Malaysia: Halfway to 2020 Plan

Halfway through its first century of independence and halfway to 2020 plan which is expected towards becoming a developed country by 2020 due to its booming economic growth. The average growth rate is about 6.1 per cents and its GDP per capita was double to USD 15,385 by 2008. Notably, Malaysia has an impressive current account surplus of 99.3 billion Ringgit equivalents to USD 31 billion (Richard, 2006).
The growth in manufacturing, agriculture, and services are significantly bringing Malaysia forwards. The Malaysian electronic export is equivalent to nearly 47 per cents and agricultural commodities such palm oil and rubber contributing 8.6 per cents which leads to a surplus of USD 310 million. Given to its rapid economic growth during the past five years, Malaysian Prime Minister Badawi was satisfied with the achievements and the progress of its halfway in its vision 2020.


Despite a rapid economic growth, it is concerned that this plan might face the risks of getting stuck in the middle in term of great challenges and even more perilous and demanding in the global environments. The main issue in Malaysia Halfway to 2020 plan is a low investment rate. Therefore, this case paper intends to analyze this key issue and provide some new alternative options for the government to achieve the objectives of its vision 2020 plan.


Despite a positive economic growth, Malaysia has a negative investment rate due to its restrictions on openness to trade and investment in terms of government regulations. Comparing to the Asian countries such as China, India, Singapore, and Hong Kong, Malaysia has a lower rate of economic growth. For instance, China receives a huge amount of foreign direct investment which leads to an increase in growth rate in excess of 9 per cents in the past two decades. India became the fastest growing centre of information technology and outsourcing contributing to a growth of 8 per cents annually for the past six years. Exhibit 3 and 4 indicate a huge negative investment of Malaysia which is USD 14.5 billion leading to a decrease in the account surplus (pp. 12-13). According to Figure 1 and 2, Malaysia is similar to the Asian countries in terms of starting a business but considerably worse in terms of excessive regulation which leads to a decrease in investment (p. 9). Therefore, Malaysia might face economic slowdown if this problem is ignored.


To overcome the above issue, two alternative options are recommended to boost the economic growth: ongoing increase in savings and investment rates, and ongoing technological change and human capital accumulation to ensure the stability and enhancement of its economic growth. These options will strengthen the Malaysian economic growth fundamentals.


First, the Malaysian government should continue to increase a level of investment and reduce restrictions on openness to trade to boost an inflow of foreign direct investment. It is significant to keep ongoing increase in savings and investment which lead to an increase in capital stock and income per capita. The high level of inward foreign direct investment leads to an increase in the capital stock and formation which contributes more to the Malaysian economic growth. Additionally, the transparency and consistency of the government policies should be treated for the openness to trade and competitiveness. Thus, it will boost the industrialized sector and enhance an increase in manufacturing, construction and services. For instance, the government’s surplus savings and capital should be used to channel into investments.


Second, ongoing technological change and human capital accumulation significantly boost the productivity and total productivity leading to an economic growth (Helpman 1994, p. 55). Although, the growth of output increases to 6.3 per cents in 2007, it is expected that the growth will decrease at 5.5 per cents in 2008 due to a global turndown. Notably, the Malaysian total factor productivity of more than 2 per cents annually is significant for boosting its economy apart from the growth of labor and capital inputs. For this reason, by continuing the technological change and human capital accumulation will enhance the total factor productivity and could sustain the economic growth.


Although, both two alternative options above are significant to take into accounts, it is preferably suggested that the most significant option to deal with the above issue is option one: Malaysia should increase the level of investment and reduce restrictions on openness to trade to boost an inflow of foreign direct investment. Exhibit 3 and 4 indicate the Malaysian investment was hugely negative USD 14.5 billion which leads to a decrease in their account surplus. Therefore, the government should take into account to further step their investment rates. However, increasing the level of investment alone does not exert an independent positive effect on growth, the openness to trade and human capital development in particular is needed to be tied to investment (Ventura 1997, p. 58). For this reason, the government needs to challenge more with the Asian Countries such as China and India. If they do not improve the weakness of its investment, it would clearly decline as China and India will take more foreign direct investment. At the same time, education and training should be enhanced and government regulation on trade and investment should be simplified to provide for both domestic and foreign investors an opportunity for further investment. As a result, Malaysia would be able to sustain and enhance its economic growth, and even actively compete with the global markets.


Finally, Malaysia has a remarkable economic growth. They could continue to forge ahead with their economic policy towards the achievement of vision 2020 plan. Given to its current account surplus and strong economic growth, Malaysia has clearly stayed on the course of growth. Although, it is concerned that the plan might get stuck in the middle, their economic trend indicates positive growth. However, they need to challenge more on investment, which is suggested in option one above, in order to sustain and boost the economic growth, and seize the opportunities in the next decade.

