The 26th International Conference, jointly sponsored by The American Committee on Asian Economic Studies (ACAES) and Doshisha University, Kyoto, Japan, March 4-6, 2010 .
The keynote Address:
THE ASIAN ECONOMY AND ASIAN MONEY
March 05, 2010
THE PARADIGM OF SUPRA-NATIONAL, CONTINENTAL MACROECONOMICS: SOVEREIGN NATION-STATE ECONOMIES ARE DYSFUNCTIONAL
Sovereign nation-state economies have become dysfunctional.. During the Great Depression in the 1930s, the free market economy failed to optimize economic gains for the micro-units of the economy – households and businesses - and the pre-Keynesian economic model came to its collapse. We recognized that we live in a village and the people of the village has a group entity. The group instituted its institutional authority – its government, of the people, by the people and for the people, and its money managed by its central bank . For the group, macroeconomic policies – with well specified monetary and fiscal parameters - became the lessons of the Keynesian Revolution. As of 1992, there are 192 sovereign nation states on the roster of the United Nations. Overwhelming majority of them individually have marginal shares of world output to their credit. In the post-WWII decades the USA is an economy with more than a quarter of the world output , commanding a leadership role for the global economy.
Following the approval of the Lisbon Treaty in 2009, the European Union with its 27 member states has emerged as the world’s largest economy, With its competitively large share of world output the United States of Europe (USE) has become a new paradigm of supra-national macro-economy. The relative shares of world’s GDP at 30.43 percent and 27.81 for the USE and the USA , respectively are on record ( based on data 2005). For the present, the USA with its fifty member states and the USE with its twenty-seven member states are the two largest macro-economies in the world. The fundamental message of the United States of Europe is that the sovereign nation-state economies have become outdated.
No wonder, that the USE has become a learning model. If Europeanization of Europe has reached its high point in the post-WWII deaceds, the twenty-first century must be ready to welcome continentalization of sovereign nation state economies. Africanization of Africa, Asianization of Asia, and Americanization of the Americas are in progress.
In 2002 fifty sovereign nation states in the continent of Africa elected to institute the African Union. All fifty-four sovereign nation-state economies of the continent have now become members of the African Union. They have made a commitment to the democratic form of government, anchored to one-person-one vote. We are Africans, belonging to family of Africa. They have proclaimed that they will have the African Money, managed by the African Central Bank by 2023. Since the Asian financial crisis in 1997-98, the Asian economic summit led by Japan, Korea, and China, joined by the five South East Asian nation-state economies,– Indonesia, Malaysia, the Philippines, Thailand and Singapore ( ASEAN -5) have constituted the core of the 3 plus 5 model of much referred to Asian Economic Summit. Recently, the 3 + 5 model has been expanded to the 4 plus 10 model, India joining – Japan, Korea, and China; Myanmar, Laos, Cambodia, Vietnam and Brunei Darussalam, making the ASEAN-10. The fast increasing intra-Asian economic cooperation at micro-levels - trade and investment – does warrant intra-Asian macroeconomic cooperation. Exposure to the risk of exchange rate fluctuations must be minimized, eventually eliminated.
Following the principle of inclusion, several economies on the regional map of Asia - Mongolia, the Chinese Taipei, Nepal, Bhutan, Bangladesh, Sri Lanka, Maldives, and Pakistan must be welcomed to the membership of the group. Hence, I present the case for the economics of the AE-22. (2009).
The Asian leaders have stated that time has come for the Asian money, They have also made the case that the Asian Free Trade Area (AE-FTA) should follow the model of the EU-FTA.
In 1994, the USA hosted the first conference of the Americas with an agenda of American Hemispheric Economic Cooperation. The plan for the Free Trade Area of the Americas (FTAA) continues to be a subject of debate. In 2009, at the latest conference of the Americas in Port-of-Spain, Trinidad the American hemispheric leaders reaffirmed their commitment to the Americas. Thirty-four of all thirty-five sovereign nation state economies of the Americas participated in these conferences. Cuba continues not to invited. At these hemispheric conferences of the Americas, there has never been a protest against YANKEE IMPERIALISM or THE US DOLLAR DOMINATION.
The success of the European Union has taught us that the new economic order of the continental macro-economic integration is the economics of the years ahead. The concept of family of Europe is real, notwithstanding diversities of language, life-style, religion and past intra-continental conflicts - wars., deaths and destructions. Unity in diversity anchored to the reality of belonging to the map of the continent is the thesis of new post-Keynesian economics. One integrated economy in one continental geography is the concept. The continent, not a sovereign nation state, is the new village.
Why not one world, as some continue to canvass for the 3-G model with one global economy, one global currency and one global central bank. Continentalization of sovereign nation-state economies where each continental economy with its competitively large shares of world GDP and world trade, will define the innovative structure of the new world economy. Saburo Okita has eloquently taught us to examine the case for several worlds as the necessary first stage. We must revisit the concept of one optimum currency area and explore the case for optimum currency areas, as Mundell robustly argues.
The Economic Map of Asia
No More Doubt
Historically, Asia has been known for the continent’s history of ancient civilizations, philosophies and religions, performing arts and exotic lifestyles, and of course, spicy culinary specialties. The rest of the world made tremendous efforts to discover this land of charm and mysticism. Asia, however, was not known for its economic scores. In general, the Asian economies were pre-industrialized and traditional. Agriculture dominated the member economies beyond Japan, and the share of gross domestic product (“GDP”) from this sector was relatively large. The Industrial Revolution had yet to reach much of Asia. People farmed with primitive indigenous tools and the marginal productivity of a unit of labor was low. Hence, the income of the individual farmer, man or woman, remained insignificant and poverty was the overall end-product. As late as the 1970s, ranking economists questioned if Asia beyond Japan could ever industrialize (Krugman 1994, Lau & Kim 1994). The doubt is no more. The historic success of the import-export-led growth model in the context of Asia has been forcefully explained (Klein 1990). The world now marvels at the success of Asia’s Industrial Revolution. The Asian century is the call of the day.
China and India, each with a billion-plus people, are the world’s two most populous economies. After the Communist Party came to power in 1949, the only Chinese government recognized by the free world, led by the United States of America (USA), was in exile on Taiwan Island. On February 28, 1972, as a condition to re-establish diplomatic relations, the United States formally acknowledged the One China Policy in the Shanghai Communiqué, and it was signed by the presidents of both nations. http://usinfo.state.gov/cap/Archive_Index/jointcommunique_1972.html). Since that historic day, China’s Industrial Revolution has proven to be an epochal event (Dutta 2006) that has launched China to the forefront of the global economy. On August 15, 1947, the Republic of India hoisted her new national flag and sang the national anthem, celebrating her independence. In addition to her two sector model of economic planning, India is still committed to the Non-Aligned Movement (http://news.bbc.co.uk/2/hi/2798187.stm) originally a response to the intrusive American policy of containment. This has contributed to the suboptimal economic relationship between India and the free market, non-communist world led by the United States. The fact that India had adopted a constitutional government, a federal republic (World Factbook, May 31, 2007) based on the core principle of one person, one vote, has yet to normalize the situation. India’s great leap forward to become an economy of premier high-tech service provider has now been acknowledged. It is even fashionable to suggest that the world is flat (Friedman 2005). The truth is that the world is in fact now free of varied forms of the imperial hegemonies of the years past. India has earned her place on the economic map of the world. For familiar reasons, both the Republic of Korea ( South Korea) and Chinese Taipei came under the defense umbrella of the USA, and experienced a consequent economic integration with America. Korea has progressed to a mature industrialized economy, and in 1996 earned its membership of the OECD, the club of the 30 rich nations.
