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HUMAN RESOURCE DEVELOPMENT, STRUCTURAL TRANSFORMATION, EMPLOYMENT GENERATION AND INNOVATION:
INDIA, CHINA, JAPAN AND SOUTH KOREA, 1990-2016 Gulshan Farooq BHAT*
Sandeep KAUR Abstract. The speed at which the economy transforms is the crucial factor that determines the convergence or divergence of any country. In this connection, the present study aims to highlight the role of human development, productivity through innovation and structural transformation among the successful East Asian nations of China, Japan, South Korea and the Indian case for that of development. It is the vast gaps in productivity between the traditional agriculture sector and modern manufacturing sector responsible for the creating gaps among the successful East Asian nations and developing India. Such gaps may be minimized only through the investment in Human development, innovation, and technology. Increase in labor productivity will create jobs in the manufacturing sector, allow an increase in real labour incomes which is necessary for the poverty reduction and human development and crucial way of enhancing the standard of living as well. Furthermore, to improve the high tech exports, it is imperative to invest in skill development, technological advancement as done so far by the mentioned East Asian nations and is the sure way of enhancing productivity. India needs to foster its productivity measures for desirable structural change to create jobs through experimental and pragmatic policies as also claimed by Professor Dani Rodrik. The employment-oriented growth strategy is essential for harnessing the potential of demographic dividend in the growing working-age population of China and India.
Furthermore creating jobs in small industries for which two-thirds of total employment in the Asia Pacific is vital for the inclusive growth especially in India.
Key Words: Human Development, Innovation, Employment, Demographic Dividend, Structural Transformation
JEL: O15, E24, O32, J11, L16 1. Introduction
The fundamental aspects of economic growth and development in any country are influenced by a number of economic and non-economic factors. Human capital is the real wealth of the nations and hence the course of development depends mainly on the opportunities and choices made by the people (Asia-Pacific Human Development Report, 2016). Sometimes added technology and management among other factors propounded by Classical and Neo-Classical writings (Marshall, 1920). Kuznets view on theories of growth as those which deals with economic changes and theories of economic development as those which includes social, cultural and political changes besides economic growth. It has also been identified by the Human Development Report (1996), that improvement in the dimensions of human development like education, life expectancy and income had a positive impact on economic growth.
* Gulshan Farooq BHAT, Doctoral Research Scholar at Central University of Punjab-Bathinda Email: [email protected], Dr. Sandeep KAUR Assistant Professor at the Central University of Punjab-Bathinda. Email: [email protected].
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In order to excel in these dimensions, it is required to provide access to the basic health and education services especially to the rural and marginalized sections of the society.
The identification of major challenges and problems and market reforms are needed to strengthen the network of halth and education. which is at the basics of overall human development (National Human Development Report, 1996). Furthermore, the endogenous growth theories: Arrow (1962), Sheshinski (1967), Romer (1988) and Lucas (1988) emphasized on the technical progress caused from the investment in R&D, amount of capital stock and stock of human capital. Ranis and Ramirez (2000) also reveal the correlation between economic growth and human development from two different links. The first chain from economic growth to human development identifies that the expenditure on health and education especially on womenfolk, and from the second chain from human development to economic growth emphasis on the investment rate and income distribution.
Figure 1: Fundamental Determinants of Economic Growth and Development Ultimate Causes Institutions Factors of Production
Source: Cowen and Tabarrok (2014) and Authors own compilation.
The core question and debatable question is why some countries are rich and some are poor? The various pieces of puzzle keeping in mind that is a complex question with many factors had played which are still debated. The most immediate reason that why some countries are rich is that they are more productive. So, how workers became more productive, well they work with more and better factors of production. Rich countries have a lot of physical and human capital organized in a way to utilize the technological knowledge in a best possible manner. It is the recognition of peace through enhancement of moral culture, cooperation and human development that improved the productivity of such economies and leads towards the further technological development. It is the productivity that is possibly the basic gauge of an economy’s health. The long-term living standards are the matter of the first choice for all economies that results from the improvement in the efficiency from both labor and capital. The human development via education and health and hence the technology is the pivot for the total factor productivity.
The emerging economies of East Asia in which China, Singapore, Thailand, Korea, and Japan along with the only South East Asian state of India are showing strides in the
Political Stability Dependable Legal
System Property Rights
I N C E N T I V E S Honest Government
Competitive and Open Markets
Human Capital Physical Capital
Organization Technological
Knowledge Culture
Geography History
Luck
Ideas
Per capi ta Inco
me Produ ctivity
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productivity growth but needs to harness in an optimum manner. It is the human development that has the incentive to put forward the economic growth via enhancement in productivity and that further provides the incentives to appropriate structural transformation and high technology exports.
Figure 2: Total Factor Productivity, average annual growth (1990-2016) %.
Source: OECD (2018), The Economist (2009).