(Author: Bong Angkeara)

The opportunities and challenges to the WTO accession: the case of Cambodia

Cambodia is one of the poorest countries in the world. The government has deployed many efforts to reintegrate itself into the international economy since the signing of the Paris Peace Accord in 1991. Following this accord, the government's strategies aim to open its economic and trade policies to boost its economy and development, which intends to reduce poverty. As part of this strategy, Cambodia became 148th member of the World Trade Organization (WTO) in 2004 approved at the Ministerial Conference in Cancun, Mexico (Simon & Carlos, 2005). Accession to WTO aims to foster free and fair international trade into the world markets, which is believed to accelerate its domestic economic, legal and institutional reforms to create stable business environments and attract more foreign direct investment (FDI). However, being a member of WTO means that most of external trade barriers will be removed. In this context, the accession of Cambodia to the WTO might be exceptionally beneficial for the country but it also poses great challenges for the country as well (EIC, 2003).

Therefore, the main objectives of this paper aim to highlight the opportunities and challenges facing Cambodia. This paper divides into two sections. Section one discusses three main opportunities of WTO accession: first, access to the world markets; second, access to dispute settlement mechanisms for trade issues and non-discrimination; third, improve better governance and credibility. Section two discusses four key challenges of WTO accession: first, commit in legal and judicial system reforms; second, compete in global markets; third, protect trade-related aspects of intellectual property rights (TRIPS); fourth, forgo high tariff on agriculture products and protect small farmers. 

First, by accession to WTO, Cambodia can integrate its market access to the world economy, which may result in higher exports to the foreign markets and boost FDI inward for the country. This is the substantial milestones not only for the Cambodian economy but for all the Least Developed Countries (LDCs), which seek to leverage the benefits of trade. By this accession, Cambodia is treated by all the WTO³ members as a most-favoured nation (MFN), which cannot be discriminated against unfairly according to the principles and rules underlying the trading system. This provides superior market access in a wide range of products and a wide range of countries. For instance, the garment industry⁴ is one of the Cambodian key industries, which are the powerful stimulus to the Cambodian development. By this accession, Cambodia could protect its garment industry after the export quotas removal under the Multi Fibre Agreement (MFA) arrangements, which are applicable to the WTO members. After the removal, all exports, especially those to the United States (US) markets, will be subject to a high import tariff (EIC, 2003). For instance, about 50 percent of the garment exports have been delivered to the foreign markets, particularly the US. Thus, by accession to WTO could help to secure a lower tariff rate for the LDCs like Cambodia. Indeed, without a WTO membership, it could be difficult for the Cambodian garment export industries to cope competitively with the normal US tariff regime, particularly, after the quota system is removed. This means that a high import tariff imposed by the US might ensure a quick collapse of the non-competitive Cambodian garment industries. 

From these observations, becoming a WTO member is very important for Cambodia to accelerate its economic development process and to raise the living standards of the people through market access to the world markets. Importantly, it also sends a strong signal to trade and investment partners about the future directions of Cambodia, which could attract more FDI inwards. Yet, it does not mean that integration into the global markets access brings higher exports and FDI inwards for the country. Many developed countries still maintain high tariff peaks barriers to protect policy, which close markets for the Cambodian export products.

Second, by accession to WTO, Cambodia can join the WTO dispute settlement mechanism⁵, which is an effective system for dealing with the disputes of international trade. This mechanism is widely recognized as one of the most critical and successful features of trade regime and is very crucial for offering security, safety and predication to the economic issues of the member countries. With suitable dispute settlement mechanisms under the WTO agreements, it would support small and vulnerable economies like Cambodia from any violations, which might be made by the big markets, particularly, from the developed countries. This mechanism is also considered as an important factor in upgrading the rights and obligations of the members under the agreements. This factor is very important for Cambodia to ensure current investment and attract more foreign direct investment for the country. Thus, by accession to this mechanism, the WTO members can shine the spotlight of international legal scrutiny on the protectionist practices of their trading partners. This means that it is significant for the developing countries like Cambodia, which typically lack the market size to exert much influence through more power-oriented trade diplomacy.

In addition, Cambodia can fully benefit from the rights accorded to all members under the WTO agreements such as non-discrimination by other WTO members known as MFN, and potential increase in FDI. For instance, the developed countries provide market opportunities for goods from the developing countries like Cambodia, with better terms and zero percent tariff rates, which could promote more investments, and thus create more local employments in the country. 

On the other hand, Cambodia faces the concept of bad governance and weakness of the government, that is, lack of control, corruption and illegal monopolies, which would discourage and threaten the foreign investors. This signal could affect on the trade environment in the country (WTO, 2003).

Therefore, by accession to WTO offers the opportunities for Cambodia to set up a legal framework, which would improve better governance and credibility. It is significant for the economy of the country to introduce its credibility in the commercial policy, which is a consequence of adherence to WTO rules. Better governance and credibility is very vital for both domestic producers and exporters from other countries wishing to access the economy’s markets in Cambodia. Thus, by strengthening better governance and enhancing credibility would significantly improve the confidences of the foreign investor.