Both Korea and Taipei have made spectacular economic gains and their successes present a paradigm of the virtues of capitalist economic planning. With all economic activities under private ownership and management, the government limits its authority and control for the management of the economy’s macroeconomic policy with stipulated monetary and fiscal parameters. The move is to towards fulfillment of the economic plans, developed by deliberative cooperation amongst the political, corporate and academic sectors of the economy. This approach substantively differed from India’s two sector model of economic planning, where, in general, selected industries were under one hundred percent private ownership and management, while the specified “key” industries remained largely under total ownership and management of the government. Of course, China’s five-year economic plans, formulated by the ruling Communist Party, championed one hundred percent government ownership of the means of production and complete government management of all economic activities. The three approaches to economic planning in the Asian economies were all too different.
In 1967, five Southeast Asian countries - Thailand, Singapore, Malaysia, Indonesia and the Philippines, instituted the Association for South East Asian Nations (ASEAN-5) to be the Zone of Peace, Freedom and Neutrality (ZOPFAN). Twenty years later, ASEAN had progressed to become a framework of regional economic cooperation. The emphasis on the word neutrality is very much in order, as they were friendly with the US-led free market economies. Aware of the domino theory and the free world’s fear that the communist presence around them would also influence them to adopt communism, the members of ASEAN preferred to remain neutral and declined to come directly under the defense umbrella of the USA. This decision does not seem to have had any lasting negative impact on the region; the economic success of the ASEAN has indeed been a part of Asia’s economic miracle. Recently, the progressive expansion of the Southeast Asian geographic regionalization model has encouraged the admission of Myanmar, Laos, Cambodia, Vietnam and Brunei Darussalam, to ASEAN membership (ASEAN-10).
Japan continued to be Asia’s only mature industrialized economy (MIE). Following their defeat in World War II (WWII), Japan provided a military base to the United States, accepting the terms of the unconditional surrender. A policy of economic support and market integration with the USA followed. Japan made the best of the challenging situation by restructuring its economy. Given Japan’s historical leadership in industrial know-how and entrepreneurial dynamism, her economic recovery became an accomplishment soon enough. Japan became the second largest economy of the world, second only to the USA. Germany, France, the United Kingdom and Italy, the four largest economies of Europe, all followed Japan in economic rankings. In 1964, Japan became the first member of the Organization for Economic Cooperation and Development (OECD) from Asia (http://www.oecd.org/document/58/0,2340,en_2649_201185_1889402_1_1_1_1,00.html).
Today, the situation has changed. As of 2007, the European Union (EU) is comprised of twenty-seven member states, and together they have become the world’s largest economy. The EU is closely followed by the USA, and Japan, a remote third. The Japanese yen has been experiencing a declining role as an international reserve currency since the birth of the euro as of January 1, 1999. In this regard, the common currency of a select group of EU members (Eurozone ) has successfully challenged the dominant position of the US dollar, the British pound-sterling and the Japanese yen. However, within Asia, the four - Japan , Korea, China and India, joined by the ASEAN-10 have assumed an innovative role in the movement to integrate the continental Asian economy.
The economic map of Asia warrants a careful review. China, India, Korea and Japan, joined by the ASEAN -10 , the 4+10 model is considered the core of a new economic framework of the proposed Asian Economy-22 model (AE-22). In the post-WWII eras, the economic interactions of most of these economies with the USA were imperative. By the late 1960s, the limitations of the traditional import-substitution model became all too obvious and an open economic policy became the new order. Internationalization and industrialization became the core of Asia’s new economic policy. The Asian countries, most of them pre-industrialized, agricultural economies, needed to import capital goods, machines and equipments with competitive technology, from the mature industrialized economies in the Americas and Europe. Korea borrowed from the banks in the USA, and purchased the capital goods they needed. China eventually welcomed foreign direct investment (FDI) with one hundred percent foreign ownership. Others facilitated joint ventures between indigenous industrial leaders and foreign investors. Chinese Taipei enjoyed the privilege of its history and was able to generate the necessary funds from within. India adopted the Economic Reform Act in 1991.
At successive phases of industrialization, each Asian economy came to face the problem of making payments of interest charges for loans from overseas financial institutions, and eventual repayment of the loans. Repatriation of profits resulting from massive inflows of foreign investments, wholly foreign owned or in joint ventures, became a critical issue and the non-convertibility of most Asian currencies became a constraint. Earning export revenues in internationally convertible currencies by way of exporting a portion of the new manufactures, facilitated by the inflows of foreign investments – borrowings, foreign direct investment , joint ventures = to the world market became a necessary part of the innovative economic game plan.
The Asian economies became industrialized and their GDP grew by importing capital goods from the mature industrialized countries and they paid for them by exporting some of their new manufactures. This import-export led growth model of Asia became a response to what many others have wrongly described as the export-led growth model of Asia. In the process, Asian economies had to incorporate the adaptive innovation model (Dutta & Tantum 1988). The old fashioned “turn key” model was forcefully rejected as the manufactures of these newly industrializing Asian economies had to be quality and cost competitive to gain acceptance by the consumers in the world market. Foreign investors, with their global network of marketing plus relatively large advertising budgets, helped augment the process as they recognized that this was the lawful mode of profit repatriation. For the Asian economies, this new access to the world market enabled them to earn foreign exchange reserves and bolster their international credit rating. Investment, employment, productivity, income and economic growth became part of the natural sequence of events. Remaining economically poor was no longer an option.
As the Asian economies have become industrialized and rich, they have also implemented a policy of diversification of their markets. When they understood that their post-WWII economic dependence on the USA could not be indefinitely sustained, they began exploring the continental intra-Asian market, home to more than one half of the world’s population. The huge population bases of the continental economies impact both driving forces of an economy. As the base of labor supply, population has a determinant impact on aggregate supply, while as consumers they will also add to aggregate demand. The continent has relatively large endowment of natural resources, much of which remains to be explored. Intra-Asian economic engagements in both trade and investment have steadily been in progress.
At the 2006 Asian Development Bank (ADB)’s Annual Meeting of the Board of Governors at Hyderabad, India, leaders of Japan, Korea and China gave the call for a common Asian currency (New York Times, May 5, 2006). We will refer to it hereafter as the Asian Money (AM). Indeed, since the Asian financial crisis in 1998-99, the designated sub-cabinet level officials from Japan, Korea, China and the original five ASEAN member states (3+5 model ), have been holding frequent conferences to explore fiscal and monetary cooperation amongst themselves.
