New East vs new West

Another "developing" divide

Published: Saturday 15 November 2003

-- Developing economies of the East are racing past their counterparts in the West. From 1974 to 2000, East Asia's gross domestic product (gdp) grew at an average rate of 6.3 per cent annually in comparison to Latin America's 2.8 per cent

Three indicators -- investment trends, the industrialisation process, and competitiveness -- reveal why the two regions are not in tandem

At 20 per cent, Latin America's gross capital formation as a percentage of gdp remains below 1960 levels. In contrast, East Asia's investment increased steadily, crossing 30 per cent in the early 1990s

Moreover, investments by Latin American countries shifted to less productive categories in the 1980s, accentuating their problem

Industrial output and employment showed that industrialisation took off in East Asia but stagnated or declined in Latin America

In Latin America , manufacturing employment fell from 15.4 per cent of total employment in 1960 to 14.2 in 2000, while it rose from 8 to 14.9 per cent in East Asia

In the same period, industrial output as a share of gdp declined from 28.1 to 17.8 per cent in Latin America and increased from 14.6 to 27 per cent in East Asia

Competitiveness has failed to improve if labour productivity hasn't. While East Asia enhanced labour productivity across all sectors over the last two decades, no such trend was evident in Latin America

For example, Argentina's labour productivity fell from 122.1 points in 1985 to 85.1 in 1996 with a base of 100 in 1990. In the Republic of Korea it rose from 50.7 in 1980 to 231.8 in 2000

With productivity, poor countries need to increase employment, raise real wages and keep an exchange rate that ensures purchasing power parity. Here too, East Asia fared better

Source: Anon 2003, Trade and Development Report 2003, United Nations, New York and Geneva

Tigers overtake pumas
International competitiveness indicators bare it all
Country Real effective exchange rate1 Labour productivity2 Real wages3
66.7 50.5 73.5
43.3 114.84 137.4
73.9 113.0 100.7
92.0 146.6 98.5
161.6 136.2 26.3
Malaysia 151.8 255.2 216.5
118.9 202.6 163.0
Republic of Korea 129.0 459.5 329.8
91.4 205.9 248.6
171.3 98.6 105.9
(Index numbers for 2000 with 1980 = 100, unless otherwise indicated)
Note: 1. Based on relative consumer prices; 2. Real value added per worker calculated by deflating value added (in United States dollars) per worker by the GDP-deflator; 3. Nominal wage per worker deflated by the consumer price index and 4. 1990-1995

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