Asian economies warned against bypassing manufacturing

Growth-hungry Asian economies which bypass industrialisation and leapfrog from agriculture to the services sector may fall into a "middle income trap", the Asian Development Bank (ADB) cautioned Wednesday. ADB chief economist Changyong Rhee said the region's low-income economies should focus on developing their manufacturing sectors, which would in turn generate high-quality service jobs and improve agricultural productivity. "A lion's share of Asian economies are moving directly from the agricultural sector to the services sector, bypassing industrialisation," he told a news conference in Singapore. "We find that historically, virtually no country becomes a high-income country without having a significant degree of industrialisation." Rhee said a study of 100 countries by the Manila-based lender showed that economies which achieve high-income status -- with per capita income of above US$15,000 -- have at least an 18 percent share of manufacturing in total output and employment for a sustained period. "What we found is that without reaching this 18 percent threshold in employment and output share, you will have difficulty moving out of the middle-income trap," Rhee said. The ADB study identified the Philippines, India, Sri Lanka and Pakistan as among Asia's agriculture-driven economies that have bypassed industrialisation for the services sector. They only attract "low-quality" service sector jobs because of their lack of a substantial manufacturing sector, according to Rhee. Without manufacturing experience it would not be easy to attract high-quality service-sector jobs such as legal and IT work, Rhee said. The ADB study showed the agricultural sector comprised just 10.9 percent of the total GDP of 45 nations or territories from Central Asia through to the Pacific islands excluding Japan. This was despite the sector accounting for 42.8 percent of total employment in the region. Rhee said despite the slow pace of structural reforms, governments in Asia understood the importance of developing manufacturing to avoid being stuck in the middle-income trap. "I have no doubt in their political will, but the question is implementation because of local politics and government structures," he said. The ADB in July trimmed its growth forecast for Asia to 6.3 percent from 6.6 percent, citing China's slowing growth.