However, by accession to WTO, it does not mean a panacea⁶. Simultaneously, it will also bring the challenges to the Cambodian government as well. One of the most challenging tasks facing Cambodia is to make its commitments in legal and judicial system reforms such as the establishment of a specialised commercial court and the enforcement of rule of law as part of its accession to WTO (Bernard, et al, 2002). For instance, 47 laws and regulations are needed to fulfil the requirements of the WTO membership and needed to be passed by 2006 (EIC, 2003). This means that the government needs to implement committed reforms to align its domestic institutions and policies with the disciplines of WTO. Indeed, the government also needs to re-establish itself as an open-market and democratic country. Particularly, the social justices, human development, and the rules of human rights, which are the most immediate and important tasks for the government, are needed to be promoted to enhance the investment for reconstruction and development, and reform the central institutions of macro-economic management. For example, according to a report of the World Bank (WB), the CamControl and customs office are one of the most corrupt government agencies (2003). Therefore, if these institutions are not well managed, it could damage the Cambodian economy, which increase unemployment and make the Cambodian people poorer.

However, if all of these reforms are carried out properly, it would stimulate related economic reforms, which will be conducive to improving the investor confidences and hence it could attract more foreign investments for the country, which leads to the development of the country as whole.

Moreover, another primary challenging tasks facing Cambodia is to make local industries and private sectors more competitive. It would open the foreign markets for Cambodian exports as well as opening the domestic market for imports. In this situation, the Cambodian local product sectors might be difficult for competing with the foreign producers since its production cost is not competitive. That is for such reason as poor infrastructure, high energy prices and corruption in the country. For instance, the Cambodian agriculture products are not competitive with the agriculture products in the neighbouring countries due to high trade costs, which involve some unregulated practices in the exporting process. For this reason, the local industries and private sectors face difficulties to compete with the foreign investors.

In addition, the agreements of TRIPS are needed to be fully implemented while accession to the WTO. Therefore, the implementation of intellectual property rights, which intends to protect authors, inventors, brands and names against imitation and reproduction, could affect the Cambodian education and human resource development. For example, the pirated compact disk, video compact disk, and copied books, unlicensed films might no longer exist in Cambodia due to the pressures of this accession. Thus, a high price of the original books and related educational materials with copyright cannot be afforded by the Cambodian citizens in such a poor country like Cambodia, which the majority of the population earning is less than one dollar per day. For this reason, the enforcement of intellectual property rights law would take away the livelihood of thousands, and cut off many from educational and entertainment materials.

The Cambodian agriculture also plays a major role in the Cambodian economy. More than 80 percent of the workforce is in the agricultural sectors and most of them are small and poor farmers. By accession to WTO, the government needs to take specific attention given to the impacts of this accession, particularly on agriculture with a focus on small farmers (Benedicte, 2004). There will be of a risk of social crisis if the impact is not mitigated. It might be useful for implementing a price policy to protect the farmers’ income under the constraints of WTO. In addition, under the WTO membership, Cambodia basically needs to forgo its rights to use high tariffs and farm subsidies in the agriculture products. Some of the requirements, which are imposed on Cambodia, go far beyond what the US and the European Union (EU) commits themselves in the negotiations (Oxfam, 2003). Thus, the Cambodian government limits its tariff to an average rate of about 30% for agriculture products and 20% for industrial products. Cambodia also agrees not to subsidize its agricultural exports, although the other least developed countries are not required to undertake such commitments. However, this provision could effectively seal off Cambodia’s right under the agreement on agriculture (AOA) to introduce export subsidies on any agricultural product in the future (Cham, 2004). 

Finally, by accession to the WTO could be exceptionally beneficial for the country but it also poses great challenges for the country as well. By this accession, the WTO offers several opportunities for Cambodia. That is; accessions to foreign markets; accession to dispute settlement mechanisms for trade issues and non-discrimination, and improving better governance and credibility. It is the substantial milestone for the Cambodian economy and an effective lever to promote trade liberalization and market access in the world markets, and also sends a strong signal to trade and investment partners about future directions of Cambodia’s investment. With suitable dispute settlement mechanisms under the WTO agreements, it would support small and vulnerable economies like Cambodia from any violations made by the big markets from the developed countries. This mechanism is very crucial for offering security, safety and predication to the economic issues of the member countries. Cambodia also has the opportunities to improve its own governance and credibility for the foreign investors.  Therefore, all of these opportunities would lead to an overall economic growth, which is believed to lead to reduce poverty in the country. 

Yet, matching the opportunities and facing the challenges, the Cambodian governments have significant roles to play under the WTO agreements. By participating in these global economies, Cambodia needs to face several challenges to fully take the advantages of this accession. That is, Cambodia needs substantive legal and judicial system reforms and competing in global markets. The government needs to speed up its legal and judicial system reforms to transform Cambodia to a country governed by the rule of law, and protect trade-related aspects of intellectual property rights (TRIPS), and forgo high tariff on agriculture products and protect small farmers. Therefore, the Cambodian government strongly believe that by receiving these opportunities and facing these challenges would significantly accelerate its domestic economic, legal and institutional reforms to create stable business environments and attract more FDI for a long term goal of the country’s development as a whole.
(Writer: Bong Angkeara)

My Deepest Condolences Message to our King Father Norodom Sihanouk

Dear all,

Photographer: Bo, Royal Embassy of Cambodia to Brunei

Our nation and people are currently of greatest sadness for the loss of our beloved King Father Norodom Sihanouk who passed away on 15 October 2012. Millions of Cambodian people sadly joined His Majesty's procession ceremony from the airport to the Royal Palace to respectfully pay tributes to our King Father with a heavy heart, heartfelt love and respect, and with deepest sadness in the country as a whole. This has shown a truly emotional unity from our people from different provinces and places in our country including the monks, the old and the young who held mourning ceremony for our beloved King Father.

