopardized by unfettered competition.
• The best industrial policies cannot succeed unless supportive macroeconomic policies ensure high levels of aggregate demand, high levels of investment and a stable and competitive exchange rate.
Part I - Trends