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Renowned economic analysts have long argued that the benefits of globalization in terms of relative growth outcomes have been very one-sided in recent decades, and that it has also been heavily skewed toward growth in Asia especially China and to a lesser extent India. Indeed, if one removes China and India from consideration, there has been very little improvement in the relative growth rate of developing economies compared to developed ones. And without Asia there has been hardly any improvement at all.
According to these analyses, more recent years have seen a slightly greater capacity from other developing economies outside of Asia to “catch-up” with the developed economy bloc. Russia is perhaps the most notable example. The relative shifts that have unfolded in the more recent years, however, still remain heavily skewed toward Asia.
Factors that have been pivotal to globalization, such as a rising share of world trade and financial flows in global GDP, have suffered considerably during the crisis of the past 12 months. More important, however, is that the rotation in world trade from developed economies to developing economies has continued. Capital inflows to developing economies have also resumed, particularly to Asia.
The short-term outlook of many developing economies, and again, particularly in Asia, in the meantime remains relatively bright. The latest data show that growth gaps between developed and developing economies remain as wide as they were prior to the crisis, in stark contrast to the US-led recessions of the early 1990s and early 2000s.
Developing economies in Asia have been subject to surprising consensus forecasts, just as they did in the years leading up to the crisis. Policy responses to mitigate the economic impact remain accommodative. Finally, underlying domestic and external imbalances remain extremely modest for most. Concerns over what the impact of the global financial crisis on the long-term growth potential of many developing economies will be is over-done in many of these economic analysts’ view.
They stated that demographic factors, catch-up potential from initial underlying income levels, and low capital-to-labor ratios, together with domestic savings and investment rates, are more significant determinants of trend growth than, for example, trade exposure to developed economies.
The rise of Asia, often dubbed the “Pacific Century,” continues to make headlines. But most of the coverage tends to focus on Asia’s big three, China, Japan and India, while neglecting the achievements and struggles of smaller countries in the region.
In September 2000, Rodolfo C. Severino, ASEAN Secretary General, stated that, in the light of globalization and regional economic integration, some political convergence will have to take place in Southeast Asia, and it will likely be in the direction of greater openness, freedom and pluralism.
Victor Mallet, Financial Times columnist, on his part wrote in April 2005 that, in contrast to Indonesia, where real democracy took root after the ousting of Suharto, post-Mahathir Malaysia has kept a system of authoritarian rule cloaked in democratic trappings and reliant for its legitimacy on perpetual economic growth.
Indonesia often has trouble attracting official US attention, who places higher consideration onplaces like Iraq, but it is too important to ignore, especially while Feudalism is still deeply entrenched in the Philippines. This may also help to explain why it is struggling to develop even through it is the only country in the region to have been colonized by America for 50 years.
South Korea, on the other hand, is probably the most leveraged economy in the world. They haven’t worked off any debt. They’re just piling it up, while Vietnam is continuing to grow in popularity because it’s perceived to be a safe haven and a safe place to do business. Empirical analysis of growth drivers suggests that China and India will continue to enjoy relatively rapid GDP growth in the years ahead. Other economies that score favorably include Indonesia, Singapore, Thailand, Argentina, Mexico and Chile.
Asian investors are into the dollar so deep, they would have trouble bailing out even if they wanted to since foreign reserves are needed to absorb any unexpected external shock. There is no such thing as too much foreign reserves and cheap labor is no longer a good long-term weapon.
The Asian crisis confirmed what many suspected: Globalization was a rich country’s game and the rules were rigged to favor the most competitive. In no part of the world had globalization been put to the test as much as in Asia. They have felt both its great benefits and its temporary but brutal sting.
George Yeo, Singapore Minister for Foreign Affairs, stated in March 2001 that because of three major wars, the Pacific War, the Korean War and the Vietnam War, the United States has become an organic part of East Asia in a way which Europe can never be.
On the other hand, Hannah Beech, Asia Times Shanghai correspondent, wrote in March 2003 that “Asians still love their Big Macs, their Levis, their Harvard MBAs. Nevertheless, anti-American sentiment in Asia is brewing far stronger than a Starbucks espresso.” In any case, the reality is that the American dream has become the Asian dream, but many Asians do not admit this out of a sense of national pride.
Economic analysts forecast that in their base case scenario, which assumes a slower pace of globalization, global growth will average 3% over the next ten years. This is more than one percentage point slower than average growth rates between 2003 and 2008, but only slightly slower than the average pace in the 20 years from 1988 to 2008. Advanced economies will register a growth of less than 2%, but emerging economies will achieve growth of 5.5%.
In their risk case scenario of much reduced rates of globalization, these estimates are lower particularly for developed economies, but less so for developing economies. Global growth averages 2.8% in this scenario over the next ten years, with advanced economies posting growth of 1.5%, while developing economies achieve growth of 5.2%.