2. Confucianism in East Asian Economic Development: A Source of Moral Education and Economic Culture
The most important resource among the natural, material and human resources, it is the human resources development which matters most to utilize other resources as well in an ideal manner. In the right direction, the East Asian nations were blessed with cultural factors that serve them as “comparative advantage” over other regions for the economy to take off at the right moment. This cultural advantage serves as a “trigger” function for these development process in East Asia (Hsiao, 1986). Peng (2006) was of the opinion that Confucianism could facilitate the economic development if followed sensibly by the government. They developed the modern way of thinking leaving aside the historical conflicts and war led policies, learned people’s conduct, outlook, and their affiliation with people, animals, nature and the universe (Shek, 2017). Confucianism may be responsible for the higher savings, education and it's robust publically moved administrations (Kowalski, 2000).
2.1 Importance to Education and Overall Human Development
It was the ‘learning’ that was kept at the center by Confucianism had played a profound role in everyday school culture. Though the widespread introduction of Western education, the Confucian learning had retained its influence in educational practices.
“If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of hundred years, teach the people”.(Confucius)
This may be motivated by the academic performance of K-121 students from East Asia at global comparative tests. The learning idea Confucian allows for a liberal learning that inspires us to be virtuous (Kwak et al. 2016). Griffin (1996) was of the opinion
“There is probably no easier way to combine equity and rapid growth (than investment in education). The whole of East Asia is a testimony to the veracity of this proposition”.
The performance of inclusive development via human development and education made East Asia enviable for many developing countries to draw lessons. Until recently,
1 K-12, a term used in education and educational technology in the United States, Canada, and possibly other countries, is a short form for the publicly-supported school grades prior to college.
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5
China Singapore South Korea Britian USA
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Western countries were used to follow, but now East Asian has taken place to be followed to transform the economies (Tilak, 2002). It is not proper to keep only the Orthodox culture as is the goal. It should work for further ideals. Education should stimulate social progress and should not follow the society. Education is not only fruitful for children, but it also is beneficial for nations and investing in education is not only the right thing to do, it is smart economics (UNICEF, 2015).
3. Human Development
Human development- a process of enlarging the choices for people, while as an economic growth are sources to human development not ends as it is the productivity of people’s lives rather than the wealth of economies that matter for the people (Human Development Report, 2016). The following data shows the changing pattern of human development index values from 1990-2015 of the mentioned countries.
The country comparison of the Asian countries according to human development report is: Amongst “very high human development" group there stand five countries as Singapore (5th), Hong Kong (12th), Japan (17th),), South Korea (18th), and Brunie Darussalam (30th). In the group of “high human development” Malaysia is at 59th rank, Sri Lanka (73rd), Thailand (87th), China (90th) and Mongolia (92nd). There are ten Asian countries that make in the list of “Medium Human Development.” Which are), Indonesia (113th), Viet Nam (115th), Philippines (116th), India (131th), Bangladesh (139th) and Pakistan (147th) (Human Development Report, 2016).
Figure 3: Human Development Index (HDI) Value 2015 and average Growth Rate of HDI (1990-2015)
Source: Human Development Report (2016)
Highest levels of human development are seen in Asian tigers and Japan among Asian countries, thanks to its higher achievements and better scores in education and higher life expectancy. The East Asia and Pacific region are still behind the ranks of North America and Europe, Latin America and the Caribbean. On the other side South Asia is far behind than Arab countries and East Asia however in advance than that of Africa.
Though over the past thirty years, the countries of East Asia and South Asia are among the fastest regions in terms of growth. Still, they have to go a long way in the process of economic development. To achieve human development potential for their citizens, most of the Asian countries had a long way to go, though there are some improvements as many of the countries had qualified among the group of medium to high human development like China and Sri Lanka. Still many countries are in the trap of backwardness and can well tackle from the good policies and optimum utilization of resources to rapid economic catch-up process (Mrglobalization, 2012).
0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6
Singapore Japan China
Growth Rate (1990-2015) HDI Value
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The average annual HDI growth rates among China (1.57), Hong Kong (0.64), Japan (0.42) Korea (0.84), Japan (0.42) in which China and India are growing and are expected to converge other highly scored economies.
Table 1: Human Development Value and Sectoral Share in GDP and Employment, 2018 Count
ry HDI Value
Sectoral Share of GDP (%) Employment Share (%) Agricultu
re
Indust ry
Servic es
Agricultu re
Indust ry
Servic es
China 0.73(High) 8.60 39.80 51.60 27.70 28.80 33.48
India 0.624(Medium) 16.50 29.80 71.10 42.70 23.77 33.48 Japan 0.903(Very High) 1.20 27.70 45.40 3.45 24.32 70.67 Korea 0.901(Very High) 2.20 38.60 59.20 4.90 24.89 70.21 Source: World Bank (2018), Statista (2018) and World Fact Book (2018).