On behalf of the Cambodian Economist Group (http://groups.yahoo.com/group/CamEconomistGroup/) and the Cambodian Development Network (http://www.angkeara.blogspot.com/), I would like to sincerely express my deepest and heartfelt condolences to our King Father Norodom Sihanouk. His Majesty's great success and achievements have led our country into peace, unity, and prosperity over the past decades till present. Therefore, His Majesty's glorious achievements and honor will never be forgotten and always be in our sincere heart. In this sense, I am strongly confident that our King Father will be a good and respected model in our history for our next generation in the future. Further information on our King Father's bio, please feel free to go through His Majesty's website: http://www.norodomsihanouk.info/

May our beloved King Father's soul rest in eternal peace... His Majesty King Father is always in the heart of Cambodian people forever...

Please kindly accept my deepest condolences, sincere love and respect on this occasion.

Brunei Darussalam, 31 January 2013,

Yours Sincerely,
Bong Angkeara

220 Scholarships for Cambodian Students

How important are crises and conflict, even sometimes wars, for stimulating development?

Many countries around the world have debated about development issues such as social and economic development so as to bring development for their countries and to get rid of poverty and hunger. Therefore, some definitions of development have been defined such as the development is an expansion of economy and increase of economic development (Peter, 2008). Others defined that it is an increase of people’s choices (Sen 1999, p. 36). The development is divided into two main types. That is, spontaneous and intentional development. The negative and positive outcomes refer to the spontaneous development and the intentional development deals with the negative of spontaneous development. On this topic of development, there are some opinions states that ‘Conflicts and crises, even sometimes wars are significant for stimulating development’.

Regarding this statement, I will argue these opinions due to three main reasons such as war generally brings holocausts, death, and poverty, et cetera. But at the same time, it can be seen both positive and negative effects for both sides. Another reason is that governments’ policies and actions are more important after the crisis, conflicts and wars. Having said that, the necessity of crises and conflicts, even sometimes wars just shape the development but it does not stimulate the development. The other reason is that, crises and conflicts lead to instability and underdevelopment in the society. In order to support my argument, I will discuss about the effect of crises and conflicts, and war. Some evidences and examples will be provided.

First, the positive effect of war can shape economic development in the countries. For instance, the war on poverty, which is the United States (US) government’s strategies, aims to eliminate hunger across the country. Then the poverty reduction plan is created by the government to enhance the living condition of the people and promote full employment and equal opportunity for the African Americans to end poverty in the United States. Nevertheless, it is sometimes unsuccessful to solve this problem because of the inequality of income and job opportunities. So the government will then announce a war state in order to fight poverty and hunger. As evidence, Lyndon in the United States announced the war on poverty in 1964 due to the unemployment issues and the inequitable income of the black and white people. By using this strategy, it can be seen that there is a notably decrease of unemployment rate between the blacks and whites. The blacks were 17.4 percent; which dropped to 3.4 per cent. the whites were 7.1 percent which dropped to 1.6 percent in 1961 after the war on poverty (Fine 1988, p.72). Therefore, it can be seen that the war on poverty can help to improve the people’s living standard in the country. Another example of the positive effect of the war is the fall of Berlin Wall in 1989. There are two different systems in Germany called capitalism and communism prior to the fall of Berlin Wall. Then, it has been combined into a one system after the Berlin fall; which the economy’s condition was changed from the top down to bottom up (Friedman 2005, pp. 53-55). It is not only the changes of the economy’s condition but also the combination of the West and East Germany as Germany. Since they have united, the development in Germany has been notably improved. Therefore, the Berlin Wall fall is a positive effect which can shape development.

Furthermore, the positive outcome from crises is lessons-learnt. The government sometimes realizes that there are problems, which will affect the development and economic growth, needed to be addressed and solved, but they seem to ignore the problems and no actions have been taken. As a result, crises appear. As an example, in late 1990s in England, the sexuality became a crisis due to an increase of sexual transmission. Thus, a high demand for health care services is needed. Concurrently, the National Sexual Health Strategies was issued by the government of the United Kingdom, which aims to protect the transmission across the society (Laverty 2005, pp. 37-43). Moreover, the war of independence is also another positive effect. Many countries around the world had been colonized by the other countries. So, it is impossible to make development happens in that country. Thus, the war of independence is created such as Algeria and Zimbabwe (Arnold, 1992).