One integrated economic unit is now being mapped onto one continental geographic unit, as observed on the map of the world. This 4+10 model is one view of the map of Asia. Following the principle of inclusion as in the case of the EU-27, I venture to present the case for the AE-22, broadening the AE-14. Of course, there is much more to the map of Asia. The nations stretching from Turkey to Afghanistan, inclusive of Israel, comprise the Middle East and Central Asia, but together, they are all on the map of Western Asia, generally referred to as the Middle East. The countries in the Indian subcontinent, formerly integrated parts of British India, plus Mongolia and Chinese Taipei belong to East Asia, and the case for the AE-22 model is naturaL These economies should be welcome to join the AE-22 membership, as and when each will be willing and able to apply for the membership of the regional group. The EU introduced this guideline successfully and has expanded its membership from the original 6 in 1958 to 27 as of 2007.
Russia, geographically the largest country on the map of the world, straddles both Europe and Asia. The bi-continental sovereign nation-state economy with its huge resource endowment, may elect to remain as an independent unit of the world economy. As an alternative, Russia may elect to join the membership of one continental regional economic group, the EU or the AE, each with its micro and macroeconomic parameters, as stipulated. Concurrent memberships to both the European and Asian continental groups will not be viable. Turkey is also a bi-continental economy, and has for long been a candidate country for EU membership. Recently, Turkey has offered to evaluate the option to join a West Asian economic compact. Merger of the two regional groups of Asia, East Asia and West Asia, into one Asian continental economy shall remain open at this stage.
The AE-22 is very much in progress and the need for the Asian Money ( AM) has been recognized. Now that the Europeanization of Europe has become a historic accomplishment, the Asianization of Asia cannot be far behind. The EU is and must be a learning model for other continents: Asia, Africa and the Americas.
Lessons to Learn from the EU
The reconstruction of the war-ravaged countries in Western Europe is now a familiar story. The Organization for European Economic Council (“OEEC”) was established on April 16, 1948 with its secretariat in Paris, and its membership was limited to the select group of European countries. The OEEC was charged with overseeing US aid under the Marshall Plan via the European Recovery Program. Given the threat of communism from the Soviet Union, the North Atlantic Treaty Organization (NATO), under the command of the USA, provided Europe with a nuclear defense umbrella. In September 1961, the OEEC became the Organization for Economic Cooperation and Development (OECD), and the USA and Canada joined its membership. The OECD now has 30 members, two from Asia, Japan and Korea, three from North America, the USA, Canada and Mexico, and the rest from Europe, inclusive of Turkey.
Following the recovery and reconstruction of the countries in the Western Europe, it became evident that none of these countries could individually become a competitive actor in the world market. Exceptions apart, an economy’s share of world trade will expectedly be conditioned by its share of world output. Based on the shares of world output, each of these economies individually was far out-competed by the USA with its share of 27.3 percent of world GDP in 1950, when the shares of the UK, Germany, France, Italy, Spain and the Netherlands were 6.53, 4.98, 4.14, 3.1, 1.2 and 1.1 percent, respectively (Madison 2001). In 1950, Japan had a share of 3.02 percent of world output. The economies in Western Europe progressively moved through stages of regional economic integration, beginning in 1957 with the European Economic Community (EEC), becoming the European Community (EC) in 1967, and finally assuming its present name, the European Union (EU), in 1992. As 2007, the EU has 27 memebr-states (EU-27).
The core of the new paradigm came to be the institution of integrated economic groups with membership limited to economies in the immediate geographic region. Jacob Viner’s Treatise on Customs Union (Viner 1950) became an immediate model. Belgium, the Netherlands and Luxemburg formed the Benelux Customs Union in 1948 which provided for free trade amongst the three countries without any customs duties. In 1951, Germany, France and Italy signed an agreement with the three Benelux countries to form the European Coal and Steel Cooperation (“ECSC”). The participation in the Benelux Customs Union was too limited in scope, and the ECSC covered just the two specific commodities. The search for a more comprehensive regional economic grouping progressed. Monnet (1978) forcefully articulated the case for the family of Europe, notwithstanding diversities of language, religion or lifestyle. The geographic fact of oneness of the continent of Europe must unite all the peoples of Europe into one single European entity, economic as well as political.
Table.1 presents the GDP of EU and the USA in 2005. The USA, with 27.81 percent of world GDP, enjoys a commanding position over the individual EU nations. The four largest EU member economies, Germany (6.26 percent), the United Kingdom (4.93 percent), France (4.76 percent) and Italy (3.95 percent), came behind in that order, with Spain (2.52 percent) and the Netherlands (1.40 percent) following. Each of the other twenty-one member economies of the EU individually recorded less than one percent of world output. However, when aggregated, the EU has a 30.43 percent share of the world GDP, and outranks the USA by a comfortable margin.
Table.1: GDP of the EU and USA, in millions of US$, 2005
In millions of US$ | GDP | (%) of World |
Austria | 306,073 | 0.69 |
Belgium | 370,824 | 0.83 |
Bulgaria | 26,648 | 0.06 |
Cyprus* | 16,695 | 0.04 |
Czech Republic | 124,365 | 0.28 |
Denmark | 258,714 | 0.58 |
Estonia |  13,101 | 0.03 |
Finland | 193,160 | 0.43 |
France | 2,126,630 | 4.76 |
Germany | 2,794,926 | 6.26 |
Greece | 225,206 | 0.50 |
Hungary | 109,239 | 0.24 |
Ireland | 201,817 | 0.45 |
Italy | 1,762,519 | 3.95 |
Latvia | 15,826 | 0.04 |
Lithuania | 25,625 | 0.06 |
Luxembourg | 36,469 | 0.08 |
Malta | 5,570 | 0.01 |
Netherlands | 624,202 | 1.40 |
Poland | 303,229 | 0.68 |
Portugal | 183,305 | 0.41 |
Romania | 98,565 | 0.22 |
Slovakia | 46,412 | 0.10 |
Slovenia | 34,354 | 0.08 |
Spain | 1,124,640 | 2.52 |
Sweden | 357,683 | 0.80 |
United Kingdom | 2,198,789 | 4.93 |
EU-27 | 13,584,586 | 30.43 |
US | 12,416,505 | 27.81 |
World | 44,645,437 |
|
Source: World Development Indicators, 2006.
* Data for Cyprus from the IMF-IFS.
In 1957, the Treaty of Rome was signed by Germany, France, Italy and the three Benelux countries. The Treaty became effective as of January 1, 1958 and instituted the European Economic Community (EEC), one integrated economic entity with free flows of trade, and investment and free movement of labor, with one common economic policy towards the rest of the world. The microeconomic parameters relative to businesses, households and labor units became operational in less than ten years, the target date they set for themselves.
The search for a zone of monetary stability soon followed. The issue of debate was a federation or a confederation of united European states. The microeconomic foundation of the EEC could not be operationally successful without its corresponding macroeconomic parameters, with well-specified monetary and fiscal policy guidelines, transparent and open to judicial reviews. Thus, the One Europe Act of 1986 was adopted, redefining the traditional sovereign authority of the EU member states. The Maastricht Treaty of 1992 sought to define the specific monetary and fiscal guidelines of the EU and its members.
