ANNEX 3: ECONOMIC GROWTH - A LONG LOOK BACKWARDS

OECD-supported research²⁷ into long-term economic development and its determinants reveals that world annual compound growth rates between 1820 and 1992 have averaged 1.21% for GDP per capita; 2.17% for total world GDP; and 3.73% for world exports. World trade has grown 540-fold during the period and has been a major engine for overall development.

For Asia-Pacific, the 1820-1992 period has witnessed GDP per capita (in 1990 dollars and at 1990 dollar prices), increase by a factor of 6; total GDP by a factor of 25 (corresponding changes for the whole world have been 8 : 40). The region's population increase has only been by a factor of 4. The Asia totals mask some great differences. For example, Japanese per capita income rose between 1820 and 1992 by nearly 28 fold - the world record. Since 1950, the most rapid growth in Asia has been in Republic of Korea, Taiwan Province of China and Thailand.

The developmental gap among regions and countries has increased: while the income inter-regional spread was less than 3:1 in 1820 it reached 16:1 in 1992. The inter-country range rose from over 3:1 to 72:1 during the same period.

Selected determinants of economic growth

Maddison (1995) identified four main causal influences which he claims to, in the long term, explain large increases of per capita output and which can be observed to be in action in the Asia-Pacific region today. They are: (a) technological progress; (b) accumulation of physical capital; (c) development of human skills, education, and organising ability; and (d) integration of individual national economies through trade.

Supportive factors include three other elements: economies of scale, structural change, and the relative scarcity or abundance of natural resources. All the above elements have been prominently evident during the recent fast development of Asia.

Maddison highlighted the fact that in considering the divergent rates of development, the difficult question is not so much why some countries have succeeded so well as why so many others have stagnated or regressed. He implied that social attitudes and institutional factors such as reliable financial institutions and instruments, access to credit and insurance, and secure property rights may also be critical.

Technology has reduced the cost of production and raised productivity; physical capital accumulation has included raising of capital intensity in production which have raised productivity. For example, since 1950, the dynamic economies of Asia like Europe have greatly increased the capital intensity of their economic activities.

Analysts increasingly attach great importance to human capacity improvement as a factor in development. Maddison reports that in 1820, the majority of the population in all countries was illiterate but that in Japan and the USA the average person's "human capital" increased ten-fold from that time to 1992 and this facilitated absorption of technical progress. Most leading economies in Asia-Pacific are associated with universal primary education and with high levels of secondary and (increasingly also) tertiary education. Most are investing domestic resources for this but some gained from colonial legacies - for example, Japan left Taiwan Province of China with higher levels of education and a body of technicians and entrepreneurs who subsequently played a key role in capitalist development.

Trade induces development because through it, even small countries (such as Singapore or Hong Kong SAR, China) are able to capture economies of scale which their own size would otherwise deny them. It is noteworthy that exports, which were only 1% of world product in 1820 accounted by 1992 for 13.5%.

Asia-Pacific, as all other regions of the world which have prospered, has made major gains with regard to all the above factors. Most prominent areas of the region's progress have been capital accumulation based on high investment and savings, and the growth of trade. Exports have been the key but imports, especially those of capital goods for industrialisation, have also been an important element of development.

27 A. Maddison , 1995. Monitoring the World Economy 1820-1992.. Development Centre of the OECD, Paris.