Challenges facing developing nations in East Asia

The World Bank's Dr Andrew Mason called on countries to liberalise their trade in services.
The World Bank's Dr Andrew Mason called on countries to liberalise their trade in services.

Developing economies in East Asia, which include most Asean nations, face an urgent battle against slowing global growth - especially in the trade of goods.

Following the success of their "East Asian Miracle" of the past 50 years, which saw hundreds of millions move out of poverty, countries should liberalise their trade in services and look into creating an ecosystem that supports innovation, said Dr Andrew Mason, the World Bank's acting chief economist for East Asia and Pacific.

Speaking to The Straits Times on the sidelines of a seminar last week, he noted the importance of reforms that open the service sector, upgrading the skills of the labour force and social protection as jobs transform.

In reforming the service sector, countries should also look beyond tourism to professional services, such as that in finance or information technology.

"Growth in this region has been driven to a great extent by outward-oriented manufacturing," he said. "When the global economy slows... that affects demand for countries' exports."

Weighing on the slowing global growth are protracted negotiations between the United States and China, with the lack of a trade deal thus far causing uncertainty and a potential hold-back of investments.

Despite trade in goods slowing, trade in services remains robust and will likely become increasingly important, said the economist.

"While developing economies in this region have been very good at liberalising goods trade, they have been rather weak in liberalising trade in services," he added.

The reasons behind this include "a predominant focus on manufacturing as a driver for growth", as well as difficulty in reform, where institutions may be unwilling to give up the status quo, which would allow for greater productivity growth, said Dr Mason, citing the strong position of Vietnam's state-owned enterprises as an example.

Apart from trade, developing East Asia - which includes most Asean countries except Brunei and Singapore, as well as China and Mongolia - face other challenges.

Rapid technological advancement risks displacing workers and resulting in growth that is less inclusive, said Dr Mason. Rising affluence has also placed heavier demands on governments. But the region has the potential to ride out its challenges, starting with its strength in sound economic governance.

"In 2018, when we started to see a lot of volatility in the global economic environment, we saw a number of countries in the region being very quick to adjust either using monetary policy, like interest rates adjustments, or using fiscal policy stimulus to counteract some of these headwinds," he added. "This is something quite special to East Asian economies and actually has been one of the important factors that has made growth sustainable."

Looking ahead, countries need to look for unexploited or under-exploited opportunities. Besides looking to the services sector, another factor is innovation and building an ecosystem for it.

"Countries in this region are going to need a labour force with more advanced skills," Dr Mason said, highlighting the role of education to cultivate this.

A version of this article appeared in the print edition of The Straits Times on May 06, 2019, with the headline 'Challenges facing developing nations in East Asia'. Subscribe