Based on the principle of inclusion, EEC membership progressed as other sovereign nation state economies on the map of Europe applied for its membership. The United Kingdom, Denmark and Ireland became members in 1973, followed by Greece in 1981, Portugal and Spain in 1986, and Austria, Finland and Sweden in 1995. In 1992, the EEC was renamed the European Union, with 15 members ( EU-15).
The introduction of the euro on January 1, 1999, as one common currency managed by one common central bank, the European Central Bank (ECB), in Frankfurt, Germany, has been an act of economic revolution. Based on the market quote on that date, one euro was valued at US$ 1.17. As of 2010, the baby currency of some ten years has greatly appreciated, reaching an all time high of one euro for US$ 1.60, and continues to be competitively strong. In January-February, 2010, the Euro-Dollar exchange rate is fluctuating around $1.35. The United Kingdom (“UK”), Denmark and Sweden have continued to decline a membership to the euro regime. The 12 others of the EU-15 adopted the euro. To begin with , eleven of the fifteen member countries of the EU-15 – Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, the Netherlands, Portugal, and Spain adopted the euro . Next year Greece became the 12th member of the regime. On January 1 , 2007, Slovenia became a member, joined by Malta and Cyprus on January 1, 2008, and Slovakia on January 1, 2009, making the euro- zone membership of 16. The United Kingdom, Denmark and Sweden of the original EU-15 continue to remain the three out-members.
With the exceptions noted above, the other EU countries are all scheduled to join the euro regime as soon as they qualify. The coordination of fiscal policies has been assured by the Compact of Growth (Hesse 1993, Vanthoor 1998, 1999, 2002, Dutta 2007), signed by the finance ministers of the member governments. The Council of Economics and Finance Ministers of the participating governments (ECO-FIN) is the forum of the European Union facilitating the process. Be it noted that the process has been sub-optimal. Following the adoption of the Lisbon Treaty in 2009, one EU political entity will expectedly have one EU Finance Ministry to ensure optimum coordination of monetary and fiscal policies of the EU. One must take note of the fact that there have been cases when in one sovereign nation state with one Finance Minister and one Central Bank, monetary and fiscal policies of the specific economy failed to be optimally coordinated.
Following the Treaty of Nice in 2004, admission of ten new members from Eastern Europe, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, gave us the EU-25. Rumania and Bulgaria joined the group as of January 1, 2007 and we now have the EU-27.
The fact remains that the evolution of the EU has become a revolutionary economic event. Never before had twenty seven sovereign nation state economies voluntarily surrendered their economic sovereignty, with more waiting to do so. The EU, with both its share of world output and trade larger than that of the USA, has clearly emerged as the world’s largest economic entity. The euro has become a competitive international reserve currency, enabling the EU to step forward as the leading competitive reserve currency in the world economy. Political integration of the EU-27 remained challenged by the rest of the world, led by the USA. The EU failed to earn its place of primacy in important world forums.
In 2009, with a successful referendum people of Ireland annulled the decision of its parliament and adopted the Lisbon Treaty. In 2002, Ireland followed the similar game plan for the Nice Treaty. President of the Czech Republic finally elected to make good use of his only option by way of attesting his signature to the Treaty of Lisbon. The United States of Europe (USE) with its twenty-seven member states became a political entity, unanimously electing a President from the member-state of Belgium and a Vice-President / High Representative from the member-state of United Kingdom/ The European Commission followed up by electing cabinet members from various member states of the USE. The year 2009 thus became a benchmark for the paradigm of Europeanization of Europe with its core concept of the European family. The USE is now an eventful reality.
The Euro-dollar exchange rate fluctuations have engaged much attention of the economies of the world. The end of the post-WWII decades of unilateralism and the inauguration of the twenty-first century of multilateralism were eloquently articulated by the president of the Nobel Peace Committee as he introduced President Obama for the Nobel Peace Award at the parliament of Norway in Oslo.
Let us concentrate on the two competing currency regimes – the euro and the US dollar. The US dollar at its fixed gold value remained the anchor currency in post-WWII decades, providing economic
stability to the economies of the free world. On August 15, 1971 President Nixon signed off the value of the US dollar at $35.00 per ounce of pure gold. On January 1, 1999, one euro was offered at US$ 1.17. The 10-year old baby currency moved up to US$ 1.60 on April 22, 2008, as we have noted earlier. As of September 2009, one euro inched up to $1.50, and late in the year the rate fluctuated between $1.40 and $ 1.50. The market has established the euro-dollar exchange rate.
Managed by the European Central Bank (ECB), as of January 1, 1999, the euro began as an accounting unit, currency of each member country of the euro-zone, being defined by a fixed rate to the euro. Acceptance of the euro in the world economy remained an open question. By October 2000, one euro was exchanged for just US$ 0. 82. The turning point came soon after the euro became a medium of exchange. Notes and coins were issued on January 1, 2002. For yet another two years, euro and each member- country currency remained in co-circulation . The euro progressed to an elite currency and acceptance of the euro no longer remained a subject of debate.
The rest of the world, led by the USA, failed to anticipate this magnitude of depreciation of the US dollar vis-à-vis the euro. Until the adoption of the constitution for the European Union, they argued, the process of Europeanization of Europe was to remain in the freeze. The EU-27 continued to struggle in its heroic effort to earn recognition as one Europe. The Euro, managed by the European
Central Bank (ECB), was expected to remain a weak currency. In ten years, one money to one Europe - one integrated European economy has indeed become a challenging reality.
The strength of a currency depends on its relative share of the world GDP, goods and services the currency regime produces, which of course, becomes the major contributing factor for the economy’s share of world trade. No wonder that the relative share of the euro as the international reserve currency has been increasing at an increasing rate. The rate of increase of the share of the US dollar has failed to be competitive, albeit the US dollar continues to command the majority share of international reserve currency. The shares of the British pound-sterling and of the Japanese yen as international
reserve currencies, continue to decline, as the respective shares of world GDP of these two currency-regimes are no longer competitively large.
True, the estimate of GDP of the EU-27 above includes the 3 out-members of the EU-15, and several of the new members admitted to the EU membership following the Treaty of Nice, 2003, effective January 1, 2004. The fact that all members of the EU-27 belong to the ( EU-FTA) with one membership of the World Trade Organization (WTO), with one vote, requires them to have one common trade policy relative to the rest of the world. It must be noted that all post-2004 EU members have signed up to accept the euro, following a process of scrutiny as per well-specified criteria a la the Maastricht Treaty of
1992. One EURO will, of course, be a better option for the EU-27
1993. inclusive of Sweden, Denmark and the U.K.