The association between the human development and sectoral share of GDP and employment share in different sectors among the mentioned economies reveals that it is in high human development indexed economies, less GDP is contributed from the agriculture sector and so is in the employment share. On the other side, the high valued economy of China had a moderate employment share in agriculture and Industry. India possessing the medium human development index reveals the otherwise picture than the rest of the East Asian economies. India had still a gap 10-15% vis-a-vis to other successful East Asian nations in GDP contribution and the majority of share hails from services sector and relatively very less labour is absorbed in by that service sector (World Fact Book, 2018). Employment in service sector can be increased only by investment in education, skill and training development so that the extra labour force can be pulled out from the low productivity agriculture sector to the highly productive industry and service sector. Such kinds of skill mismatch, formal training and re-training have been the major issues of employability. To fulfill this purpose, education, skill development and training are the integral broad economic strategies to promote economic and employment opportunities for the effective utilization of demographic transition (Sanghi & Khurana, 2018).
In Asian-Pacific, a decline in fertility through 1970 to 2010 was supplemented by an increase in spending on human development i.e on health and education that is imperative for a productive workforce and skilled labour force (UNDP, Asia-Pacific Human Development Report, 2016). Asian countries are possessing an unprecedented working population and declining the dependents, in order to harness this opportunity of demographic dividend especially in India where about it is about to increase from 58 in 2001 to expected 64 in 2021 (Economic Survey, 2014), also forecasted to cross one billion in 2050. According to the UNDP report, Indian working-age population aged within 15 and 64 will grow from 0.86 million to over one billion marks by 2050 (Tandon, 2016). In order to harness the potential of demographic transition all Asian Pacific countries especially, India should embark on the policy that maximizes the investment in human development related activities. The full potential can be realized only by investing in education and health. This improved in dependency ration take towards the hypothesis that bulges in working age group may accelerate economic growth. However the figure from the data shown in the study (Figure 7 and 8) that absorption of Indian youth is mostly in the low productivity agriculture sector rather than in the higher
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productive industrial sector. This might be on the reasons of lower wages or undesirable employability of the work force mainly due to lower achievements in the indices of human development viz. health, education and income. There it needs to be revived to improve the scores of these indices to take advantage of demographic dividend at this feasible time of accelerating economic growth (Chandrasekhar, 2006).
Table 2: Human Development Index (HDI) Dimension
Index
Life Expectancy Index
Education Index Gross National
Index (GNI Index) Dimensions Long and Healthy
Life
Knowledge A Decent Standard
of Living Indicators Life expectancy
at birth
Expected yearsn of schooling &
Mean yearsmof schooling
GNI per capita (PPP
$) Source: UNDP (Human Development Report 2016).
Table 3: Trends in the Human Development Index, 1990-2015.
R an k
Country (Income Group)
HDI Value Change in
rank 2010- 15
Average Annual HDI growth (%) 19
90 20 00 20
10 20 11 20
12 20 13 20
14 20
15 1990-
2000 2000 - 2010
2010 - 2015
1990 - 2015 5 Singapore
(Very High)
0.
71 8
0.
82 0
0.
91 0
0.
91 6
0.
91 9
0.
92 0
0.
92 4
0.
92 6
0 1.34 1.05 0.30 1.02
12 Hong Kong (Very High
)
0.
71 8
0.
82 5
0.
89 8
0.
90 5
0.
90 7
0.
91 3
0.
91 6
0.
91 7
+3 0.55 0.85 0.42 0.64
17 Japan
(Very High)
0.
81 4
0.
85 6
0.
88 4
0.
88 9
0.
89 4
0.
89 9
0.
90 2
0.
90 3
+1 0.51 0.32 0.44 0.42
18 South
Korea (Very High)
0.
73 1
0.
82 0
0.
88 4
0.
88 9
0.
89 1
0.
89 6
0.
89 9
0.
90 1
0 1.15 0.76 0.37 0.84
90 China
(High) 0.
49 9
0.
59 2
0.
70 0
0.
70 3
0.
71 3
0.
72 3
0.
73 4
0.
73 8
+1 1
1.72 1.70 1.05 1.57
13 1
India (Medium)
0.
42 8
0.
49 4
0.
58 0
0.
59 0
0.
59 9
0.
60 7
0.
61 5
0.
62 4
+4 1.45 1.62 1.46 1.52
Source: UNDP (Human Development Report 2016).
The average annual HDI growth rates among China (1.57), Hong Kong (0.64), Japan (0.42) Korea (0.84), Japan (0.42) in which China and India are growing and are expected to converge other highly scored economies.
4. Dynamics Economic Growth Mechanism and Structural Transformation (transition)
The phenomena of economic growth are almost associated with the structural transformation, i.e. the reallocation of economic activities across the different sectors. It remains the practice of all the developed economies to transit from agriculture to industrial and finally towards the service sector of the economy while going through the
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successful path of the development process. According to World Bank ranking of economies on the basis of gross domestic product (GDP), China stands at 2nd, Japan at 3rd, India at 7th and South Korea at 11th rank (World Bank, 2017). All the economies possess an interesting development strategy and are in the top ranking which inherits an interesting story to be studied. Since the 1990s and 2000s, developing countries are on the rise in gaining from economic activities and hence resulted in extensive human development, adequate structural transformation, and technological development. East Asia is no exception to it and perhaps stands as the best example. Such growth was primarily led by the efforts of China, India, and other Asian countries and further assisted by the weaker growth performance of the rich countries (Mcmillian, et al. 2017).
