The Economic Miracle of East Asia and its Impact on the Region

Whilst the world described the East Asian economic growth as a miracle, some countries in South-East Asia have lagged behind, especially the countries in Indochina such as Cambodia, Laos and Vietnam. Just a few decades of economic struggle after World War II, countries in East Asia managed to lift a high percentage of their people out of poverty and are now considered middle-income countries. The fast economic growth in South Korea, Japan, Taiwan, and Singapore has provided advantages for economic development in the entire region. The high level of growth of countries in East has pushed the price of goods and the cost of labour up. Many investors and industries both local and international started to move their investments to other places, which had cheaper labour costs. This move has provided some advantages for countries in South-East Asia such as Malaysia, Indonesia, Thailand and Philippines. Out of all sectors, manufacturing became the most important contributor to growth in these economies and helped to increase the annual GDP growth rates, which exceeded 6% and 7% in the periods 1970-80 and 1980-93 respectively (Ishak Shari: 2000). However, there are some countries in the South East Asia region, including Cambodia, Laos and Vietnam, who are less fortunate, which has caused them to lag behind significantly.

Economic Development in South East Asia:
Many countries in South East Asia have integrated into the global community since the 1980s. For the first time in history, individual countries has embraced and adopted global economic liberalisation, driven by the powerful process of globalisation. As a result, countries such as Thailand, Malaysia, Indonesia and the Philippines have experienced fast economic growth from the 1980s to 1990s (Thomas R, L et. al: 2000). However, it is unappreciative to count the economic growth in some parts of Southeast Asia without considering the impact of the economic miracle in East Asia and its influence of the South East. After several decades of economic development, countries such as Japan, Taiwan, South Korea and Singapore have pushed the price of goods up and in turn the cost of labour. In the case of Japan, the Jen devaluation imposed by the US in the Plaza Accord pushed the price of labour and goods up so that the goods from the US could compete more effectively with Japanese goods in the world market. In the first phase during the 1960s and the 1970s, Japanese investors started to relocate their industrial plants to South Korea and Taiwan in order to seek cheaper costs of labour (Thomas R, L et. al: 2000). Nevertheless, a few decades of economic growth in Korea and Taiwan have, for the same reasons as in Japan, led to demands from workers for higher wages, better working conditions and better living conditions. The higher labour costs and the higher cost of transport of goods made in Korea, Taiwan and other East Asian tigers has forced many investors to reconsider the relocation of their industrial plants and investments to other places where they can find cheaper transport and labour costs.

Countries in South East Asia were targeted by industrial plants and the relocation of direct foreign investment from countries in the East because they have compatible natural and human resources and cheaper labour. In the mid 1980s and 1990s there was an increase in the number of direct foreign investments in Indonesia, Malaysia, Thailand and the Philippines from around the world. Most of the industries and investments were from Japan, Taiwan, South Korea and Singapore and employed vast numbers of people (Thomas R, L & Ulack, R: 2000). The fast flow of direct foreign investments inside and outside Southeast Asia provided a continuous increase in foreign exchange, helping to grow the GDP and expand their domestic markets.

The IMF (cited in Thomas R, L & Ulack, R: 2000: 189) indicates that the trade between six countries in Southeast Asia grew significantly in the 1990s. The trade between Thailand, Singapore and Malaysia in the 1990s was higher compared to the others. Trade between Singapore and Malaysia was worth $16,820 million compared to $5,845 million between Singapore and Thailand. Trade between Indonesia and Singapore was also high, $4,708 million, compared to $911 million between the Philippines and Singapore and $721 million between Brunei and Singapore.

Unfortunately, the three countries in Indochina: Cambodia, Laos and Vietnam were excluded from the ASEAN trade deal during this time because they were not yet members of ASEAN. Cambodia in particular, was in political transition and was still entrenched in civil war.

In order to look into the economic growth of countries in Southeast Asia more specifically, it is worth discussing the fast economic growth in Thailand. The Thai economy has developed rapidly along with the Malaysia and Indonesian economies.

Thailand:
Like most developing countries in the region, Thailand depended strongly on agriculture. Before the integration into the global economy, Thailand was an agrarian economy. In 1980 most Thai people were farmers. Agriculture accounted for 75% of total employment and it was responsible for 23% of Thai GDP (James A. Hafner 2000: 434-469). However, the search for cheaper wage rates and transport by investors from countries in East Asia and the rest of the world provided Thailand with the potential economic growth through direct foreign investments which included industrial and service sectors. The Industrial sector in Thailand grew from 27% of GDP to 39% of GDP between 1980 to 1993 (James A. Hafner 2000: 434-469).

The growth of the industrial and service sectors resulted in providing a significant number of jobs for the Thai people. This continuous growth not only added to the value of GDP and reduced poverty in Thailand but also helped it to expand its internal market. In the 1990s the Thai economy boomed, fuelled by strong domestic demand, which enabled industries to increase all sorts of goods and increase Thailand’s exports to foreign markets. Thailand stood at the top of the region as regards textile and sportswear exports, computers and other components. The growth of knowledge in agriculture and modern technology helped to increase the yield of agricultural crops, especially rice and rubber, and increase fishery production. In 1996 Thailand had $750 million cost assembly plants, doubling its share to 10% of the Asian auto market in 2005 (James A. Hafner: 2000). From 1980 to 1993 the growth rate of Thai exports was 15.5% the highest compared to 12.7% in Singapore, 12.6% in Malaysia and 6.7% in Indonesia (James A. Hafner: 2000).

Thailand’s GDP between 1980 and 1993 was $124,682 million the second highest after Indonesia, and two times higher than Malaysia and nearly three times higher than Singapore and the Philippines. The service sector accounted for 51% of GDP; the industrial sector shared 39% with 28% of manufacturing and 10% for the agricultural sector. Compared to other countries in table 2, Thailand had the highest GDP growth rate at 8.2%, seven times higher than the Philippines (Thomas R, L & Bowen, J 2000: 160-162). However, Thailand’s GDP growth rate from 2000-2005 was 6-7% and dropped to 4.5% in 2006 due to political instability (military coup in 2006) (Thailand Economic Monitor: 2006).