However, if we look at the negative effect of the war, it causes severe consequence with high casualties. That is: many people die and injure; the infrastructures were destroyed; and most of the sectors were damaged in the whole society. For instance, the First World War; It was a global war and primarily occurred in Europe from 1914 to 1918. Coming to the end of the war, the total estimated casualties both the civilian and military was more than 40 million; which 20 million were killed including about 10 million civilian and 9.7 million military were died. Around 21 million were wounded (National Archives, 2008). Thus, we can see that war brought about big holocaust for the whole country and the globe. That is, how many people were died and how many infrastructures were destroyed, et cetera. Similarly, the Second World War, It was a conflict global military, which began in Europe from 1939 to 1945. The world's nations were split by this global conflict. There were around 100 million military soldiers mobilized across the state of the war. During the closing days Second World War, the nuclear weapons were detonated by the United States. On 6 August 1945, the first nuclear weapon was detonated by the US on the Hiroshima’s territory, which is a one of the major Japanese city. Three days later, the second bomb occurred on Nagasaki which is another major Japanese city. Around 120,000 people and even more over time were immediately killed by these bombs. Seriously, not only these people died but also the bombs’ effect impacts on the rest of the Japanese people as a whole till present. At the end, the total estimated human loss was approximately 72 million people. About 25 million military soldiers were killed including around 4 million prisoners’ death of war. About 47 million civilians were killed including roughly 20 million died due to the war which related to the disease and famine. (National Archives, 2008). So, we can see that how much casualties due to the war killed the human beings and the effect of war; which leads to a poverty and crises for the whole world. As a result, there was no development during the war but living in hunger and poverty. If we look the war in Algeria, 141,000 Algerian were killed during the war in1954. 51,800 French were wounded and 17,250 were killed. Not only many people die or wounded but also the other sectors and infrastructures in the whole society were severely damaged and destroyed. That is, roads, bridges, schools, et cetera (Arnold 1992, pp. 10-12). Similarly, in 1965 in Zimbabwe, 45,000 were killed during the war. So, the people were forced to be in the military service which means that they need almost all males to be soldiers in order to support war. Therefore, we can see that there is no development almost all sectors in Zimbabwe during this period (Arnold 1992, pp. 68-70).

After war, some countries can develop their countries faster than the others. As evidence, the infrastructure, poverty and socioeconomic development in Cambodia still poor after getting peace in 1989 (Annear, 1997). According to (Koubi, 2006), researched the war impact on economic growth between 1975 and 1989. That is, most of the countries, which do not have involvement in the war, always have more economic growth than countries involved. Moreover, the average of the expenditure of government, the economic growth of GDP, real income, and investment rate were used to measure the effects of the economy of the war. But due to some other factors, which also could contribute to the growth of the economy, it was difficult to measure (Lindgren 2005, pp. 84-87). It is hard to state that war stimulate development as there are some factors, which contribute to development. Generally, wars produce severe casualties and holocaust in the society.

After the Asian financial crisis in late 1990s, social policies attentions were taken into account by the government. The governments started adopting some strategies such as employment services improvement, financial assistance for poor families, and training (Chan 2000 pp. 520-522). Before the crisis, the progress of democracy in South Korea, Thailand and Taiwan were not well connected to the social policy. Nevertheless, this trend has been improved by this economic crisis (Croissant 2003, pp. 520-523). On the other hand, they were linked to the response of good government policies (Martin 1998, pp. 30-33). That is, it does not result from the crisis alone. Moreover, an example of Indonesia was shown due to the situation of finance remained inadequate such as depreciated currency and floating rates. So, we can see that it is vital for the government’s policies which were used in crises’ responses. Therefore, after the crisis and conflict, even sometimes war, it is good or bad based on the government’s policies used to bring development. In addition, economic development also needs good policies as it is necessary to development efforts success (Stiglitz 1998, p. 5).

In contrary, if a bad policy was used by the government, the crises and conflicts will bring about underdevelopment and violence in terms of social, economic and political instability. As evidence, a conflict between Pol Pot and Lon Nol in 1975 in Cambodia, when he came to power, Pol Pot used his bad and cruel policies which made the whole country’s infrastructures destroyed and all the people live in hunger and horror. That is, all the people, who were living in the city, were evacuated to the rural areas and provinces to work in the rice fields almost all days and nights without giving enough food. They forced the innocent people to work like animals. Moreover, more than two million innocent people were killed during his cruel regime. In addition, Cambodia was isolated from the international (Sina and Zimmer, 2005, pp. 330-333). As evidence, we can see that it was underdevelopment during this period because the infrastructures were destroyed and families have been separated from their parents and siblings. That is, people, who lived under his regime, only know the word ‘Angkar’ (which means organisation). Moreover, there was no freedom for people to express their ideas. Thus, it is contradicted to Sen’s development definition which it is as the real freedoms that people enjoy and people’s choices enlargement (Sen 1999, p. 36).