According to Lewis there exists the rural-urban wage differential of approximately 30%
due to higher productivity and employment opportunities in the industrial sector.
Industrial sector growth can be enhanced by the cheap laour from agriculture sector and then subsequently to the service sector (Thirlwall, 2014). The hidden champions “small scale industries” are accountable for the two-thirds of total employment in East Asia and playas an important role in ‘inclusive development’. It is the employment-oriented growth strategy that is crucial for the achievement of the demographic dividend (UNDP, Asia-Pacific Human Development Report, 2016).
4.1 Economic Growth and GDP per capita growth for selected countries (% of GDP) Generally, the growth prospects for the emerging Asian economies including China and India are expected to be on high projection over the medium term despite global economic uncertainty. Real GDP growth in these economies will be around 6.5% during 2016, 6.4% in 2017 and an expectation of 6.2% annually over the period of 2017-21.
Growth rates across the region will vary with a gradual slowdown in China and a strong growth forecast for India may exceed 7% per year (OECD, 2017). The growth performance among the major East Asian economies revealed interesting facts to be taken into contemplation and had been praised by many global well-reputed institutions and scholars, sometimes called as a miracle and offers a role model for other economies.
Figure 4: GDP growth (annual %) Figure 5: GDP per capita growth (annual %)
Source: World Bank, Data Indicators (2017).
China, since its market reforms in 1978 from a centrally planned to a market-based economy had proficient rapid economic and social development. Gross domestic product
-10,000 -5,000 0,000 5,000 10,000 15,000 20,000
1990 1993 1996 1999 2002 2005 2008 2011 2014 -10,000 -5,000 0,000 5,000 10,000 15,000
1990 1993 1996 1999 2002 2005 2008 2011 2014
India China
Japan S.Korea
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(GDP) averaged nearly 10% annually which is the fastest sustained by any economy and lifted about 800 million people out of poverty. China’s GDP since 2012 declines sharply but still it is impressive by global standards. With the world’s highest population of 1.3 billion, China as the 2nd largest economy had played an influential role in the development of the global economy (World Bank, 2017).
Among the selected East Asian economies China had shown strides in the growth rate particularly since 2000 and sustained almost for a decade till 2010, hardly experienced by any developing economy. Japan’s economy slipped down to the world's 3rd largest economy by nominal GDP, falling behind the blazing speed of China's manufacturing growth and fourth largest by purchasing power parity (PPP) (IMF, 2016). China is expected to grow more in the near future even faster than the USA within the next 20 years. It is an expansion of domestic industries and infrastructure that drives a surge in exports with the expansion of multinational corporations taking advantage of low labor costs in China (Lah, 2014).
Japan’s economy had experienced high economic growths during the 1950’s and 1960s after their independence and number of reforms. After 1990s Japan collapsed due to a number of reasons from plaza accord in USA that depreciated US dollar 17 % against Japanese yen that helped US exports to be cheaper. During the period of 1986-1991 Japan also experience an asset price bubble in which real estate and stock market prices inflate. Through late 1991, asset prices start falling had visibly even collapsed by early 1992 (Figure 1), the economy continues to decline for almost a decade from 1992 to 2002 (Okina et al. 2001 and Johnston, 2009). The bubble burst of Japan provides valuable lessons for all the economies to mitigate the risks in future monetary policy formulation by the respective central banks. GDP growth for Japan is also witnessing an improvement since 2010 and is expected to be on par with its peer economies. Among the four high-growth economies of Asian tigers, viz. Hong Kong, Singapore, South Korea, and Taiwan, South Korean extraordinary economic growth gained world attention popularly known as the miracle on the Han River (Kharas et al., 2014 and Kwon, 2016). These four Asian tigers have maintained high levels of economic growth since the 1960s mostly driven by rapid industrialization and exports unlike Inida’s large dependence on imports un-competativeness of exports at global level (Fayaz and Kaur, 2016). Hong Kong and Singapore are well known for global financial centers, whereas South Korea and Taiwan had a comparative advantage in automobiles, electronic components and information technology (Shirley, 2014). Throughout the developmental process of learning and capability, the East Asian especially South Korean development experience proposed the capability and technology-based view in the catching-up of the development process (Bhat and Bhatia, 2017). In fact, it was the government-backed capability strengthening of firms that sustained the growth for several decades in South Korea. The GDP growth experience of Korea depicts high rates of economic growth with deep shock during 1997-98 due to the Asian financial crisis and oil shock (Manning, 1998). Asian tigers share similar growth rates in the 1950’s. Rapid reforms and exponential economic growth had transformed them into developed economies today in which South Korea is a member of rich countries club “OECD” (Ahluwalia, 1995 and Bhat and Bhatia, 2016). The average annual income for India in 1947 stood at $439 as compared with China of $619, $770 for South Korea and $936 for Taiwan. By 1999, the numbers were $1,818; $3,259; $13,317; and $15,720 respectively (Desai, 2005).
