Asia's export-led growth
still maybe
the only show in town
By Jon Fernquest
Export-led growth strategies have been the main
factor behind
the phenomenal
economic success
of Asian countries (Japan, South Korea, China, Singapore, Hong Kong,
Thailand).Asian countries have used exports to capture consumer demand in rich countries (Europe, US, Japan, Australia).
They have used increased income from exports to build up industrial wealth and expertise.
Today's article explains why export-led growth may still be the only strategy available that can actually achieve fast economic growth.
Today's article starts after the vocabulary:
export-led growth - the strategy of
generating economic growth by exporting to richer western
countries that Japan, South Korea, China, and Southeast Asian countries
used after World War II, also known as export-oriented
industrialization (EOI) -(See Wikipedia)
strategy - a plan
to achieve goals over a long period of time
the only show in town - the only choice
the main factor behind Y - the main thing that caused Y
phenomenal - very great and unusual
phenomenal economic success - very great and unusual success
consumer demand - the things that people and families want and need to buy
build up Y - a gradual and steady increase in Y
expertise - special knowledge and skills (gained from training, study, or work experience)
the only show in town - the only choice
the main factor behind Y - the main thing that caused Y
phenomenal - very great and unusual
phenomenal economic success - very great and unusual success
consumer demand - the things that people and families want and need to buy
build up Y - a gradual and steady increase in Y
expertise - special knowledge and skills (gained from training, study, or work experience)
THE THAI ECONOMY
Has export-led growth model outlived its usefulness?
SUPHACHAI SOPHASTIENPHONG10/09/2009
...Now
that Thailand is in the
midst of a major downturn as the result of a slump
in its exports caused primarily by the sharp and synchronised collapse
in
global demand, is it time for the country to shift to a
new development
paradigm? Based on the argument that future growth in advanced
countries will
likely be less-consumption
driven as households are repairing their
over-leveraged balance
sheets, Thailand is bound to face a structural decline
in external demand over
the medium term. Over-reliance
on exports will thus
pose a potential drag on
future growth.
outlived its usefulness
- was useful in the past, not useful now
in the midst of Y - Y is currently happening
slump in its exports - big fall in exports
sharp and synchronised collapse in global demand
synchronised - two or more things happening at the same time, moving together at the same speed, working together
a paradigm - a set of ideas or model that guides something or explains it (the "export-led growth" development paradigm, for example)
a development paradigm - a set of ideas or an economic model used to make policy to make a develpoing country grow
a developing country - a country that still has not reached the level of wealth of rich western countries (including Japan and South Korea)
consumption driven growth - households using most of their income to buy things is what is making the economy grow (low savings)
leverage - using borrowed money to buy assets (higher leverage = higher percentage of borrowed money used in purchase)
balance sheet -
over-leveraged balance sheets - borrowed too much money (households have too much debt compared to assets on their balance sheets)
over the medium term - during a period of time that is 2-10 years into the future
potential - might happen in the future
a drag on Y - something that makes Y go slow
pose a potential drag on future growth - might cause slower growth in the future
in the midst of Y - Y is currently happening
slump in its exports - big fall in exports
sharp and synchronised collapse in global demand
synchronised - two or more things happening at the same time, moving together at the same speed, working together
a paradigm - a set of ideas or model that guides something or explains it (the "export-led growth" development paradigm, for example)
a development paradigm - a set of ideas or an economic model used to make policy to make a develpoing country grow
a developing country - a country that still has not reached the level of wealth of rich western countries (including Japan and South Korea)
consumption driven growth - households using most of their income to buy things is what is making the economy grow (low savings)
leverage - using borrowed money to buy assets (higher leverage = higher percentage of borrowed money used in purchase)
balance sheet -
over-leveraged balance sheets - borrowed too much money (households have too much debt compared to assets on their balance sheets)
over the medium term - during a period of time that is 2-10 years into the future
potential - might happen in the future
a drag on Y - something that makes Y go slow
pose a potential drag on future growth - might cause slower growth in the future
Indeed, our exports have been dropping precipitously for the tenth month in a row and a further decline is expected for the remainder of the year. Being closely intertwined with the global economy and increasingly integrated with the financial world, a slump in our exports is inevitable. Weakness in exports is spilling over to domestic consumption and investment, thereby triggering an adverse feedback loop between the financial and corporate sectors that is putting Thai
in a bind - have a
problem they can't solve
policy-makers in a bind - government officials and planners have problem they can't solve
dropping precipitously - falling by a large amount very quickly (like falling off a "precipitous" (steep) cliff)
the remainder of the year - the rest of the year (from now to the end of the year)
X closely intertwined with Y - the parts of X are closely connected with Y
X integrated with Y - X combined with Y (and made to work together as a whole)
X spilling over to Y - problems in area X is causing problems in Y
trigger X - cause or start event Y
adverse Y - Y which has a negative effect...
feedback - when output from an event in the past influences the same event in the future (when an event is part of a chain of cause-and-effect that forms a circuit or loop, the event feeds back into itself (See Wikipedia)
a feedback loop - the chain of events that starts with an event, through a series of other events, back to modifying the original event itself
triggering an adverse feedback loop - cause
in a bind - have a problem
putting Thai policy-makers in a bind… - creating a problem for Thai policy makers
policy-makers in a bind - government officials and planners have problem they can't solve
dropping precipitously - falling by a large amount very quickly (like falling off a "precipitous" (steep) cliff)
the remainder of the year - the rest of the year (from now to the end of the year)
X closely intertwined with Y - the parts of X are closely connected with Y
X integrated with Y - X combined with Y (and made to work together as a whole)
X spilling over to Y - problems in area X is causing problems in Y
trigger X - cause or start event Y
adverse Y - Y which has a negative effect...