We have noted that following the Durban Conference in July 2002, the 54 sovereign nation states belonging to the map of Africa have now become members of the African Union (AU) with an agenda of one African money under one African Central Bank by 2023. The Asian leaders of the 4 ( Japan, Korea, China, India) plus ASEAN-10
( Indonesia, the Philippines, Malaysia, Thailand, Singapore, Vietnam, Brunei, Laos, Cambodia, Myanmar) model have been engaged in a discussion of the Asian Economy with Asian Money ever since the Asian financial Crisis of 1997-98.
For the USA, a challenging option will be to forcefully pursue the American Hemispheric Economic Integration with one American money, a la the laudable agenda, as adopted at the Conference of the Americas, hosted by the USA in 1994. Of course, the USA can independently increase its share of world GDP by appropriate micro-and-macro economic policy measures. Even so, Economic Union of the Americas warrants much critical evaluation.
The sovereign nation state economies became the framework of the Keynesian Revolution and the challenge of the Great Depression was met. The continental macroeconomics is the challenging model for the world to overcome the global financial TSUNAMI of the twenty-first century, as noted at outset of this presentation.
The lessons of the EU for the Asian economies to learn are obvious. It is clearly feasible for the economies belonging to the map of Asia to form one integrated economic unit, the Asian Economy with Asian Money. The share of world output and trade for the group will be competitively large and the AE-22 will become a viable competitive actor in the world market vis-à-vis the USA and the EU. The Asian Economy with Asian Money will add to the level of effective competition and contribute to the economic gains of all microeconomic actors in all continents of the world, households as well as business units. Any suggestion that in the long run China or India will individually catch up with the USA and the EU has little merit. We have been forcefully reminded that in the long run we are all dead. In the short or medium term, any such suggestion will merely be an exercise in intellectual idealism.
The concept of supra-national macroeconomics merits exposition. John Maynard Keynes invited us to learn the concept of macroeconomics in the context of a sovereign nation state. The Keynesian Revolution taught us how to integrate money and real sectors of an economy, by way of specifying a simultaneous system of behavioral equations, bridging the money market and the real market with the production map (Klein 1947). The EU paradigm invites us to learn the post-Keynesian concept of supra-national macroeconomics. It also invites us to revisit the concept of the optimum currency area (Mundell 1961), which warrants a twenty-first century review. We now observe the two currency areas, one of the US dollar and another of the euro, with others to follow. The currency areas may be defined by a currency’s competitive shares of the world output and trade.
At present, there are 192 sovereign nation states on the membership roster of the United Nations (UN) (http://www.un.org/News/Press/docs/2006/org1469.doc.htm). Some two-thirds of the world output and trade belong to the credit of a small number of them: the USA, the EU, plus Canada, Japan and a few others. An overwhelmingly large number of members, however, each individually with marginal shares of world output and trade, are left out. Individually, they are too marginal to compete with the select few. Competition in the world market remains unreal. The rich in the North and the poor in the South have what at best may be called a duopoly-duopsony framework of the global economy. The rich ones win and the poor countries suffer. Thus, the EU paradigm may be a learning model for other continents. Africa has formed the African Union (“AU”) and has granted it a legal existence. The proposals for the American Hemispheric Economic Cooperation with the Free Trade Area of the Americas (“FTAA”), and also for the North American Free Trade Area (“NAFTA”) remain familiar.
APEC Failed to Deliver On Its Promises
The concept of Asia-Pacific economic regionalization came from two sets of factors, the pull factor from across the Pacific and the push factor from across the Atlantic (Dutta 1999). The successful repatriation of profits from investments by MIEs in Asia’s newly industrializing economies constituted the pull factor. Their integration and its consequent economic potential became quantifiable. The challenge of European economic integration merited appreciation and created a push factor as the EU progressed to its present economic standing.
The historic economic ties between the United Kingdom in Europe and Australia and New Zealand, the two island economies in the South Pacific, who did not belong to the map of Europe, ceased abruptly as the United Kingdom joined the membership of the European Community in 1973. Given their small population bases and huge resource bases, these two economies were critically dependent on the rest of the world. Japan naturally became their immediate economic contact. Australia, New Zealand, Japan, Canada and the USA soon joined to initiate a trans-Pacific economic cooperation movement. Debates and discussions amongst academic groups, business leaders and public officials followed. In 1989, Asia-Pacific Economic Cooperation (“APEC”) was formally instituted. In 1991, China, Chinese Taipei and Hong Kong were admitted to APEC membership. Currently, the APEC roster includes twenty-one countries inclusive of Russia. Membership is limited to only those nations touched by the Pacific Ocean. As such, India and other South Asian countries cannot qualify to be APEC members, nor the Latin American countries exclusively on the Atlantic shore.
Table.2 presents a profile of the APEC countries in terms population, land area and GDP for selected years from 1989 through 2005. As of 2005, APEC covers 40.7 percent of the world population, 41.8 percent of the land area and as much as 55.3 percent of the world GDP.
Table.3: Area and Population of APEC Countries, 2006
| Area (Thou. sq. km.) | Population (mil.) |
Australia | 7,692.0 | 20.5 |
Brunei | 6.0 | 0.4 |
Canada | 9,971.0 | 32.2 |
Chile | 757.0 | 16.2 |
China | 9,561.0 | 1,307.6 |
Hong Kong | 1.0 | 7.0 |
Indonesia | 1,905.0 | 219.2 |
Japan | 378.0 | 127.7 |
Korea | 99.0 | 48.3 |
Malaysia | 330.0 | 26.0 |
Mexico | 1,958.0 | 105.3 |
New Zealand | 271.0 | 4.1 |
Papua New Guinea | 463.0 | 5.9 |
Peru | 1,285.0 | 27.9 |
Philippines | 300.0 | 84.2 |
Russia | 17,075.0 | 142.7 |
Singapore | 1.0 | 4.4 |
Chinese Taipei | 36.0 | 22.8 |
Thailand | 513.0 | 65.1 |
United States | 9,364.0 | 296.6 |
Vietnam | 332.0 | 83.2 |
Source: Fact Sheets 2006, Australian Government's website.
Table.4: GDP of APEC Countries, 2004-2006
In US$ billions | 2004 | 2005 | 2006 |
Australia | 639.1 | 713.1 | 743.7 |
Brunei | 7.9 | 9.5 | 11.5 |
Canada | 993.9 | 1,132.4 | 1,273.1 |
Chile | 95.0 | 115.3 | 140.4 |
China | 1,931.6 | 2,234.1 | 2,554.2 |
Hong Kong | 165.8 | 177.7 | 188.7 |
Indonesia | 254.5 | 281.3 | 351.0 |
Japan | 4,608.1 | 4,557.1 | 4,463.6 |
Korea | 680.0 | 787.6 | 877.2 |
Malaysia | 118.5 | 130.8 | 147.0 |
Mexico | 683.5 | 767.7 | 811.3 |
New Zealand | 97.8 | 108.5 | 101.8 |
Papua New Guinea | 3.8 | 3.9 | 4.1 |
Peru | 69.7 | 79.4 | 89.3 |
Philippines | 86.7 | 98.4 | 116.9 |
Russia | 591.9 | 763.9 | 975.3 |
Singapore | 107.5 | 116.8 | 133.5 |
Chinese Taipei | 322.3 | 346.2 | 355.5 |
Thailand | 161.7 | 173.1 | 194.6 |
United States | 11,712.5 | 12,455.8 | 13,262.1 |
Vietnam | 45.3 | 51.4 | 55.3 |
Total | 23,377.1 | 25,104.0 | 26,850.1 |
Source: Fact Sheets 2006, Australian Government's website.
