Credit Nikada/iStock by Getty Images
Credit Nikada/iStock by Getty Images
Credit Nikada/iStock by Getty Images
Credit Nikada/iStock by Getty Images
Southeast Asia’s major economies have made major strides over the last couple of decades. The largest have seen income per capita grow at least three-fold over the past 20 years amid global integration and prudent policymaking. Vietnam now enjoys an income level that’s 11 times higher than in 2000. Building on such gains to close the region’s gap with high-income countries—an ambition for many seeking to break from the so-called middle-income trap—while challenging, is in reach.
Combining deliberate, ambitious structural overhauls can help the region’s largest economies achieve higher potential economic growth and sustainably attain high income levels. Wide-ranging reforms can build resilience to shocks in the face of uncertainties and help the private sector drive growth.
Packaging together broad, economy-wide reforms, spanning areas from regulation and governance to education, is the best way to achieve that goal, our research shows. Our study of output gains derived from structural reforms in advanced economies and emerging markets suggests that countries such as Indonesia, Malaysia, Philippines, Thailand, and Vietnam—the five largest emerging markets out of 10 economies in the Association of Southeast Asian Nations, or ASEAN—could increase long-term real economic output, on average, by 1.5 percent to 2 percent after two years and up to 3 percent after four years following comprehensive and simultaneous economy-wide reform packages.
Packaging ambitious reforms, however, often entails substantial political economy challenges; efforts on consensus building across key stakeholders is needed to facilitate such an approach and help deliver sustainable gains.
Six countries, four factors
Our analysis aims to help the five of the major ASEAN emerging market economies achieve their goal to join the sixth, Singapore, among the high-income countries in the next two to three decades.
We focus our assessment on four factors: trade and economic openness, economic sophistication, investment and governance conditions, and human development. These are the main broad structural areas to address, though the recommended areas of focus would vary by country.
Reforms to prioritize
What structural areas should ASEAN countries focus on to boost growth in a sustained and inclusive way?
Building on analysis in our 2024 selected issues papers on Indonesia and Philippines, we find that packaging reforms yields better output outcomes than a sequenced, gradual approach. A major simultaneous reform package improving business and external regulation, governance, and human development could raise output levels by up to 3 percent after four years. The benefits from enacting a single major economic reform would be more modest.
This result highlights that deliberate, ambitious packages of structural reforms can help the major ASEAN emerging market economies achieve higher potential growth and realize their vision of reaching high-income levels in a sustainable way. Amid a shock-prone global environment, ambitious economy-wide structural reforms can also help build resilience by fostering diversified, broad-based, inclusive growth at the domestic level, and ensuring a credible and robust institutional framework to further unleash private sector-driven growth.
