Promoting Human Development in East Asia: Strategic Issues and Current Imperatives

1. Promoting Human Development in East Asia: Strategic Issues and Current Imperatives Aniceto C. Orbeta, Jr. Philippine Institute for Development Studies Fourth East-Asia Congress 3-5 December 2006, Hilton, Kuala Lumpur, Malaysia

2. Outline • Trends and Issues in Human Development • Drivers and Imperatives

3. The presentation … • Uses the UNDP HD Framework as measured by the HDI • Summarizes recent reviews of East Asian Development

4. HDI reveals that … • Most countries have achieve significant improvements in the 1990s, particularly, China, Lao PDR, Singapore, Vietnam • But the disparities are still striking

5. Looking at changes in the components of HDI is instructive • The differences in per capita income are even more pronounced

6. Looking at changes in the components of HDI is instructive (cont.) • Life expectancy at birth follows the developments in per capita incomes but with lesser disparity

7. Looking at changes in the components of HDI is instructive (cont.) • Educational attainment also essentially follows development in per capita income but with exceptions such as Thailand, Philippines and Korea Source: Barro and Lee (2005)

8. Declining poverty … • $1/day poverty declined from 29 to 14 percent in the 1990s; the number of poor declined from 457 to 248 million • Estimates puts current $1/day poverty incidence at 8% or about 150 million poor people • East Asia will surpass the MDG target of reducing by half poverty recorded in 1990 • Elimination of extreme ($1/day) poverty potentially realizable (Gill and Kharas, 2006)

9. But with accompanying rising inequality … • Inequality has grown from 34.5% in 1990 to 42.6% in 2002 (using Theil index) • The bigger source of inequality is within country inequalities rising from 65% to 76% • Domestic inequalities (e.g. rural-urban, across regions) also persists or is rising

10. And jobless growth • High output and productivity growth rates are accompanied by far lower and declining employment growth rates; even slower growth in formal sector jobs

11. And high unemployment rates • Some have not even regained their pre-crisis unemployment rates

12. Rising or persistent informal sector employment • Employment in the informal sector – where productivity levels and earnings are low – is either on the rise or remains persistent

13. Rising insecurity in formal sector jobs • Considerable security for jobs in formal sector are increasingly no longer the case

14. Drivers of trends(Gill and Kharas, 2006, Felipe and Hasan, 2006, Birdsall, 2005, Koh, 2006) • Globalization has contributed to rising skill premium and rewarded more productive assets which are disproportionately owned by upper income groups; exposed domestic economies to added risks • Formation of clusters and agglomeration effects has resulted into spatial concentration of economic activity • Neglect of productivity-enhancing public investments in rural areas has resulted in increasing inequality between rural and urban areas and persistent high poverty incidence in rural areas • The ongoing process of fiscal decentralization has significant implications for equitable distribution of public spending, particularly, education and health • Artificial impediments to internal migration has prevented it from functioning as an equalizing process

15. Drivers of trends (cont.) • Limited investments generally and only to a limited extent restrictive labor laws had constrained the growth in formal sector jobs in the face of expanding labor force • The reduction tax burden has benefited the upper income quintile • The Asian preference for self-reliance and family support rather than state-funded welfare system has prevented the bottom income quintiles from benefiting from transfers from upper income quintiles • Note: Many are unintended effects of development processes implying the design of accompanying mitigating packages

16. Imperatives • Higher productivity rather than lower wage export push • Investments in lagging regions and big push for rural sector • Investments in human capital toward wider and more equal access to high equality basic education and higher education • Develop credit markets to enable access of the poor to income-generating opportunities and investments in human capital • Facilitate informed migration • Develop social protection systems • Promote greater fiscal equalization

17. Primary References • Gill, I. and H. Kharas (2006) An East Asia Renaissance:Ideas for Economic Growth • Felipe, J. and R. Hasan eds. (2006) Labor Markets in Asia: Issues and Perspectives. • Birdsall (2005) “The World is not Flat: Inequality and Injustice in our Global Economy” UNU-WIDER Annual Lecture • Kho, T. (2006) “Asia’s Challenges,” in Gill, I., Y. Huang and H. Kharas (eds.) East Asian Visions: Perspectives in Economic Development