In terms of shares of world output and trade, APEC could match the EU. The annual APEC summit, with the participation of the heads of all twenty-one member countries, has become a media event of the first order. Be it noted that APEC has failed to deliver on its promises and its economic impact has remained marginal for three specific reasons.
First, the establishment of the APEC Free Trade Area (APEC-FTA), the core of intra-APEC economic cooperation, has proved to be too complex an issue. The normalization of the customs rules of all twenty-one member countries has been a challenging task for the APEC secretariat in Singapore. Given the extensive variations of the level of industrialization amongst its twenty-one member countries, a system of standardization and mutual accreditation of goods in trade that was successfully adopted by the EU Free Trade Area (EU-FTA) became a baffling task for APEC experts. A piece of candy manufactured in Thailand or Malaysia could hardly be accredited as candy in Canada or the USA. One immediate solution for addressing the APEC-FTA was simply to shelve the issue by adopting the 10-20 formula. The leading industrialized APEC member countries, the USA, Canada, Japan, Australia and New Zealand, would be expected to have free trade within ten years, and the remaining countries would have it in twenty years, counting the year from 2000. Thus, APEC enthusiasts must wait until 2010 to judge any definitive outcome.
Second, the FTA as APEC has proposed, is far different from the FTA the EU has successfully institutionalized. The EU-FTA has set up three guidelines whereby all sovereign nation-state member countries will become one integrated economic entity, and as such, the EU will be one member of the World Trade Organization with one vote. The EU members will all have the same economic relationship with the rest of the world. No individual EU member country will be allowed to have or maintain special individual economic relationships with any country in the rest of the world. The APEC-FTA has not offered any such plan, and rather, the framework of the APEC-FTA is traditional, anchored to extra-economic considerations. For the EU, the core factor is the oneness of the integrated continental European economy. Indeed, at the East Asia Economic Summit held in Kuala Lumpur, Malaysia on October 6-8, 2002, the Asian leadership has spoken out for an Asian Free Trade Area modeled after the EU-FTA.
The Asian financial crisis of 1997-98 was the original spark that opened up the debate over effective economic integration in Asia. The post-WWII international financial institutions, the World Bank and the International Monetary Fund, failed to forecast the crisis and were perceived to have done too little too late. True, these institutions have done voluminous post-crisis research and their extensive publications must be read for the world to prepare for the next crisis. Even the APEC summits had no words of wisdom. As such, Asian leaders accepted the challenge and were pushed to independent action by the Asian economies. The result was the 3 + 5 model, whereby the three, Japan, Korea and China, and the five original ASEAN countries, Singapore, Malaysia, Thailand, the Philippines and Indonesia, began exploring feasible solutions to achieve intra-regional monetary and fiscal policy cooperation. Third and finally, in recent years, APEC summit meetings, led by the USA, have placed their focus on terrorism and security, wholly and fully. While it is true that international economic cooperation can be successful if and only if necessary security conditions prevail, this topic of discussion certainly involved a departure from the core agenda of the APEC summit meetings. The global political issues came to overwhelm the issues of intra-APEC economic cooperation. As a result, Asian leaders moved on to Asian economic cooperation based on what is now known as the 4+10 model of Asian economic cooperation. India joined Japan, Korea and China to become the fourth member, while Myanmar, Laos, Cambodia, Viet Nam and Brunei joined the five original ASEAN members.
Let us conclude that just as the Atlantic is a divide between Europe and the Americas, so must the Pacific be a divide between Asia and the Americas. The fact of geographic integration on the map of Europe is real while a trans-Pacific geographic unit is impractical. Belonging to the continental map of Asia will be the core of a single Asian Economy with Asian Money.
The industrialization of the Asian economies beyond Japan has been an accomplishment. In pre-industrialized Asian economies, an economy’s GDP came mostly from its agricultural sector. With the rise of industrialization, the GDP basket becomes much larger and the share of GDP from the agricultural sector declines. Growing employment in the industrial sector, with much higher incomes, stimulates demand for an expanding array of services, particularly in education, healthcare, environmental quality, transportation, media, telecommunication, banking, insurance and related financial services. The typical pattern of the MIE has been noted in Table 5. An analysis of sectoral shares of GDP points to the structural changes of these economies.
Table 5: Sectoral Shares of GDP of MIEs, 2000
| Agriculture | Industry | Service |
Japan | 1.8 | 36.4 | 61.9 |
USA | 1.6 | 27.3 | 71.1 |
EU-12 | 2.8 | 28.5 | 68.7 |
Source: Ising (2001). See also Dutta (2007), p. 195.
Note: EU-12: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal and Spain, the 12 EU member countries who adopted euro as their common currency.
Table.5 is a presentation of the structural changes of the select 4 plus 10 group of Asian economies, based on the sectoral shares of GDP of each country. For Japan, the only MIE in Asia, changes over the past three decades must be noted. Its share of GDP from the agricultural sector has declined from 5 percent in 1970 to 2 percent in 2005. The share from the industrial sector has also declined from 45 percent in 1970 to 30 percent in 2005, while the movement of GDP in the service sector from 49 percent in 1970 to 68 percent in 2005 is spectacular.
Table.5: Production by Sector in Selected Asian Economies, 1970 and 2005
As a percentage of GDP | 1970 |
| 2005 |
Agriculture | Industry | Service |
| Agriculture | Industry | Service |
Japan* | 5 | 45 | 49 |
| 2 | 30 | 68 |
China | 35 | 40 | 24 |
| 13 | 48 | 40 |
India | 46 | 21 | 33 |
| 18 | 27 | 54 |
Korea | 29 | 26 | 45 |
| 3 | 40 | 56 |
|
|
|
|
|
|
|
|
Myanmar** | 38 | 14 | 48 |
| 57 | 10 | 33 |
Laos |
|
|
|
| 45 | 29 | 26 |
Cambodia |
|
|
|
| 34 | 27 | 39 |
Vietnam |
|
|
|
| 21 | 41 | 38 |
Brunei^ | 1 | 91 | 8 |
| 3 | 48 | 49 |
Singapore |
|
|
|
| 0 | 34 | 66 |
Malaysia | 29 | 27 | 43 |
| 9 | 52 | 40 |
Thailand | 26 | 25 | 49 |
| 10 | 44 | 46 |
Philippines | 30 | 32 | 39 |
| 14 | 32 | 53 |
Indonesia | 45 | 19 | 36 |
| 13 | 46 | 41 |
Source: World Development Indicators, 2006
* Data for 1971 and 2004
** Data for 1970 and 2000.
^ Data for 1974 and 2000.
