World Bank urges developing countries in East Asia to tweak dev’t models

MANILA, Philippines — Developing countries in East Asia like the Philippines must tweak their development models to address emerging external challenges such as advancements in technologies and slowing trade growth, according to a new report by the World Bank.

The report, titled “Resurgent East Asia, Navigating a Changing World,” said the region’s development model – a combination of outward-oriented growth, human capital development, and sound economic governance – that spurred the so-called East Asian miracle may no longer be enough to guarantee progress in the future.

“A combination of policies that fostered outward-oriented, labor-intensive growth, while strengthening basic human capital and providing sound economic governance, has delivered rapid and sustained growth and has been instrumental in moving hundreds of millions of people in East Asia out of poverty and into economic security,” said Sudhir Shetty, World Bank chief economist for East Asia and the Pacific.

“But building on those gains may prove particularly challenging in the face of rapid changes in the world and in the region. Policy makers will need to adapt elements of the traditional East Asian development model to effectively meet these emerging challenges,” he added.

The report noted that some 50 years ago, most countries in the region were poor agricultural economies, struggling with the consequences of conflict and lack of central planning. Today, however, the region is a mix of high and middle income economies benefitting from a fast-growing economy making up a third of the global GDP.

More than 90 percent of East Asia’s population now live in 10 middle income countries: Cambodia, China, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Philippines, Thailand and Vietnam. World Bank noted that many of these countries can “realistically aspire to high-income statues in the next generation or two.”

“Developing East Asia has been the most successful region over the last quarter century. Since 2000, its GDP has risen more than three-fold, lifting over a billion people out of poverty. Despite this progress, countries in the region still have significant gaps in labor productivity, human capital and living standards compared to high-income countries,” said Victoria Kwakwa, World Bank vice president for East Asia and the Pacific.

The report said that in the next 10 years, East Asian countries need to address policy priorities in key areas: promoting economic competitiveness, building skills, fostering inclusion, strengthening state institutions, and financing the transition to high-income status.

Promoting economic competitiveness entails strengthening the business and regulatory environments, effecting service sector reforms, deepening trade agreements, broader innovation policies, and improved access to finance, especially for small- and medium-sized enterprises.

Building skills involves supporting the development of advanced skills, including socio-emotional skills and digital literacy.

Fostering inclusion means that in addition to traditional social protection programs, countries must have programs to transition vulnerable workers to new job opportunities and to ensure affordable access to digital technologies.

Under strengthening state institutions, countries would need to increase state effectiveness through enhanced citizen voice and participation, increased transparency, and greater government accountability.

Financing the transition to high-income status, meanwhile, would entail that governments would need to find ways to finance these more ambitious policy agendas for achieving high-income status by increasing domestic revenue mobilization.