Transition of Asian Economy and Regional Cooperation

With or without the ongoing financial crisis in Southeast Asia, the transition process of Asian economy is inevitable and necessarily considering the varying degree of maturing economy and the diversifying state of economic cycle. Factors influencing transition and adjustment could be both internal and external and may encompass economic and non-economic variables. Internal factors that can give rise to the transition of Asian economy include the following:

1. Demographic changes.

2. Shift in production structure.

3. Financial reform.

4. Deregulation and privatization.

5. Rapid urbanization.

6. Environmental rehabilitation.

7. Need for social investment.

External factors that influence the transition process are as follows:

1. Process of globalization.

2. Accelerated liberalization in trade and investment.

3. International mobility of production factors.

4. Regional economic cooperation.

We shall now go over all these factors one by one.

Internal factors

1. Demographic changes Asia’s past demographic structure with predominant young-aged group was conducive to economic growth. Asia’s aging population will have an opposite effect although savings may be enhanced. Expanding elderly-age group indicates more demand on intergenerational transfer of wealth.

2. Shift in production structure This shift implies a larger share of capital-intensive manufacturing and knowledge-intensive products as compared to labor-intensive manufacturing of the past. This should give rise to the need to upgrade human resources, mobilize more savings and spend more on research & development.

3. Financial reform Towards the end of 1997, the World Trade Organization should agree on a financial liberalization package. As competition intensifies, supervisory authority must be more vigorous and entry of foreign financial institutions must be freely allowed.

4. Deregulation and privatization Deregulation will be accelerated by the process of global liberalization. Market forces will be strengthened while government intervention in the economy will gradually disappear. There should be great need for business ethics and consumer protection law. Privatization will be forced on Asian economies as governments must observe strict fiscal discipline and cut back on budget deficits.

5. Rapid urbanization Urban-rural gap in development would induce substantial migration into urban areas. Asia’s populous urban metropolitans are bound to lead to huge social costs which may go hand in hand with economic costs e.g. delays and congestion. Urban poverty can spell more hardship than rural poverty.

6. Environmental rehabilitation It is rather ironic that in spite of definite progress being made evoking environmental consciousness, environmental degradation still persists while rehabilitation remains a slow-moving process. Enforcement and surveillance must be made more effective.

7. Need for social investments The need for rising social investments in education, public health and environment is generally accepted. Asian governments must be circumspect in allocating more funds to social objectives while maintaining fiscal discipline.

External factors

1. Process of globalization Globalization would produce both positive and negative effects on Asian economies. Cultural effects from globalization are quite mixed, some eroding indigenous value system. On economic side, unregulated fund flows can create havoc in inducing speculation and exaggerating asset prices.

2. Accelerated liberalization Global liberalization results in keener competition with dire consequences on the losers. While Asia must not procrastinate with liberalization policy, it must provide for orderly transition, e.g. setting up anti-dumping law, retraining programs, efficient bankruptcy law etc. Impediments to foreign investment are still numerous and need to be addressed to pave the way for future sustainable growth.

3. International mobility of production factors Capital flows throughout Asia are less inhibited than in the past. But more can be done on the development of stock markets and long-term debt instruments. Labor mobility should be encouraged but need to be regulated under international criteria to prevent harmful exploitation.

4. Regional economic cooperation Sub-regional economic cooperation under the guidance of the Asian Development has become quite popular in Asia. It promotes sectoral cooperation and operational mechanism for implementing trade and investment liberalization. There are enough cooperation efforts to promote trade and investments. But there seems to be a lack of work at the economic and social development levels. For example, joint effort to assist depressed areas, to facilitate joint investment among smaller firms, to promote clean technology, to address social inequality with regards to women’s rights and child labor, to map out joint ventures in strategically sensitive areas.

Conclusion

The state of transition will last longer than expected and will be a testing time for Asian governments. Both internal and external factors will impinge upon the adjustment process that can put pressure on financial and fiscal resources. Cooperation and mutual understanding are essential, in particular, in easing the pains of adjustment. Further cooperation efforts will have to be made at the economic and social development leve