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Agarwal (2015) reveals that empirical analysis that improved growth of GDP per capita reduced poverty and inequality in income distribution in India, which had tripled over the past 20 years. Improved growth reduced poverty and by increasing employment and real wages. The GNI per capita in absolute is converted into the US dollars at official exchange rates using atlas conversion factor to reduce the impact of exchange rate fluctuations, for the comparison across the countries. The figure shows that in the largest populated countries of China and India GNI per capita income is considerably low a compared to the declining population of Japan and Korea. The divergence is also because of the productivity as revealed in the below mentioned figures. Furthermore the employment generation among the regions of East Asia and South Asia is indicated that the peoples are more engaged in the productive sectors like industrial and services sector as compared to India. The percentage share of those employed is more in low productivity agriculture sector than that of the Industrial with desirable share but less than China, Japan and Korea in well sophisticated service sector. The low human development in India may also be responsible for the lower chunk of population employed in industrial and services sectors.
4.1: Sectoral Distribution of Workforce
The foundation stone of the prosperity of any nation depends upon the speedy economic growth and expansion of employment opportunities. The sectoral distribution of workforce provides insight about the engagement of the available workforce in the major occupational sectors of an economy. Among the mentioned regions in the figure above, it is revealed that Eastern Asian generates relatively more employment (more in services sector and industrial sector) than South Asian region (more are employed in agriculture and services and less in industrial sector). Japan and Korea had negligible share in agriculture where more are employed in services and industrial sector. It is on account the more productive labour force (Figure, 7 and 8).
Figure 7: Employment -- ILO modelled estimates (thousands) (2018)
Figure 8: Employment distribution - ILO modelled estimates (%) (2018)
Source: International Labour Organization (OILO), (2018).
The data for 2018 also depicts that India employs still more in less productive sector, agriculture and less in industries on account of low productive labour force and less industrial development (Kulkami, 1994). This offers a glimpse of economic activities
1000000 200000 300000 400000 500000 600000 700000 800000 900000 1000000
0 20 40 60 80 100
Agri Indust Services
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under different sectors and its contribution to the GDP. The selected countries provide the distribution of the workforce across different economic sectors with policy shift measures. The statistics from 2006 to 2016 about the Chinese distribution of workforce among different sectors reveals that 27.7 % of the workforce was employed in agriculture, 28.8 percent in industry and 43.5 percent in services. Throughout the post- reforms period (1978), China has experienced a rapid output growth and reallocation of the labour force.GDP per capita growth accelerated at 7-8% between 1990 and 2008.
Furthermore, employment share from agriculture declined from 42.6% in 2006 to 27.7%
in 2016 (Figure 9). The effect of the share of agriculture output as a percentage of GDP has also declined from more than 25% in 1990 to less than 10 % in 2016. Urbanization might be one of the cause as a shift of workers and from 1982 to 2006, urbanization rate has increased from 21% to 43% respectively as in 2012, China passed the 50% in urbanization.
This is an indication of modernization and productivity and output increase in non- agriculture sectors. It was seen that as labour input decreased in agriculture by 5%
annually, total factor productivity increased by 6.5% which accounts major employment and output reallocation towards non-agriculture, where human and physical capital accumulation needs to take place (Cao and Birchenall, 2013). Also from the mentioned data, it is seen with the export expansion, labour force needs much more to be diverted towards industrial and service sector. The share of the workforce in agriculture also steadily decreased in China, while the agricultural gross production value displayed continuous growth, amounting to approximately 4.7 trillion yuan in 2012. Since 2011, the majority of China’s labor force has been employed in the service sector.
However, compared with developed countries, such as Japan or the United States where 69.7% and 81.2 % of the workforce were active in services in 2010 respectively, the proportion of people working in the tertiary industry in China has been relatively low and marginally higher than emerging economies like India. (Statista, 2017). The statistic displays the dispersal of the workforce through economic sectors in Japan from 2006 to 2016. In 2016, 3.45% of the labor force was employed in agriculture, 24.32 %t in the industry and 70.67% in services.
Figures 12, 14, 16: Value Added per worker (Productivity, constant 2010 US$): Cn, In, Jp, Ko Agriculture and Fishing Services Industry
Source: World Bank Development Indicators (2018). Industry includes Construction.
As the strongest economy in the world, Japan’s standard of living is substantially high.
The economy of Japan stands 3rd by nominal and 4th by purchasing power parity (PPP)
0 5000 10000 15000 20000 25000 30000
1991 1995 1999 2003 2007 2011 2015
0 50000 100000
1991 1997 2003 2009 2015
China Inida
Japan Korea
0 20000 40000 60000 80000 100000 120000
1991 1997 2003 2009 2015
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at the global level (World Economic Outlook Database, 2016). The majority of the workforce, 70.67% and share of output come from the service sector. Near about one- fourth of the workforce is working in the Industrial sector. Interestingly Japan had a strong industrial base from the very beginning and little decline in the workforce and value added in that sector.
Very less amount of the workforce is engaged in the Agriculture sector, which depicts the economy’s heavy reliance on service and industrial sectors. In 2011, the economy was crippled due to major frequent earthquakes followed by tsunamis had a wide economic impact due to the disaster. Bank of Japan an emergency of quake budget for disaster recovery.
