1

Understanding Our Saving Capacity, Competitive Positions of Exports in Dynamic Asia, Welfare Impacts of Asia’s FTAs & FDIs, and Shifts in Development Paradigm

(for Informal ODA Discussion Meetings in Jakarta, Indonesia)

Prof. Shigeru T. OTSUBO

Advisor ExtraordinaryTokyo Task-Force for Japan’s ODA Strategy toward IndonesiaThe Government of Japan

ProfessorGraduate School of International DevelopmentNagoya University

2

Age Dependency Ratio(dependents to working-age population, %)

40

50

60

70

80

90

100

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Higih Income Cos. J apanLow & Middle Income Cos. East Asia & Pacific LMICs

Is the Doomsday Imminent ?

Determinants of the (private) saving ratio:

Income (level), rates of return, uncertainty, domestic/foreign borrowing constraints, financial depth,fiscal policy, pension system, income/wealth distribution, and demographics …

3

Is the Doomsday Imminent for Indonesia?The pattern of Indonesia’s age dependency ratio lags behind that of East Asia (average) by as much as 10 years, but it will bottom out in 2015 and the rising trend will be visible by 2025 …. If Indonesia can mobilize her own savings …..Targeting the year 2025 for major development outcomes will be a right strategy.

Age Dependency Ratio(dependents to working-age population, %)

40

50

60

70

80

90

100

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Higih Income Cos. J apan Low & Middle Income Cos. East Asia & Pacific LMICs Indonesia

4

Indonesia’s Demographic Trends

Indonesia's Demographic Trends

30

40

50

60

70

80

90

1960

1965

1970

1975

1980

1985

1990

1995

0

1

1

2

2

3

3

4

4

5

5

Age dependency ratio Population ages 0-14 (% of total)Population ages 65 and above (% of total) Population growth (annual %)

So far, Indonesia’s population share of ages 65+ has been only gradually rising, while that of young generation ages 0-14 has been declining rapidly…..

5

Japan’s Current Account BalanceJapan’s CAB movements are still cyclical, but if1) TB surplus is on a shrinking trend, and2) Income Balance surplus continues to expand …..

6

Japan’s Trade Partners

In early 1990s, Asia replaced the US as Japan’s top export destination and as her top import origin …..

Exports Imports

7

Re-Importation by Japanese Firms Operating Overseas

1) The share of re-imports by Japanese firms in total imports has reached 15% mark at the end of 1990s and it continues to increase.

2) More than 80% of those re-imports are from Asia.

8

Development Stages Theory of BOP (cf. Crowther, 1957)

Immature

Debtor

Country

Matured

Debtor

Country

Debt

Repayment

Country

Immature

Creditor

Country

Matured

Creditor

Country

F. Asset

Take-down

Country

Current Account Balance

Surplus

Deficit

+ + + +

- - -

Trade Balancein Goods& Services

Surplus

Deficit

+ + + +

- - -

Income Balance(returns onInvestments)

Surplus

Deficit

+ + + +

- - -

Net Foreign Assets

Surplus

Deficit

+ + + +

- - -

Capital Account Balance

Surplus

Deficit

+ + +

- - - -

Indonesia Malaysia Korea Singapore Japan Thailand

9

Export Product Share in 2000 Pulp Coal Vegetable oil Data processing mac. Furniture Petro Gas Wood Textile Radio Telecom Footwear

Indonesia's Export Product Shares

0.00

2.00

4.00

6.00

8.00

10.00

12.00

001

044

073

223

266

291

512

554

625

658

676

693

722

745

775

821

874

899

SITC 3-digit Category

Per

cent

Export Potential Tables are provided at SITC 3-digit level in an Appendix.

10

Indonesia’s Shifting Comparative Advantage in Asia

Revealed Comparative Advantage

RCAij = ( Xij / Xi ) / ( Xj / X )

RCA>1 or RCA<1

1) RCA indices are computed for East Asian economies using UN/COMTRADE (WB Version) SITC 3-digit level (269 lines) data,for 1985, 1990, 1995, and 2000.

2) Then correlations among RCAs for Asian economies are computed.

11

Indonesia's Export Potentials0 - Food and Live Animals Chiefly for Food1 - Beverages and Tobacco2 - Crude Materials, Inedible, except Fuels3 - Mineral Fuels, Lubricants and Related Materials4 - Animal and Vegetable Oils, Fats and Waxes5 - Manufactureing Goods Classified Chiefly by Material6 - Chemicals and Related Products, N.E.S.7 - Machinery and Transport Equipment8 - Miscellaneous Manufactured Articles9 - Not Classified Elsewhere

RCA Increases 2000 Share in XSITC Code (2000/1990) (%)

Pulp and waste paper 251 5.37 1.15Ores and concentrates of base metal 287 2.03 3.13Coal,lignite and peat 322 5.63 2.05Petrol.oils,crude,& c.o.obtain.from 333 0.38 9.80Petroleum products,refined 334 0.53 2.63Gas,natural and manufactured 341 0.39 10.66Other fixed vegetable oils,fluid or 424 2.02 2.65Wood manufactures,n.e.s. 635 1.27 1.51Paper and paperboard 641 8.36 3.29Textile yarn 651 6.78 2.14Fabrics,woven,of man-made fibres 653 1.18 1.80Automatic data processing machines 752 1787.96 3.25Parts of and accessories suitable f 759 747.24 1.61Radio-broadcast receivers 762 9.02 0.98Gramophones,dictating,sound recorde 763 197.63 1.33Telecommunications equipment and pa 764 6.14 2.82Thermionic,cold & photo-cathode val 776 6.35 1.19Electrical machinery and apparatus, 778 2.93 1.07Furniture and parts thereof 821 1.90 2.46Outer garments,men's,of textile fab 842 1.12 1.61Outer garments,women's,of textile f 843 1.23 2.14Outer garments and other articles,k 845 1.10 1.44Footwear 851 1.73 2.58

MITI designated sectors (2002.1) Protection?

