When thinking about development, I always look for opportunities for cross learning between regions. Having lived in and traveled extensively in East Asia and having worked in the South Asia Region for over a year, I often compare and think about prospects between the two regions. One question in particular is whether South Asia should aim to emulate East Asia’s manufacturing and export driven development model. Japan began using this model starting in the 1950’s and most East Asian countries particularly, South Korea, Malaysia, Taiwan, and most recently China have used manufacturing as a catalyst for growth.
According to the World Development Indicators, manufacturing accounted for over 30% of GDP in East Asia and Pacific while it is around 15% in South Asia. Bangladesh’s ready-made garment (RMG’s) industry is one example of manufacturing success as it has proven to be exceptionally competitive in the global market. However, holistically, I found that South Asia has distinctive characteristics and quickly moving towards an East Asian export-led model may not be most effective.
Starting in the 1960’s, South Korea, Taiwan, Hong Kong, and Singapore began attracting foreign direct investment with government support that allowed an accumulation of capital that led to a growing capital to labor ratio that favored manufacturing. Their labor intensive exports of consumer goods targeted highly developed nation. This reduced their demand for imports through measures such as tariffs ensured a positive balance of payments (more exports than imports). They then reinvested the funds into infrastructure and human capital which produced human capital dividends. Since then, the Asian Tigers have moved up the value chain and now design and produce LCD televisions, semiconductors, automobiles, and laptops, a considerable distance from where they started.
The East Asian Tigers’ advantage at the time, however, was that there were few competitive exporting nations. Over the decades through experience, the Tigers have developed extensive value chain experience and have built sufficient transport and port facilities to reduce logistics bottlenecks, enjoying considerable cost advantages. Although the cost of labor is very competitive in South Asia, trade facilitation costs tend to be higher.
Due to these dynamics, I believe South Asia should continue on its path of a more organic development model throughout different sectors and emphasize areas in which it has competitive advantages rather than putting too much emphasis solely on manufacturing.
One advantage that India has effectively demonstrated is its prowess in the IT and services industry which accounts for more of its GDP than China’s. Coupled with government support to reinforce this success through constructing software parks and placing greater emphasis on infrastructure, reputable and successful companies have emerged and gained international prominence.
Compared to China, India also has better English skills which allows for easier interaction with global clients and consumers, hence customer support centers are typically directed to India rather than China when outsourced. Both regions have an excellent opportunity to create synergy and mutually complement one another; China has recently replaced the US as India’s largest trading partner.
In Sri Lanka and Nepal, I saw vast opportunities for expanding tourism and exporting niche products to international markets due to the uniqueness of the culture and geography. The breathtaking mountains and fields of green, the endless rows of fertile coconut trees, the bounty of fish and indigenous wildlife were enthralling. The rest of the world has begun taken notice, and the New York Times ranked Sri Lanka the best tourist destination in the world. Sri Lanka has also begun to utilize its strategic geographic location for sea routes and is building a deep sea port in the southern city of Hambantota to facilitate trade and increase integration.
A more balanced path to development will create more opportunity and minimize negative consequences such as increasing income inequality. South Asia has a exceptional opportunity to take advantage of its respective competitive advantages through diversity of economies and industries.