Being a highly industrialized and export-based economy, disaster closed down key ports, automakers like Toyota, Nissan, Honda, Mitsubishi, and Suzuki temporarily suspended production and about 22 plants including Sony were shut down (The Guardian, 2011 and Amadeo, 2017).
Since the 1960s, Japan once the leading automobile manufacturing country surpassed Germany and is now showing a decreasing trend in industrial activities. One among the major causes for such a decline might be the growing competition from its rivals, China and South Korea. Japanese firms once dominated in the realm of consumer electronics industry. But over the last 20 years, they have been overtaken by Taiwanese, South Korean and Chinese rivals. That might the reason, its industrial share in GDP is declining and the other might be the rising share in the services sector (Jaganathan and Daly, 2017). Throughout the period of the 1880s and 1970s, Japan achieved sustained growth in per capita income through industrialization. It was the domestic investment in the industry and infrastructure that was driving force behind Japanese growing output.
This was held in cooperation with the national and local governments in coordinating agents for build-up in infrastructure (OECD, 2015). Japan adopted the future-oriented development strategy which helped them in the quick transition from labour intensive to capital-intensive products. The advancement in innovation and technological development, further paved the way for a skillful use of tariff and non-tariff barriers and direct and indirect subsidies in order to protect domestic industries for export promotion and utilization of foreign technology for the development of new products to support future-oriented strategies despite their short-term costs (Blumenthal and Lee, 1985). The economic boom in the South Korean economy started earlier in 1963 in which the majority were engaged in agriculture. Sixty-three percent of the population of nations lived in rural areas. After a short span of time, South Korea grew from a primarily rural, agricultural nation into an urban, newly industrialized country and agricultural workforce contracted to only 21% in 1989. From the very beginning since the 1960s, South Korea has put economic-development accounts with a growth formulation that focused on heavy-industrial parks and manufactured exports with a triple increase in GDP in just 20 years. It was all because of the heavy concentration of South Korea in the industrial sector that led to achieving a remarkable and sustainable economic growth (Bhat and Kaur, 2015).
Indian economy encompasses a diverse traditional farming, heading towards modern agriculture, handicrafts, the wide range of modern industries and a multitude of services.
Currently, a little less than half of the workforce is engaged in agriculture (Figure 9) and
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services as major source of growth among all mentioned economies employs less than one-third of its labour force, which is quite less than China, Japan and Korea (Figures 3, 5 and 8). India had a comparative advantage in its large English speaking population to become a major exporter of I.T services, business outsourcing services and software workers (Bhatnagar and Jain, 1991). India is going to grow as an open-market economy but still faces some autarkic policies. Reforms of the 1990s for liberalization, industrial deregulation and privatization were turning point in the Indian economy and accelerated growth rate which averaged nearly 7% annually from 1997 to 2016 (World Economic Outlook Database, 2016).
The growth rate in India declined in 2011 due to slow down in investment because of high-interest rate, weakening of industrial growth, increasing inflation, investor’s pessimism for government’s further reforms and a slowdown in global economic growth (Economic Survey, 2011-12). Growth is bounced back in 2014 and 2016 at 7% annually due to decline in current account deficit, some reforms after the 2014 election, and stabilization of Indian rupee. Many important and major reforms like Demonetization in November 2016 and long pending goods and services tax (GST) bill passed in July 2017 and raised FDI caps are expected to benefit the economy at large but much reforms were still on administrative and governance changes (Dubey, 2017). Asongu and Odhiambo (2018) also observes that FDI and well human resources have positive impact on economic growth. Compared to other countries Indian economic growth is impressive but still, some caution should be taken towards mounting NPA’s and bad debts resulted in low credit and restrained economic growth (Makhijani and Shah, 2017).
The perspective for long-term growth is positive for India due to demographic dividend and low dependency ratio and increasing savings. The sharing of working age to non- working age population is increasing (Economic Survey, 2016-17). Still, some widespread socio-economic factors stand as a wall on the road of progress and development, which needs to be addressed like poverty, inequality, skilled labor force, corruption, foreign investment, trade and openness (Singh, 2009). There is a slow transformation of the Indian labor market from informal to the formal and slight shift of agricultural labor force to modern sectors. The construction sector is main job provider, while most of the jobs are in the informal sector deprived of employment benefits and social security. Amid the favorable demographic dividend and rising savings, the fundamental challenge remains to ensure an optimum utilization of these opportunities to create decent jobs accessible to women and social groups especially in rural areas (ILO, 2016). It is the insufficient power generation and public distribution system, inadequate transport, and poorly targeted subsidies, poor availability and quality of basic and higher education and limited opportunities for rural-urban migration in which the mentioned East Asian Economies had taken the lead from the very begging poses a challenge for India economy (The World Fact Book, 2017) (Kaur, 2015).