The structural changes for Korea, China and India are far more pronounced. Korea’s agriculture share of GDP has come down from 29 percent in 1970 to 3 percent in 2005. The sectoral shares of GDP from both industrial and service sectors have naturally moved up. Korea has indeed graduated to a mature industrialized economy, becoming a member of the OECD in 1996. For both China and India, the changes are far more robust. The sectoral share of GDP from the agricultural sector has declined: for China, from 35 percent in 1970 to 13 percent in 2005, while for India, from 46 percent in 1970 to 18 percent in 2005. For the industrial sector, China has grown from 40 percent in 1970 to 48 percent in 2005, while India has inched up from 21 percent in 1970 to 27 percent in 2005. Both China and India remain limited in terms of their GDP shares from their respective service sectors. The process of industrialization is, however, observed to be in progress.
Based on the available data, the five ASEAN member economies, Singapore, Malaysia, Thailand, the Philippines and Indonesia, record a promising profile of industrialization, where the usual shares from the agricultural sector decline and shares from the industrial and service sectors indicate upturns. Brunei is an exceptional petroleum-rich economy, while Myanmar, Laos, Cambodia and Vietnam still struggle to move up from their respective pre-industrialized economic structures.
It is instructive to refer to the situation in Europe when the ten new members from the East were admitted to EU membership in 2004, soon followed by two more members in 2007. Without question, the level of industrialization of the new member economies definitely lagged behind that of the original EU-15. The strong, integrated economy of the EU-15 has a level of industrialization sufficient to pull up their new members to the optimal level of industrialization. An AE-22 based on the 4+10 member countries, eventually including Mongolia and Chinese Taipei in East Asia and the six in South Asia, Bangladesh, Bhutan, Nepal, Maldives, Pakistan and Sri Lanka, will correspondingly be a strong, viable continental economic entity. The level of industrialization of this economic entity will cease of to be a point of debate.
Mongolia, a small economy located strategically between Russia and China, is enormously resource-rich and has invited much notable attention from global investors. Chinese Taipei, an island economy off mainland China, has successfully adopted its policy of integrated industrialization by working in economic cooperation with China and the USA, both of whom do not officially recognize it as a sovereign state economy. The fact remains that Chinese Taipei has graduated to mature industrialized economy (Dutta 2007).
In South Asia, the liquidation of the British Empire witnessed the creation of seven sovereign nation state economies, India, Bangladesh, Bhutan, Nepal, the Maldives, Pakistan and Sri Lanka. The fact that these seven economies in the Indian subcontinent had been structurally integrated under 200-some years of the British imperial regime came to be arbitrarily ignored. The economic fortunes of these economies remain very interdependent, and their choice is simply either to be rich together or to remain poor together. India is a huge economy, about 80 percent of South Asia, while Pakistan is about 10 percent, and the remaining five make up the final 10 percent. By 1985, the Heads of the South Asian economies, who had not historically shared much mutual friendship, voluntarily moved to constitute the South Asian Association for Economic Cooperation (SAARC) at a regional summit meeting in Dhaka, the capital city of Bangladesh. Their exclusion as non-Pacific, non-European countries became a lesson for these economies. With India’s joining the 4+10 model of the AE-22, there must be a natural consideration to include the six other South Asian economies for the Asian regional group’s membership, as their belonging to the map of Asia is clear.
Table.6 demonstrates the trade pattern of the 4+10 countries for 1970 and 2005. Comparative figures of exports and imports, as percentages of their respective GDPs show that each is an open economy with much trade with the rest of the world, with shares of both exports and imports moving up. Japan, Asia’s only industrialized economy, is also the only country to stabilize its shares of trade from 1970 and 2005. In 1970, China and India were relatively closed economies. Over the years, Korea has emerged as a major trading economy.
Over the time period, Singapore, Malaysia, Thailand, the Philippines, Cambodia and Indonesia have broadened their respective trading horizons. Based on 2005 data, Laos and Vietnam have become open economies with much trade. Brunei exports petroleum and imports all that the economy needs. Data on Myanmar is limited, and its military government has its own trading policy.
Table 7 gives the trade figures as percentages of world trade, exports and imports. Exposed to negative fluctuations, Japan had to struggle hard to maintain its leadership position during this time. China has emerged as a strong competitor, with her share of world exports increasing from 0.6 percent in 1970 to 6.4 percent in 2005, and her shares of world imports moving up from 0.6 percent in 1970 to 5.5 percent in 2005. Korea has made notable progress while India’s gain has rather been marginal. Based on limited data, Singapore, Malaysia and Thailand certainly demonstrate progress.
Table.6: Trade of Selected Asian Economies, 1970 and 2005
As percentages of their respective GDP | 1970 |
| 2005 |
Exports | Imports |
| Exports | Imports |
Japan* | 11 | 10 |
| 13 | 11 |
China | 3 | 3 |
| 37 | 32 |
India | 4 | 4 |
| 21 | 24 |
Korea | 14 | 24 |
| 42 | 40 |
|
|
|
|
|
|
Myanmar | 4 | 9 |
|
|
|
Laos |
|
|
| 27 | 31 |
Cambodia | 6 | 8 |
| 65 | 74 |
Vietnam |
|
|
| 70 | 75 |
Brunei** | 90 | 17 |
|
|
|
Singapore |
|
|
| 243 | 213 |
Malaysia | 41 | 37 |
| 123 | 100 |
Thailand | 15 | 19 |
| 74 | 75 |
Philippines | 22 | 21 |
| 47 | 52 |
Indonesia | 13 | 15 |
| 34 | 29 |
Source: World Development Indicators, 2006
* Data for 1970 and 2004
** Data for 1974
Table 7: Share of World Trade of Selected Asian Economies, 1970 and 2005
As a percentage of World Exports | 1970 |
| 2005 |
Exports | Imports |
| Exports | Imports |
Japan* | 5.6 | 5.0 |
| 5.4 | 4.6 |
China | 0.6 | 0.6 |
| 6.4 | 5.5 |
India | 0.6 | 0.7 |
| 1.3 | 1.5 |
Korea | 0.3 | 0.5 |
| 2.6 | 2.4 |
|
|
|
|
|
|
Myanmar |
|
|
|
|
|
Laos |
|
|
| 0.0 | 0.0 |
Cambodia | 0.0 | 0.0 |
| 0.0 | 0.0 |
Vietnam |
|
|
| 0.3 | 0.3 |
Brunei** | 0.1 | 0.0 |
|
|
|
Singapore |
|
|
| 2.2 | 1.9 |
Malaysia | 0.5 | 0.4 |
| 1.2 | 1.0 |
Thailand | 0.3 | 0.4 |
| 1.0 | 1.0 |
Philippines | 0.4 | 0.4 |
| 0.4 | 0.4 |
Indonesia | 0.3 | 0.4 |
| 0.7 | 0.6 |
Source: World Development Indicators, 2006
* Data for 1970 and 2004
** Data for 1974
Table.8: Share of World GDP of Selected Asian Economies, 1970 and 2005
| 1970 | 2005 |
Japan | 7.0 | 10.2 |
China | 3.2 | 5.0 |
India | 2.1 | 1.8 |
Korea | 0.3 | 1.8 |
|
|
|
Myanmar |
|
|
Laos |
| 0.0 |
Cambodia | 0.0 | 0.0 |
Vietnam |
| 0.1 |
Brunei | 0.0 | 0.0 |
Singapore | 0.1 | 0.3 |
Malaysia | 0.1 | 0.3 |
Thailand | 0.2 | 0.4 |
Philippines | 0.2 | 0.2 |
Indonesia | 0.3 | 0.6 |
Total | 13.5 | 20.7 |
Source: World Development Indicators, 2006
Based on limited data, Table.8 records that the 4+10 economy had some 13.5 percent share of world GDP in 1970 and 20.7 percent in 2005. The comparative shares of the USA and the EU in 2005 are 27.81 percent and 30.43 percent, respectively. The share of the AE-22 will be larger as the several countries that are currently missing data, and will also include the income shares of Mongolia, Chinese Taipei, Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka.
