Have the Least Developed Countries of Asia and the Pacific Escaped the Vulnerability Trap?
Bangkok (UN Information Services) – Economies of the Asia–Pacific need to improve governance, spend more on infrastructure and human capital, and reform the business environment to reduce vulnerabilities to economic shocks and climate change, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) reports in its latest regional survey.
The Economic and Social Survey of Asia and the Pacific 2008 says that while the region gas one of the most dynamic economies, it also plays host to the countries most vulnerable to climate change, and which are “unable to break the vicious circle of conflict and poverty.”
Some countries have reduced their vulnerability and have the chance to be among the next newly-industrializing countries. Others still face conflict or are emerging from war, leaving a weak economic base. The Pacific island economies, while wealthier, suffer from “frequent shocks that imperil development.”
One of the options for assessing economic vulnerability is the United Nations vulnerability index. It covers areas such as economic structures, including export concentration and the share of agriculture in gross domestic product (GDP); population; remoteness from major markets; and the number of people displaced by natural disasters and instability of agricultural production and exports of goods and services.
But the Survey recommends “improvements” in the index. One possible step could be to take into account vulnerability through civil war and political unrest. While Bangladesh is the least economically vulnerable, the Pacific island least developed countries have the highest vulnerability “but (also) the highest per capita incomes and human development.” Incomes in the Pacific islands are frequently volatile.
Bangladesh has reduced its economic vulnerability over time by reducing the share of agriculture systematically moved to manufactured-based exports which tend to be less vulnerable. The country has also found ways to quickly respond to frequent disasters such as cyclones and floods. Also, overseas remittances are playing an important role in cushioning economic shocks.
In the highly vulnerable Pacific island economies, however, vulnerability is more difficult to reduce: they are small, extremely remote and resource-poor. Economic structures tend to be “skewed towards exports in vulnerable sectors, leading to highly volatile export yields”.
Even manufacturing in these countries is based on the processing of agricultural goods, making its manufacturing sector as vulnerable as agriculture. “The result is macroeconomic instability, with chronic trade deficits that can be sustained only by capital inflows, such as remittances and development assistance,” the Survey adds.
Also, the small size of Pacific island economies hinders economies of scale which also means public goods are more expensive. But the smaller island economies, the Survey adds, also tend to develop better institutions because “enforcement is likely to be more effective.”
The institutional environment in the Pacific islands is much more conducive to doing business than in other least developed countries. “These countries are trying to mitigate their geographic disadvantages by making it easier to do business,” the Survey notes.
While many least developed countries in Asia and the Pacific have undertaken an economic transformation over the last quarter of a century, reducing shares of agricultural raw materials, “it remains elusive in two groups of countries: Pacific island countries and Afghanistan, Myanmar and Timor-Leste.”
“Establishing peace and security and making a commitment to equitable and inclusive development must therefore be the first step towards more sustainable – and less vulnerable – economies,” the Survey says.
Infrastructure and human capital are “essential for a conducive economic environment,” including human assets such as health and education. “Infrastructure – the road network, electricity supply and information and communications technology coverage – is particularly weak in Afghanistan, Myanmar and Timor-Leste,” according to the Survey.
Afghanistan and Timor-Leste remain vulnerable due to their long histories of conflict, and in the case of Timor-Leste, the nation only recently gained independence. The vulnerability in Myanmar has been indicative by agriculture’s share in GDP rising from 46 per cent in 1980 to 57 per cent in 2000.
Improvements to the business environment and the maintenance of a stable economic environment and integration with the global trade system and transport sector are considered vital in reducing vulnerabilities for land-locked economies.
Repeated bouts of conflict, such as those faced by Afghanistan, will continue to leave some least developing economies in positions of being “hard hit” economically, “trapped in a vicious circle of conflict and poverty,” “Economic transformation is impossible in such circumstances,” the Survey notes.
As the region's most comprehensive annual review of economic and social developments, ESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2008 Survey, entitled "Sustaining Growth and Sharing Prosperity,” looks at the most critical issues, challenges and risks our region faces in the months ahead.
Headquartered in Bangkok, Thailand, ESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.