In addition, conflicts sometimes bring about violence in the society causing a decrease of economic development. According to (Lindgren 2005, pp. 70-75), ‘Different conflicts would result in different impacts. There are of four types of armed conflict’. The internal armed conflict is chosen to explain in this context. This conflict occurs between the opposition groups and a state itself. It does not get involved from the other countries. As an example, in 1997 in Cambodia, two political parties were in the conflict both political wordings and fighting afterwards. That is, the current political party called the Cambodian People’s Party and Funcinpec party. The political conflicts were then become a fighting in the central city of Phnom Penh. Like a war in the city by using all soldiers and military forces to fight each other which make the whole country into political and economical instability and people’s horror. At the end, the current political leading party was hardly got controlled the situations. So some people, who are in the conflict areas, moved to the other areas for a while. Concurrently, there were a lot of robberies from the innocent people and business people and killings because of this conflict. Some business properties have been destroyed and robbed. Then, the current leading party got controlled the situation. However, it took long times to secure the social security and public order. Not only the political and economic instability but also the impact on the other sectors in the country such as international and local business and investment stopped. Some companies were completely destroyed during that time. Specially, most of the major international business and investment companies moved to the neighboring countries such as Thailand and Vietnam (Springer, 2004). Similarly, in Thailand, there was a conflict of political party - between the current leading party and opposition party. Then a coup detat was established by the opposition party by using military forces to evacuate the current prime minister. Then, they came to power. As a result, the political situation was severe instability in the whole country. It effects on the economic development and other sectors et cetera. That is, the rising of inflation rate, interest rate and a decrease in tourism after this conflict. Four percent decreased compared to Malaysia and Indonesia due to this conflict. While the economic growth of Thai government was well increased before the coup and the international relations were well connected to the other nations. According to Ockey, the relation between Thai government and the international still remained poor after this conflict (2006, pp. 148-149).

Finally, based on my arguments, evidences and examples, I disagree with the topic as the conflicts and crises, even sometimes wars are significant for stimulating development. First, the war generally brings holocausts, death, and poverty in the whole society. Thus, there is no development for almost all sectors during conducting the war. Concurrently, it can be seen both positive and negative effects of the war. However, it does not stimulate development but it just shapes development. Second, the good policies and actions of the government are more important to bring development for the country after the crises and conflicts. Third, the crises and conflicts lead to the instability and underdevelopment in the society. Evidently, a result of the conflict and crisis will be underdevelopment rather than the development. As the above evidence from Cambodia and Thailand’s cases, which show the conflicts, bring about violence and strong impact on the development of the economy and the political instability in the whole country.

(Writer: Bong Angkeara)

Higher education graduates in East Asia: Too few? Too many?

The number of people with higher education credentials has never been higher in East Asia and the Pacific (EAP), according to a new World Bank website on higher education. Over the past two decades, the number of university graduates in the region has increased significantly. In countries like Thailand, Indonesia, and China, the percent of tertiary level graduates in the workforce is now about 20%, double from what it was 15 to 20 years ago.

At the same time, employers fret that they are not getting the skilled workers they need to compete in a global economy. Investment climate assessments report that 20% of employers feel that skills availabilities are a major impediment to business, as much as, if not more than, meeting onerous regulations.

Such employer frustrations must puzzle the many higher education graduates report having trouble getting jobs. And some who get jobs are the first to lose them during economic downturns, as two of my nephews living on either side of the Pacific Ocean recently found out. Unemployment rates among tertiary graduates are as high as 10% in countries like Indonesia and The Philippines. As an unemployed 21-year old newly-minted Vietnamese BA groused in a recent consultation: “I expected to find a job easily since I have a degree in computers. But, after going to multiple interviews, I found out that firms are hesitant to hire me because despite my degree, they have to train me to meet their work requirements. It is easier for these firms to hire a graduate with a couple of years of experience instead.”

What’s going on? Getting this puzzle sorted out may not only determine whether low-income countries (LICs) can become middle-income countries (MICs) and MICs, high-income countries (HICs). They may also affect social stability as young people’s expectations are at an all-time high. It is thus not surprising that governments are considering investing a great deal of their national wealth on expanding and improving their higher education systems.

I would like to know what readers think about this puzzle: lots of graduates, not enough skilled workers, high rates of graduate unemployment, frustration all around despite high rates of economic growth. Let me advance just a few hypotheses (conveniently labeled as “H” to give our discussion a veneer of academic respectability) to get the discussion going:

H1: Despite the higher number of graduates, enrollment rates in most EAP countries are actually low when compared to countries with similar income levels and growth rates. Enrollment rates are 24% in EAP, much lower than regions such as Latin America and the Caribbean, where it is 35%, and Europe and Central Asia where it is 55%. So, governments should spend more on access because, even without university degrees, having some years of tertiary education, including in polytechnics or community colleges, pays off.

H2: The high unemployment rate of graduates is due, not to their oversupply, but to the fact that too much of tertiary education in EAP is of low quality and has irrelevant curricula. Young people are learning the wrong things. For example, employers are seeking ‘softer skills’ such as team-building and communications and technical skills such as computer familiarity. This would argue that increased investment should focus on quality rather than just quantity.

H3: High unemployment may be due to the unrealistic expectations of graduates that they are entitled to ‘white collar’ jobs in offices and that ensure lifetime security. In contrast, in the US, the average college graduate will have had 7 jobs in the first two years after graduation, and many of them in areas that are unrelated to their field of study or in what are seemingly menial jobs but which teach invaluable life skills. Societies need to prepare the expectations of young people about labor market realities and about the need to get good basic experience early in their careers.

