The elusive development model
Weak convergence of domestic development policies of South Asian countries is a major restraining factor for deeper integration in the region
Remarkable growth experience and development of the East Asian countries (South Korea, Singapore, Taiwan, and Hong Kong) during the 1960s, 1970s, and 1980s led to the emergence of the discourse of "East Asian Development Model." A similar development model during the 1980s, 1990s, and 2000s amongst the Southeast Asian countries (Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Thailand, and Vietnam) is also observed.
One important aspect of the East and Southeast Asian development models is that most of the countries in those regions witnessed a convergence of their economic and development policies related to trade openness, foreign investment, macroeconomic management, and social policies, which led to the convergence of their development outcomes also. The East Asian as well as Southeast Asian experiences illustrate economic development models with clear policy objectives and institutional arrangements at each stage. These models also suggest judicious balancing of the use of market mechanism and government interventions in the development process.
When we look at the South Asian experience of development, one obvious question comes to our mind—whether there is any "South Asian development model." To answer this question, at first, we have looked at the convergence of per capita GDPs (gross domestic products) of the South Asian countries, and have also conducted a similar exercise for the Southeast Asian countries.
For our analysis of South Asia, we have dropped the Maldives as an outlier and have considered Sri Lanka as the benchmark. In 1980, Sri Lanka had a per capita GDP of USD 909, which increased to USD 3,832 by 2016. For the Southeast Asian countries, we have dropped Singapore and Brunei as outliers and have considered Malaysia as the benchmark. In 1980, Malaysia had a per capita GDP of USD 3,317, which increased to USD 11,031 by 2016. It is quite clear from the analysis of Southeast Asian countries that all the other seven countries in that region demonstrated a gradual convergence towards the level of per capita GDP of Malaysia, and the convergence intensified since 2000.
However, despite the rise in per capita GDPs in all South Asian countries since 1980, there seems to be a very weak convergence among these countries with respect to their per capita GDPs. As we make the comparison with respect to Sri Lanka's per capita GDP, only India and Bhutan since 1980 and Bangladesh since 2000 have been able to demonstrate some convergence, while Pakistan, Afghanistan, and Nepal have been sliding down continuously.
South Asian countries have strong divergence in trade policy and trade outcomes, too. In the case of trade orientation, between 1980 and 2016, while Bangladesh, India, and Nepal experienced considerable increase in the trade to GDP ratio (in 2016, the ratio was 38 percent, 40 percent and 49 percent for Bangladesh, India, and Nepal respectively), Sri Lanka experienced a downward trend but still maintained a ratio of over 50 percent in 2016. Pakistan encountered a drastic fall in the ratio from around 37 percent in 1980 to 25 percent in 2016. Such diverse trade policies have led to diverse experiences in the export performance, too.
One indicator of the performance of the export sector is the ratio of exports to imports which suggests the extent by which a country's exports can finance imports. Only Bangladesh has been able to gradually and consistently increase this ratio from 27 percent in 1980 to 80 percent in 2016. While India maintained a rate of over 90 percent in 2016, Nepal had the least ratio of only 21 percent, and both Pakistan and Sri Lanka had ratios of around 60 percent in that year. By contrast, all Southeast Asian countries, except the Philippines, demonstrated rapid convergences towards both high degrees of trade orientation and performance of their exports in financing imports.
South Asian countries have diverse experiences in the structural transformation of their economies, too. Except for Bangladesh and Sri Lanka, all other South Asian countries confronted a declining trend in the share of manufacturing value-added in GDP, which raises the concern of the phenomenon of "premature deindustrialisation." Actually, such a phenomenon is very prominent in both Pakistan and Nepal. Interestingly, such premature deindustrialisation is not observed in most of the Southeast Asian countries.
With respect to attracting foreign direct investment (FDI), the experience in South Asia is quite diverse and poor. Except for India, FDI orientation (the ratio of FDI to GDP) is very low in South Asian countries. Especially, Bangladesh, Bhutan, and Nepal, the three least developed countries, have not been able to improve their FDI status significantly over the past couple of decades. By contrast, we can see a nice convergence in Southeast Asia in terms of high degree of FDI-orientation, and lagging countries like Cambodia, Lao PDR, Myanmar, and Vietnam, are now taking the lead.
Finally, looking at the trend in human capital development, we see a weak convergence in South Asia. While all South Asian countries have been able to increase their average years of schooling between 1990 and 2015, the progress has been rather slow. One of the striking differences between the East and Southeast Asian development models and development experiences in South Asia is the much higher emphasis on human capital development in East and Southeast Asia. Many of the poorer outcomes in this respect in South Asia can be attributed to low public spending on health, education and social protection in countries in this region.
The above-mentioned analysis points to the absence of any "South Asian development model" yet. The weak convergence of domestic development policies of the countries in South Asia is a major restraining factor for a deeper integration in this region. The pursuit of a South Asian development model will, therefore, require countries of this region to get their domestic policies right.
Dr Selim Raihan is a professor of economics at the University of Dhaka, and Executive Director, South Asian Network on Economic Modeling (SANEM). Email: selim.raihan@econdu.ac.bd