Over the last few decades, Asia has become one of the key pillars of the world economy. From the industrial powerhouses of Japan and South Korea, to the manufacturing hubs of China and Malaysia and the financial hubs of Hong Kong and Singapore, Asia has undergone a period of unprecedented growth. And yet while many Asian nations are reaping the full benefits of globalization, numerous others are still wallowing in poverty.
While Asia as a whole is growing rapidly, numerous nations are still struggling to integrate into the world economy. It’s easy to forget that immediately following World War II, Asia was widely considered to be poorer than Africa (due in part to smaller deposits of natural resources and larger poor populations).
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This is part nine of a ten-part series on some of the most important and educational literature for investors with a focus on value. Across this ten-part series, I’m taking a look at ten academic studies and research papers from some of the world’s most prominent value investors and fund managers. All of the material Read More
To be sure, some countries remain poor because of isolationist measures, such as Myanmar and North Korea. Meanwhile, Bhutan has chosen to the let the world pass it by and seems quiet content in its position. Other nations, however, have struggled even as they have tried to integrate into the global economy.
For example, India began to open up in 1991, at about the same time as China, and yet Indians as a whole lag behind their Chinese counterparts. India has one of the world’s most ineffective court systems, which has proven to be largely incapable of dealing with violent crimes and enforcing business laws. While India has been making strides to liberalize its economy, it ranked only 119th out of 177 countries in terms of economy openness.
India has enjoyed strong economic growth over the last decades, but has also suffered from rapid inflation and rising housing and living costs. Further, India’s economic growth has largely benefited the wealthy and well-connected while huge portions of India’s population continue to struggle in poverty.
Still, with a large population and plenty of access to talented engineers and other skilled workers, there is hope that India will be able to round the corner in coming decades. In order to move forward, however, the Indian government will need to undergo a massive modernization and finally develop the capabilities needed to lead the nation. The economy will also need to be liberalized in order to unleash the potential of India’s huge and comparatively well-educated population.
Just north of India rests the mountain kingdom of Nepal. Home to Mount Everest, the nation is known for its sweeping views and beautiful hiking opportunities. Nepal is also one of the poorest and most corrupt nations in the world. Nepal’s GDP per capita (PPP) stood at only USD 1250 dollars in 2010. Having a small domestic market and being isolated in the Himalayan mountain range, Nepal has had difficulty developing.
Solving Nepal’s rampant poverty and corruption will be no easy task. As the nation is so isolated and many parts of the country are accessible only by plane it will be difficult, if not impossible, to establish any major industries in the nation. Tourism has been and will continue to be a vital source of business, but there are limits on how much tourism can carry a nation of some 30 million people.
At the foot of the Himalaya’s rests the world’s most densely populated large nation, Bangledesh. No country, save for city-states, feature so many people living on such little land. Bangladesh is home to nearly 150 million people and yet consists of just over 55 thousand square miles, roughly the size of the state of New York.
Bangladesh is also immensely poor and has a GDP per capita (ppp) in 2011 of USD 1,900. With a huge shortage of land and a massive population, Bangladesh must constantly be worried about natural disasters, such as floods and typhoons. The country also suffers from poor education, and an overwhelmed public infrastructure. Still the nation has been finding some success in textiles and other low value-added manufactured goods.
While many other Asian countries remain poor, some are beginning to make headway and are enjoying strong economic growth and improving social and living conditions. One such nation is Cambodia. After emerging from the horrific crimes and brutality of the Pol Pot regime in the late 1970’s, which resulted in the death of as many as 3 million people in a country of only 8 million, the nation is moving to build a liberalized free market economy.
Cambodia’s GDP per capital (ppp) came in at only USD 2,500 in 2011, however, the nation did enjoy a growth rate of over 7 percent in 2012. The country is now trying to position itself as a low cost manufacturer and so far has been able to draw away potential business from Malaysia and China, middle-income producers that are quickly losing their cost advantages.
Laos finds itself in a similar position with a GDP per capita (ppp) of only USD 3000 in 2012, but posting a strong growth rate of 8% in 2011 and finding increasing success in the low cost manufacturing sector. Laos and Cambodia have both focused on undercutting their neighbors in terms of price advantages, but there is always the risk that another nation, such as opening Myanmar, will in turn undercut them.
The aforementioned nations represent just some of the poorer countries in Asia. The Philippines, Indonesia, Vietnam, and numerous other countries also remain largely in poverty. While Asia’s economy has been developing rapidly, there are concerns across the region that not enough of the wealth will “trickle down” into the working class masses.
Indeed, Asia seems to be locked in a race to the bottom. Once a country, such as Malaysia or China, starts to enjoy success in manufacturing or another industry costs begin to rise, but while these costs rise competing nations are constantly looking for a way to tap their cost advantages. China, Malaysia, Singapore, Japan, and South Korea have all felt the pinch on their manufacturing industries and other sectors.
For Asia to continue to reap the benefits of globalization, countries across the region will have to make sure that working class people receive a portion of the benefits of globalization and that each nation continues to work its way up the value chain. For example, advanced nations, such as Japan and Korea, will most likely face increasing difficulties in the manufacturing sector and will have to continue to develop other sectors, such as IT, knowledge creation, high-tech R&D, fundamental research, and other areas. Going forward, the challenges will be difficult but success may prove vital not just for Asia, but also for the world economy as a whole.