Do you think these hypotheses are valid? Do you have any that you’d like to advance yourself?
(Source: Emmanuel Jimenez)

Far from home in China: conversations with migrant workers searching for opportunities in urban centers

While traveling through China recently, I had an opportunity to visit the Shanghai Urban Environment project in the emergent suburban district of Qingpu and spoke to a number of workers responsible for the implementation and completion of the project.
As with many infrastructure and urban development projects in China, the speed and magnitude can be astonishing, with hundreds of employees working around the clock to ensure timely completion. Work on the facility runs 24 hours a day, 7 days a week with construction workers from all over China contracted to work and live onsite until its completion in 2011. Once finished, it will improve water service, coverage, and waste water management in the region which will be essential for sustaining the increasing population and living standards.
I was curious about the lives of the migrant workers who often move thousands of kilometers away from their homes to urban centers such as Shanghai in search of employment opportunities. China is experiencing unprecedented urbanization with an estimated 1.5 million people that move from rural areas to urban ones each month and an urban population rate that has increased from 17.9% in 1978 to 46% in 2008 and is expected to continue increasing to 60% by 2020. Large urban centers are seen as beacons of opportunity as the average income levels in urban areas were  3.28 times higher than rural areas in 2006 and is especially evident when comparing relatively prosperous Shanghai where GDP per capita levels are almost 10 times higher than lesser developed provinces such as Guizhou.

Huge machinery is used to dig through the earth in order to install new water pipes and to retrofit existing ones.

I had very insightful conversations with the manager of labor, Chen Aixing, quality control supervisor Jiang Peng, and laborer He Jiming among many others. Their joint inspiration for working on the project was an interest in urban development and to make more money in order to uphold familial responsibilities and aspire to more prosperous futures. To them, moving to Shanghai offered the greatest opportunities for attaining these goals.
The elder Mr. Chen and Mr. He were very satisfied with their work; they said that conditions had improved over the years with the addition of enhanced safety equipment, higher pay, better food, and more opportunities due to economic growth. They also note that workers are entitled to performance bonuses and have free food and housing onsite while they are working.
The manager, Mr. Chen, only attained a 5th grade education and became a migrant worker at 16. He was extremely optimistic and said that his standard of living has increased immensely since leaving his home of Liyang in neighboring Jiangsu province in the 1980’s. I noticed while chatting and drinking tea with him in his office that it was air-conditioned, had a computer, and he had the latest model Samsung cell phone; unimaginable luxuries in his youth. He beamed with pride as he told me that his son had managed to become an engineering student at Shanghai’s prestigious  Science and Technology University and his daughter aspires to be an English teacher. Over the years, he has been able to save enough to build a beautiful home in his hometown and is looking forward to a retirement with a pension. “As long as my children are successful and my parents are taken care of, I can be at peace,” Chen concluded.
Mr. Jiang, the quality control supervisor was young and well educated with a debonair aura.  He studied accounting but grew tired of crunching numbers at a desk. According to Jiang, things have become more equal since he sees migrant workers willing to work harder than native Shanghai residents, creating a more equal urban environment. Jiang uses the money he earns for himself and he’s not sure if he will stay in the future as opportunities in his native town of Jiaohe in Jilin province are increasing. He noted that you must physically and mentally prepare yourself to work extremely hard. He plans on saving money, marrying, and then having children in the near future. “I believe people, irrespective of where they are from, share the same hopes and dreams.”

Employees take a break from their day to thank and toast the God of Earth for blessing their work.

Mr. He is a laborer from central China near Chongqing and said that workers are increasingly drawn to better food and pay. He says he works on the project to earn as much as possible for his children’s education. He was heartened to have a niece that was the first university graduate in the family, which provides an inspiration for his children to work hard and persevere in school.  Mr. He feels guilty being away from his wife as she has to take care of the children, which requires waking up early and going to bed late to accompany them in their coursework and extracurricular activities. “My motto in life is to work diligently and be a good person. We’re all in it together and our assignment is a joint effort.”
I was touched by the strength, openness, and thoughtfulness of their responses while chatting with them about their lives. In the face of strenuous challenges --working seven days a week, only going home once a year, and living 12 to a room-- the interviewees were proud and enthusiastic about the project and their contributions. Everyone exhibited such an incredibly strong work ethic and sense of personal responsibility, a depth difficult to completely grasp through an outsider’s lens.
I walked away stunned, refreshed, and inspired to blaze my own trail with more gusto.
(Source: Joe Qian)

Why has developing East Asia led the global economic recovery?