One of the strategic features for economic growth is the inexorable structural change across sectors i.e. agriculture sector share shrinks, the rise in the service sector and hump- shaped pattern in the manufacturing sector (Santacreu and Zhu, 2018). When labour is taken away from agriculture to the modern sector, the demand for capital goods eventually raises the investment rate. As the majority of capital goods arises from the manufacturing sector, the employment share in the manufacturing sector would rise and then decline to converge its long-run steady state known as a hump-shaped pattern in the
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manufacturing sector (Huang, 2014). The world economy had seen interesting phenomena of declining share of manufacturing or industrial in GDP especially among Canada, Italy, Spain, the U.K., and the U.S and stable or growing among Japan, Germany, Finland, and the Netherlands. The declining share of industrial contribution is not only unique to US economy but reflects a global trend as the world moves forward from a traditional manufacturing-intensive “Machine Age” economy to more a services- intensive “Information Age” economy (Perry, 2012).
In the Annex we include supplementary figures.
5. Research on Technological Innovation and Productivity
Productivity is one of the basic indicators of long-term sustainable growth and is only possible through technological advancement and better human development. That rising productivity is crucial in making potential enhancement in the standard of living (Gorman, 2018). The quality of life depends on capability enhancement and exploitation of that capability, ability to create, distribute and dissemination of knowledge. And at the same time acts as a major source of advancement in comparative and competitive advantage, the source of wealth creation and enhancement in the wellbeing of any nation (OECD, 2000). The growing technology and innovation had laid route for modernization and productivity improvement in developed economies. In Japan only on the basis of new growth strategy, it was estimated that medical and nursing innovation will generate about 2.8 million jobs and created a different market worth the US $ 565 billion by 2020 (OECD, 2014). In the present dynamic world, the role of internet is quite evident and almost there is the internet of everything at service, accelerates digital transformation, delivering insight and actions. Moreover, the internet has connected the network of markets from all corners of the world. The activities for economic purposes from such linkage pay for cumulative socio-economic benefits via the greater entrance to e-trade, communication, information, social networking and internet services with unprecedented economic opportunities. It expands the new global business, boosts up entrepreneurship ability and improves in productivity gains. Technological improvements offer a wide range of choices to consumers, make progress in education and health and more importantly enables governments and citizens to communicate openly and had a role to be played in transparency (Cisco, 2013).
Figure 19: Research and development expenditure (% of GDP)
Source: World Bank and OECD, (2017)
In the same line research and development offers a wide range of new products and productivity improvements, the increase in production at lower costs and is experienced by Japan, Korea, and China. These economies managed themselves to high tech-exports and quality products in automobiles, semiconductors, Passenger and Cargo Ships,
0,00
5,00 China India Japan S.Korea
108
Vehicle Parts and a wide range of electronic goods (Observatory of Economic Complexity, 2017). Recognizing the importance of research and development (R&D) a substantial portion of GDP is devoted to it by Korea and Japan with an increasing trend in China. India as the almost closed economy had a meager share in global trade needs to take lessons from these economies to utilize its both men and material resources and be more competitive enough in the global market. In global competitive index (2017- 18), India also slipped down one position (40th) from the previous year (39th) but is ahead among other South Asian economies. Signs of improvement has been seen among important pillars of competitiveness like infrastructure scored (66th up by 2), training and higher education (75th up by 6) and technological readiness (107th up by 3) that depicts the current investment in these areas. According to the Global Competitiveness Report 2017-18, there is an improvement in performance in ICT indicators like internet bandwidth per user, mobile phone and broadband subscriptions and access to the internet in schools. Institutional quality is improving in India mostly regarding the efficiency of public spending but corruption is still considered a major obstacle for business progress in India (Schwab, 2017). South Korea’s investment in R&D has soared to more than four percent even double than the USA and European Union. Much of the research had been focused on industrial development (75%) by Korea to tackle an economic crisis and be competitive enough in the global market. Korea leads in researchers at the global level and is a world leader in patent applications mainly due to industrial giants of the world removed companies of Samsung and LG (Zastrow, 2016). The products under high-tech exports are produced with high intensity in R&D like aerospace, pharmaceuticals, computers, scientific instruments, and electrical machinery. India as possessing a comparative advantage in pharmaceutical products as has the highest share in high tech exports that need to accelerate R&D in that sector to generate further employment and strengthen its high tech exports and relative advantage (Manisha and Kaur, 2016).
Figure 20: High-Technology Exports (% of Manufactured Exports)
Source: World Bank (2017).
The key factors for Korean export success lie in the innovation and technology. Seoul while recognizing the importance of new ideas Korea moved away from labor-intensive and low-value production towards the high value-added manufacturing. This was not possible without government support for creating adequate world-class physical infrastructure and qualitative education system (Dominguez and Mazumdaru, 2016). In order to enhance the high tech manufacturing exports, there is a must need to increase in the foreign capital inflow (technology), R&D and technology via cooperation in public and private sectors (Singh and Sandeep Kaur, 2017).