Table 9 provides the data for investment in the AE-22 by the select group of Asian economies, as percentages of their respective GDPs. Shares of China, India, Korea, Myanmar, Cambodia, Thailand and Indonesia have moved upward from 1970 to 2005. Japan, Singapore, the Philippines reported declining shares. Malaysia’s share remains unchanged, while Laos, Vietnam and Brunei have incomplete data. Table 10 presents the data on shares of world investment for the select group of countries.
Table 9: Investment of Selected Asian Economies as a Percentage of GDP, 1970 and 2005
| 1970 | 2005 |
Japan* | 40 | 23 |
China | 29 | 43 |
India | 16 | 33 |
Korea | 25 | 30 |
|
|
|
Myanmar** | 14 | 15 |
Laos |
| 32 |
Cambodia | 13 | 20 |
Vietnam |
| 35 |
Brunei |
|
|
Singapore | 39 | 19 |
Malaysia | 20 | 20 |
Thailand | 26 | 32 |
Philippines | 21 | 15 |
Indonesia | 16 | 22 |
Source: World Development Indicators, 2006
* Data for 1970 and 2004.
** Data for 1970 and 2001.
Table 10: Investment of Selected Asian Economies as a Percentage of World Investment, 1970 and 2004
| 1970 | 2004 |
Japan | 11.7 | 11.4 |
China | 3.9 | 9.2 |
India | 1.4 | 2.4 |
Korea | 0.3 | 2.3 |
|
|
|
Myanmar |
|
|
Laos |
| 0.0 |
Cambodia | 0.0 | 0.0 |
Vietnam |
| 0.2 |
Brunei |
|
|
Singapore | 0.1 | 0.2 |
Malaysia | 0.1 | 0.3 |
Thailand | 0.3 | 0.5 |
Philippines | 0.2 | 0.2 |
Indonesia | 0.2 | 0.6 |
Source: World Development Indicators, 2006
Table.11 record intra-Asian trade data, exports and imports as percentages of total exports and imports, for the 4+10 model. The trend over the time is in general progressive, though China records exceptions.
Table.11: Intra-Exports and Intra-Imports of Selected Asian Economies, 1970 and 2005
As percentages of their respective total exports/total imports | Intra-Exports |
| Intra-Imports |
1970 | 2005 |
| 1970 | 2005 |
Japan | 13.5 | 34.7 |
| 9.9 | 40.5 |
China | 24.9 | 24.1 |
| 35.6 | 39.7 |
India | 17.8 | 20.6 |
| 5.7 | 20.0 |
Korea | 31.5 | 41.5 |
| 44.7 | 43.3 |
|
|
|
|
|
|
Myanmar |
| 74.3 |
|
| 165.9 |
Laos |
|
|
|
|
|
Cambodia |
| 6.9 |
|
| 55.8 |
Vietnam | 12.8 | 41.5 |
| 22.5 | 64.2 |
Brunei | 0.1 | 78.1 |
| 13.0 | 80.2 |
Singapore | 41.8 | 51.5 |
| 42.4 | 52.3 |
Malaysia | 45.8 | 48.7 |
| 31.0 | 53.8 |
Thailand | 43.5 | 47.3 |
| 40.7 | 54.1 |
Philippines | 43.7 | 47.9 |
| 33.6 | 48.0 |
Indonesia | 65.9 | 59.7 |
| 38.5 | 48.6 |
Source: IMF, Direction of Trade Statistics, 1970-1974
Note: See also Tables 1.15-1.18
For intra-group imports, Japan, India, Korea, Vietnam, Singapore, Malaysia, Thailand, Philippines and Indonesia record percentage increases while China’s intra-group import share has declined over the period. Overall, the dynamics of intra-group economic interdependence warrants attention.
It is instructive to review the intra-group net inflows of FDI in 2002. Chapter 8 presents net inflows of FDI in the selected Asian countries. Indonesia became exposed to too many odds, natural calamities and political instability leading to a net outflow of FDI. Japan and Korea lead the situation. Of course, Singapore has very much been a hub of inter-regional investment flows. China has emerged as a major player, while India has yet to become a significant competitor. Malaysia, Thailand and Vietnam have become promising markets. Brunei is a very special economy and its intra-regional investment flow is very much limited to Japan.
The progressive industrialization of the Asian economies beyond Japan has been an accomplishment. Japan and the select group of Asia’s newly industrialized economies (“NIE”) now constitute a viable economic entity, competitively large in terms shares of world output and trade vis-à-vis the EU and the USA.
Others have called it the Asian miracle. The industrialization of Asia, of course, has a rational economic explanation. In the 1970s, the pre-industrialized Asian economies beyond Japan elected to adopt an open economic policy, inviting inflows of savings from wealthier mature industrialized countries. The relative advantage of these pre-industrialized economies in low-wage labor, skilled as well as unskilled, some having rich endowments of unexplored natural resources, became a draw for investments from high-wage rich countries. The investments of the MIEs in Asia became profitable and unsurprisingly, provisions were made for the repatriation of profits home. It became a win-win situation .
The Asian Economy with Asian Money is a presentation to welcome the emergence of Asian continental economic regionalization. An intra-Asian economy based on the 4+10 model as analyzed above, with its intra-group economic activities, trade and investment flows, warrants a thorough scholastic exposition. Over the past three decades, the intra-group trade has generally recorded a robust upturn. Indeed, the AE-22 has become all too real. The proposal for an Asian Free Trade Area modeled after the EU-FTA, with its intra-regional monetary and fiscal policy cooperation, is very much under review at periodic Asian economic summits.
The trans-Pacific economic cooperation, under the leadership of APEC has failed to deliver on its promise. On the other hand, the success story of the European Union and the Euro Revolution (Dutta 2007) has become a learning model for Asia, indeed, for all other continents. The map of Asia is as real as the map of Europe.
The continental regionalization of the economies of the world will provide the foundation for a paradigm of true globalization. Each continental economy, with its competitive shares of world output and trade, will be able to contribute to the optimization of economic gains for all the peoples of the world.
