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The Challenge of Structural Change in APEC Economies - WP 07/06

3  Prospects of Economic Growth and Income Convergence in the Asia-Pacific Region

3.1  Where is growth occurring?

The growth performance of the Asia-Pacific region has been stronger on average than that of Organisation for Economic Cooperation and Development (OECD) countries over the last two decades or so, although significant variation in economic performance exists within the Asia-Pacific region. The economic performances of East Asian economies and China in particular have been key drivers of growth in the Asia-Pacific region since the 1980s. Figure 1 shows the real per capita growth rate of China compared with population-weighted real per capita growth rates of APEC economies (developing and developed) and OECD countries that are not in APEC, since APEC was formed in 1989.[6]

Figure 1: Real per capita GDP growth rates, 1989-2005
Real per capita GDP growth rates, 1989-2005.
Source: United Nations Statistical Database.
Note: Excludes Russia and Chinese Taipei due to data gaps. Data for groups of economies (ie, developed APEC, developing APEC and OECD Non-APEC economies) are population-weighted.

Growth rates per capita in APEC economies have been higher on average than those in OECD countries over the past two decades. The lower growth rates in 1997-98, particularly for developing APEC economies, reflect the impact of the 1997-98 Asian financial crisis on economic performance. This period was a harsh illustration of how weak institutions (in particular weak financial institutions) and poor governance structures can eventually impact on growth. While crisis-affected economies did rebound quickly from the Asian financial crisis, growth rates in the post-crisis period have been running at around 2% less than during the two decades before the crisis. The experience is still impacting on investment in the region as a result, at least in part, of higher risk premiums on projects due to greater uncertainty (World Bank, 2007).

Lower-income APEC economies are growing more rapidly on average than higher-income APEC economies, although the gap has been narrowing, especially since the Asian financial crisis. However, these aggregate figures hide a great variation in economic performance across the APEC region. Figure 2 shows the average annual real per capita GDP growth rates in APEC economies from 1989 to 2005. Average annual growth rates of real per capita incomes over the period range from -0.6% in Brunei Darussalam to 8.7% in China. Brunei Darussalam’s economy is heavily dependent on revenue from oil and gas production. The poor economic growth performance of Brunei Darussalam since the mid-1970s was driven by relatively low world oil prices, and also the cut back of petroleum production since 1979, which was done in order to extend the life of its oil reserves. Brunei was also affected by the 1997-98 Asian financial crisis. Brunei Darussalam’s economy has recovered recently, as a result of the recovery of world oil prices (Anaman, 2004). Russia has also had a poor growth performance over this period, as a result of negative growth rates during the 1990s.

Figure 2: Average annual real per capita GDP growth rates of APEC economies, 1989-2005
 Average annual real per capita GDP growth rates of APEC economies, 1989-2005
Source: United Nations Statistical Database.
Note: Data for Russia for period 1990-2005 due to data gaps. Excludes Chinese Taipei due to data gaps.

The real per capita GDP growth rates of APEC economies from 1975 to 2005 are included in Appendix 1. It is evident from these graphs that only China and the Republic of Korea have sustained growth rates above 2% over the past three decades.[7] Viet Nam has lifted and sustained growth above 2% in the post-1990 period. The impact of the 1997-98 Asian financial crisis is particularly evident in Hong Kong, China; Indonesia; the Republic of Korea; Singapore; Thailand; and Malaysia.

Notes

  • [6]Chile, Republic of Indonesia, Malaysia, Mexico, Papua New Guinea, Peru, Republic of the Philippines, Thailand, and Viet Nam are classified as developing APEC economies. The remainder (excluding Russia and Chinese Taipei due to data gaps, and the People’s Republic of China as its growth rates are graphed separately) are classified as developed APEC economies.
  • [7]Real per capita GDP growth of 2% is often used as a benchmark because it is approximately the long-run average growth rate of real per capita incomes of developed economies, such as the United States.
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