0 20 40
1990-93 1994-97 1998-01 2002-05 2006-09 2010-12 2013-15 China India Japan S.Korea
109 Table 4: Economic Complexity Index (2011-2016)
Country 2011 2012 2013 2014 2015 2016
Japan 2.31329 2.32408 2.37352 2.31842 2.34767 2.4687 S.Korea 1.70696 1.64658 1.82762 1.90646 1.97403 1.9776 China 0.909906 1.00792 1.04036 1.16379 1.17107 0.89219 IndIa 0.091946 0.144541 -0.13459 -0.0147 0.016682 0.049072 Source: Observatory of Economic Complexity (2018)
The Economic Complexity Index measures the relative knowledge intensity of any economy or that of the product. It takes into consideration the knowledge intensity of the product which it exports. As the idea of specialization or division of labour has been derived from the Adam Smith, that the division of labour which gains specialization is the key to the wealth of nations. The complexity of an economy is connected to the diversity of useful knowledge implanted in it (The Observatory of Economic Complexity, 2018).
The economic complexity from the figure and table reveals that the specialization and knowledge-based products and hence exports are very less in case of India and moderate in China while considerable in Japan and Korea. There is an inherent need to invest in R&D and to improve in quality of products especially for export quality to gains from the international trade, which had been the experience of the rest of East Asian Economies. Then the greater access to the global export market and potential technological spillovers may prove contributory improving economic growth and development in developing economies like India (Manova, 2011).
Article regarding scientific and engineering mostly published in the fields of Physics, Chemistry, Biology, Clinical Medicine, Mathematics, Biomedicine, Computer science engineering and technology, earth and Space Sciences. The aim of such periodical publications is to further development via new research and ideas (World Bank, 2017).
The technological approach towards capability development provides a new way of thinking emphasis on the higher education and training institutions in assistance of national development goals (Kruss et al., 2015). The development strategy by the Chinese government had developed high-quality scientific journals to lead in global competitiveness capacity through education, science, and innovation. China leads followed by Japan and India is moving at snails speed despite having huge educational institutions.
Figure 22: Scientific and Technical Journal Articles
Source: World Bank Development Indicators (2017).
Korea according to their population is doing well but needs further improvement to move ahead as it has already edge in R&D expenditure to harness its technology. Chinese
0,0 200000,0 400000,0 600000,0
1998 2000 2002 2004 2006 2008 2010 2012 2014
China India Japan S.Korea
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research has been rising sharply since 2002 and is the second largest producer of scientific journals after the United States. It makes China earn relatively higher by employing more labour force of engineers and scientists. The factors supporting China’s rise in science is a huge population and human capital base, a labour market supporting academic meritocracy and governments willing to invest in science and technology. The major factors in a globalized world are both economic and human resources and China uses both in the development of modern Science. The growing contribution of scientific technology in both developed and developing countries prompts scientific discovery and is benefiting the human race to speed up development process (Xie et al., 2014)
6. Conclusion
The fundamental determinants of economic growth being the disciplined culture, productive geography, and innovative ideas and well institutions which are more importantly well organized in a way to increase the per capita income. In the same line, the total factor productivity has been increasing among the emerging countries of China, Singapore, and South Korea. First and foremost it the disciplined cultural and its maturity that had a foundational successful impact on the economic growth as depicted from the East Asian Confucianism and Western countries of protestant work ethics. For which Lewis (1995) and Ranis and Ramirez (2000) also outlined that among the most important determinants of growth, it is the factor productivity, human capital and capital accumulation that had a paramount role in growth and development.
The East Asian nations had the good advantage of Confucianism culture and emphasized on the non-economic factors of economic growth as emphasized by Kuznets. Like that of Western countries are rich because of Protestant work ethics, East Asian Countries are successful because of well-disciplined Confucian culture. The GDP growth rate especially that of GDP per capita is growing in China and India as well due to impressive growth rates and needs pragmatic ways to be sustained. The major determinant of productivity growth is structural transformation and is responsible for explaining the two third of productivity gaps among superior East Asian and other developing economies (Tuck-Primdahil, 2011).
The study provides an overview of the working age population in mentioned countries.
The target aims at the exploration of the prospective for apprehending a demographic dividend and diverse prospects and challenges for India in the areas of Job creation, Human development, Innovation, and R&D investment. The historical experience of China, Japan, and South Korea make known that initial cultural maturity, human development via education and skill development advanced the industrial and service sector by which they made the successful transformation. India may converge the same by harnessing the potential of demographic dividend through enhancement in productivity through innovation and technological advancement and creating jobs, mobilizing savings into productive use. By doing so the young people may offer new insights and inventive solutions. Moreover, these countries have service trade potential with developed countries. Kaur (2011) showed that the USA has export potential in services for India and Japan. Due to the restrictive trade policy of USA, it is imperative now to show potential among themselves.
The structural transformation is going well in East Asian countries and follows the Colin Clark hypothesis (Sen, 2016 & Timmer, 2013). These nations had developed their Industrial sector and consequently pulled out the surplus labour from less productive
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agriculture to product manufacturing and service sector. India needs to pull out its labor force from agriculture to the Industrial sector through proper skill development and training which is lacking in India. In order to improve this productivity and increase the share of high tech exports in the global market, it is the innovation and investment in R&D that will support India to converge to the next Asian tiger.
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