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More Asian Geese Ready to Fly

Like geese flying in formation, the successive waves of Asian countries achieving economic takeoff and emerging or developed market status, has been likened to those migratory birds in flight.  If this model is accurate, more Asian geese are set to join the flock of economically successful nations.

The “Flying Geese Paradigm” or ganko keitai was first conceived of  by Japanese economist, Kaname Akamatsu in the 1930s as a way of explaining East Asian industrial development.  According to Akamatsu, the lead goose in the formation, was Japan.  The second tier consisted of newly industrialized economies—South Korea, Taiwan Province of China, Singapore, and Hong Kong SAR.  Following hot on their tails were the ASEAN countries, such as Indonesia, Malaysia, the Philippines and Thailand.  More recent additions to the flock are China and India

As the “lead goose” lost its comparative advantage, it would shift further away from labor-intensive production to more capital intensive activities.  Meanwhile, those labor intensive activities would move to nations further down the hierarchy.  To take a simple example, the textile industry was abandoned in Japan as labor costs rose, but also, at a later stage,  by countries in the second tier, South Korean and Taiwan.

According to this model,  as each goose ahead in the formation trades and invests with neighboring countries, those latter countries, in their turn take off to become the next growth driver.

But the emergence of successive waves of new growth drivers not only benefits Asia, through the creation of trade and investment linkages and greater Asian integration, the formation of North-South economic linkages means wider benefits accrue.

Akamatsu’s model is little known in the West, despite its fame in the economist’s home country, perhaps because it later became used as intellectual underpinning for Japanese imperialism during the war.

But advocates for the model might point to the current pattern of economic growth for validation.  Despite the sharp downturn globally in 2008, for most of 2009, Asia as a whole recorded higher growth than the rest of the world and the region is currently leading the global recovery. This trend is expected to continue this year and into the next, with the International Monetary Fund predicting that Asia will grow about 7 percent annually.

Strong recovery

There are many reasons for this strong recovery.  One major factor is the bold stimulus policies undertaken in China, their pattern of vertical integration in manufacturing and the demand for natural resources and capital goods created by “the Middle Kingdom” and by India.  All of which have had a domino effect regionally and globally.

If we accept the flying geese paradigm,  it is already possible to spot the next tier of geese ready to take wing.  Those countries, like Cambodia, Laos and Nepal, who are preparing for economic take off.  As yet, their per capital income levels may be low, but  they are the next emerging economies and their populations will provide the next large market of  middle-class consumers.  These countries have huge potential.

Of course possessing potential and realizing it is not the same thing.  Countries need to make the most of their potential by being well prepared with sound macroeconomic policies and a robust financial sector.  Alone, these are not sufficient factors, but they are necessary preconditions.  Our job at the IMF is to encourage those countries as they prepare to take flight which is why the Fund has organized a one-day conference in Hanoi, Vietnam, for 22nd March, targeted at those developing countries in Asia

The conference is looking at the impact of the global financial crises on these developing countries and identify the conditions which will raise these countries to the next level of development.

As the IMF’s mission chief for Vietnam, Masato Miyazaki, put it in an accompanying podcast “even if we do nothing, these countries will move up the ladder [of development], of that is no doubt.  But what we (at the IMF) want to do is to give the right kind of support and advice.  Whenever they turn to us, we stand ready.”

We, at the IMF would take great pleasure in seeing another goose fly.