feedback - when output from an event in the past influences the same event in the future (when an event is part of a chain of cause-and-effect that forms a circuit or loop, the event feeds back into itself (See Wikipedia)
a feedback loop - the chain of events that starts with an event, through a series of other events, back to modifying the original event itself
triggering an adverse feedback loop - cause
in a bind - have a problem
putting Thai policy-makers in a bind… - creating a problem for Thai policy makers
To rebalance growth away from exports and towards domestic demand - especially consumption - is, however, easier said than done. This will require a massive restructuring of the Thai economy.
easier said than done
- it is difficult (easier to talk about than to actually make happen)
Specifically, it entails the strengthening of the country's social safety net in order to reduce the need for precautionary savings and boost the consumption share of the country's GDP. Precautionary motives have played a major role in household saving behaviour in Thailand. Indeed, an inadequate healthcare system has strengthened the precautionary motive for saving, particularly for the elderly, who face increasing life expectancy rates and escalating healthcare costs. A national healthcare system launched by the Thaksin-led administration in 2001 that provides basic medical care for 30 baht - about 46 million people joined the programme by the end of 2003 - might have reduced precautionary savings as evidenced by a jump in consumer spending after its inauguration.
specifically - in
an exact and detailed way
X entails Y - if X then Y, X means also Y, X implies Y
Specifically, it entails Y - to give details, this means Y
social safety net - government programmes to provide insurance and protect people from bad or expensive things that could happen to them (lose their job, get very sick or injured, have to pay for expensive university education for children)
precaution (noun) - an action taken to prevent a dangerous or unpleasant event from happening s
precautionary (adjective) - preventing bad events from happening
precautionary savings - money saved to pay for possible large expenses in the future
motives - the reason for doing something (taking an action)
precautionary motives for saving - (See Wikipedia)
GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
consumption - money spent by households and families on goods and services (See Wikipedia)
boost the consumption share of the country's GDP - increase consumption as a percentage of GDP
adequate - enough to achieve goals
inadequate - not enough to achieve goals
inadequate healthcare system - the healthcare system in the country does not provide enough services
life expectancy rates - the average length of a person's life in a country (how long people are expected to live)
escalating - increasing
escalating healthcare costs - increasing healthcare expenses
X as evidenced by Y - X shown to be true by Y
inauguration of Y - the beginning of Y
X entails Y - if X then Y, X means also Y, X implies Y
Specifically, it entails Y - to give details, this means Y
social safety net - government programmes to provide insurance and protect people from bad or expensive things that could happen to them (lose their job, get very sick or injured, have to pay for expensive university education for children)
precaution (noun) - an action taken to prevent a dangerous or unpleasant event from happening s
precautionary (adjective) - preventing bad events from happening
precautionary savings - money saved to pay for possible large expenses in the future
motives - the reason for doing something (taking an action)
precautionary motives for saving - (See Wikipedia)
GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
consumption - money spent by households and families on goods and services (See Wikipedia)
boost the consumption share of the country's GDP - increase consumption as a percentage of GDP
adequate - enough to achieve goals
inadequate - not enough to achieve goals
inadequate healthcare system - the healthcare system in the country does not provide enough services
life expectancy rates - the average length of a person's life in a country (how long people are expected to live)
escalating - increasing
escalating healthcare costs - increasing healthcare expenses
X as evidenced by Y - X shown to be true by Y
inauguration of Y - the beginning of Y
The savings rate fell steadily from 30.5% of the country's GDP in 2002 to 27.9% in 2005 before climbing again to over 30% today. All this by no means implies that increased private consumption was the result of such a policy alone, for it could be argued that consumer credit boom and robust growth following the economic meltdown of the 1997-98 actually led to a surge in consumer spending.
Apart from a universal healthcare system, increasing public provision of education should also help weaken precautionary motives for savings as there would be less need to accumulate assets to finance future education expenditures. To this end, the universal education system recently launched by the Abhisit-led administration should help boost private consumption over the long haul. Social welfare programmes, including extensive pension coverage, better unemployment and other benefits will also lower household savings and boost domestic consumption. Thus, a nationwide retirement savings plan - covering about 25 million people outside of any formal pension programmes - to be implemented by the incumbent government should help lessen the precautionary motive for saving. In addition to the imperatives of an enhanced social safety net, there is also a need to temper mounting disparities in the distribution of income in Thailand, thereby boosting the consumption share of the country's GDP.
.. a stronger social safety net by no means guarantees that Thai consumers will spend more. A case in point is Europe, where there exists a strong social safety net but its people tend to save more than their spendthrift US counterparts. ..
It looks as if there is no better alternative to the export-led growth model that Thailand has been pursuing for decades...
[Read full article here]
Suphachai Sophastienphong is chief economist for Siam City Bank.
(Source: Bangkok Post, op-ed section, Has export-led growth model outlived its usefulness?, SUPHACHAI SOPHASTIENPHONG, 10/09/2009, link)