Only a few expected in late 2008 that East Asia would lead the world economy out of the crisis. Skeptics pointed to the continued dependence of the region on exports to advanced economies. And skeptics and believers alike were predicting that all countries in the region would rethink their growth models to focus more on domestic demand rather than exports and investment. What a difference a year and a half makes. East Asia has recovered from the economic and financial crisis, with output, exports and employment mostly at pre-crisis levels. Leading the global economy, real GDP in developing East Asia is set to grow 8.7 percent in 2010, up from 7 percent in 2009, according to the World Bank’s East Asia and Pacific Update report launched today (and of which I’m the lead author, full disclosure here). The projected growth rate for 2010 is almost a percentage point higher than our own forecast made six months ago, and is higher than the 8.5 percent expansion recorded in 2008.
Firstly and most importantly, the recovery has been influenced by China. The Chinese authorities swiftly implemented a large monetary and fiscal stimulus starting in the last quarter of 2008 (through 2010) that exceeded the one introduced after the 1997-98 Asian financial crisis. The package helped boost government-led investment by nearly 6 percent of GDP in 2009, accounting for the bulk of the 8.7 percent growth in real GDP. The surge in investment, in turn, led to a sharp increase in imports for domestic use, notably from East Asia. This surge was most pronounced in the first half of 2009, when import demand among the advanced economies was contracting fast. 
Secondly, the other countries in developing East Asia also implemented timely fiscal stimulus packages, coupled with prompt and effective monetary easing. Even the low-income countries, notably Lao PDR and Cambodia, injected a discretionary fiscal stimulus of about 3 percent of GDP each in 2009, helping cushion the impact of the crisis on economic activity.
Thirdly, the countries of developing East Asia entered the crisis in fundamentally solid economic health. Heeding the lessons of the 1997-98 Asian financial crisis, countries had reduced government debt and fiscal deficits, cut external debt and ensured robust balance of payments positions, boosted foreign exchange reserves, and substantially improved financial supervision. The region’s well-capitalized banks helped substantially limit financial contagion and the transmission of forces of the global recession and continued to lend through the crisis, albeit at a slower pace in most countries.  
Fourthly, and this is a factor common for most developing regions, is the rebound in advanced economies. Developed countries joined the rebound in the third quarter of 2009, and their contribution to regional exports began to outpace the contribution from China.  
Last but not least, there is the importance of remittances. Unlike other developing regions and in contrast to most projections from early 2009 that suggested large contractions, remittances to developing East Asia continued growing through the crisis. In the Philippines, for example, remittances grew about 6 percent in dollar terms in 2009, while forecasters earlier in the year worried about a contraction of 10-20 percent. And such better-than-projected performance appears to have been observed in other countries heavily dependent on remittances in the region, including many of the Pacific islands.
(Source: Ivailo Izvorski)

Economic Performance

The U.S. has lost 5.7 million jobs in the past 16 months. The six months between October 2008 and March 2009 saw the U.S. economy contract more rapidly than during any other half-year since 1958. In April the unemployment rate reached a 25-year peak and it is forecast to rise through at least the end of this year. In short, the U.S. economy today is mired in a deep recession.
Even worse, the current recession follows an anemic recovery. The business cycle that ran from 2001 to the end of 2007 saw essentially every economic indicator except corporate profits turn in its weakest performance since World War II. Most damaging to working and middle-class households was that the percentage of the adults employed did not grow at all even during the expansion phase of the cycle (from November 2001 to December 2007) - the first time this has ever happened.
Median household income has never recovered from the recession of 2001. It ended 2007 at a lower level than where it stood in 2000. Given that median household income invariably falls during recessions and recovers only slowly as economic growth returns, it is all but guaranteed that median household income will see no growth at all during the current decade.
Even strong corporate profits, the only area of comparative strength in the last economic cycle, may prove to have been illusory. The share of corporate profits accounted for by the financial sector rose dramatically in the 2000s - from 25% in the business cycle of the 1990s to 37% in the 2000s. We now know that these financial profits were largely the result of investments whose value will be progressively written down. In short, the economic strategy of recent years -- based on deregulation, tax cuts for the most well-off, and concerted efforts to weaken the bargaining power of American workers -- clearly led to dismal economic performance across-the-board.
For the moment it seems clear that economic performance in general and the labor market in particular will get substantially worse before they get better. As the country looks for any sign of encouraging economic news, it's important to not set standards too low. As of May 2009, 16 months into the recession, almost 8 million jobs will be needed just to return the country to pre-recession unemployment rates, and this number of required jobs grows every month that the U.S. economy fails to create the 125,000 jobs needed just to keep pace with population growth.
The 4.7% unemployment rate that prevailed in December 2007 was already too high to spur across-the-board wage increases like those seen in the 1990s. In short, returning to the status quo that prevailed before the start of the current recession is far too modest a goal - this country needs a fundamentally different policy strategy to generate acceptable economic performance in coming years.
In their 2008 report, A Feeble Recovery, Josh Bivens and John Irons examine why most Americans failed to benefit from the most recent recovery. Another EPI report by Josh Bivens, Upside surprise in consumption spending doesn't stem sharp decline in economic growth, discusses the historically weak GDP numbers of late. In addition, EPI every month provides an exhaustive look at the unemployment data, examining not just the total jobs lost, but which sectors of the population are feeling the most pain. The May jobs picture can be found here.
(Source: Economic Policy Institute)