12

Looking at the competitive structure in Asia from Indonesia’s point of view:1) Indonesia’s export structure continues to be complementary to those of Japan, Korea, and Taiwan.2) Indonesia faces stiff competition with Malaysia in exports, and this competition has become stiffer.3) Competition with Thailand and Philippines has been also keen, and that with Thailand has become keener.4) Competition with Singapore has been decreasing due to … (forming a growth triangle?)5) China (w/ or w/o Hong Kong) emerges as a competitor for Indonesia.

RCA Correlations vs. Indonesia

- 0.20

- 0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1985 1990 1995 2000

J apanKoreaHong KongSingaporeTaiwanMalaysiaTh a i la n dPhilippin e sChina

13

RCA Correlations vs. China

- 0.15

- 0.10

- 0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

1985 1990 1995 2000

KoreaHong KongSingaporeTaiwanMalaysiaThailandPhilippinesIndonesiaJ apan

Looking at the competitive positions of economies in Asia vis-à-vis. China:1) Korea started to position herself vs. China in early 1990s..2) Hong Kong, Singapore, Taiwan, Malaysia, Thailand started to position themselves vs. China in the latter half of 1990s.3) Indonesia and Philippines are lagging behind in this game of ‘coexisting with China’ in her emergence in the global market.

14

Developments in FTAs and Economic Partnerships in Asia1989 … 1993 1994 1995 … 1997 … 1999 ……

ASEAN-AFTA ASEAN6CEPT (CommonEffectivePreferrentialTariff) Scheme

ASEAN10

+ Vietnam + Myanmar,Laos

+ Cambodia

J apan & Singapore

J apan & ASEAN

China & ASEAN

ASEAN plus 3(J apan, China, Korea)

UnofficialASEAN 3meeting(KL)

APEC FormationatCanberra(Nov.)

Bogor Declaration

… 2001 2002 2003 … 2010 … 2015 … 2018 … 2020

ASEAN-AFTA Within-AFTA tariffs< 0-5% by 2003.1.1

AFTAcompletion I(original 6)

AFTAcompletion II(ASEAN10)

AFTAcompletion III(all items)

J apan & Singapore Economic Partnership (J an.)

J apan & ASEAN Closer EconomicPartnership (CEP)(J an. Bangkok - )

Negotiaion StartsCEP within 10 years

!

China & ASEAN Brunei meeting (Nov.)FTA within 10 years

Framework for EconomicCooperation (Nov.)

!!

ASEAN plus 3(J apan, China, Korea)

EAFTA vision (Brunei)EAFTA vision welcomed(Sept. Brunei)

APEC Free trade andinvestment(Developed members)

Free trade andinvestment(Developing members)

15

The GTAP ModelGTAP Web Site: www.agecon.purdue.edu.gtap

 

      The GTAP model is a multi-region multi-industry computable general equilibrium (CGE) model constructed over a database consisting of bilateral trade, transport, and protection data for economic linkages among countries/regions, and of input-output tables that represent intersectoral interactions within each country/region. Each industry is represented by a single homogeneous commodity. The model includes three factors of production: labor, capital, and land. Labor and capital are mobile across domestic sectors, while land is assumed to be used only in agricultural sectors. Capital is traded internationally like intermediate inputs, while labor and land are not mobile across borders.

   Microeconomics-oriented model with incentive structures of economic agents explicitly modeled.

   　 Global saving-investment identity is preserved.

      WTO, WB, USDA, and EPA are among the active users.

      For further details, refer to the papers, 経済分析 １５６号｢ ｣ , and the GTAP web site.

16

Welfare Implications of Asian FTAs ($US million)

AFTA JAPAN JAPAN China, Hong Kong AFTA

Cos. & Regions & Singapore plus AFTA plus AFTA plus 3

Japan -2,131 214 12,115 -4,678 31,976

Singapore 3,309 541 2,812 4,292 3,142

Indonesia 860 -22 243 1,821 719

Malaysia 1,083 -60 457 1,932 567

Philippines -60 -12 -1,061 76 -881

Thailand -888 -32 -1,915 -159 -2,000

Vietnam 729 -13 997 886 1,148

China -175 -41 -1,171 -4,972 -8,247

Hong Kong -158 -29 -281 8,616 4,945

S. Korea -267 -48 -1,195 -961 9,537

Taiwan -212 -26 -792 -1,415 -4,329

Australia -151 -33 -485 -203 -807

New Zealand -57 -6 -98 -67 -170

Russia 11 -14 -251 -107 -1,003

USA -836 -182 -3,010 -2,717 -8,005

Canada 33 -8 1 -100 -366

Mexico 29 -1 -2 77 -80

Chile 0 -3 -38 -15 -118

Latin America -101 -39 -474 -482 -1,682

Western Europe -840 -141 -3,909 -2,367 -10,244

ROW -284 -117 -1,175 -405 -3,208

World -106 -72 768 -946 10,897

[Static Impact Only]

17

Trade Balances (US$ million)

AFTA JAPAN JAPAN China, Hong Kong AFTA

Cos. & Regions & Singapore plus AFTA plus AFTA plus 3 1995 TB 1995 GDP

Japan 1,549 -235 -1,892 5,445 -2,662 75,707 5,137,382

Singapore -1,277 -261 -1,261 -1,545 -1,362 13,033 83,677

Indonesia -177 4 -530 -351 -661 -2,697 202,132

Malaysia -1,053 4 -1,730 -1,131 -1,852 -3,495 88,832

Philippines -1,301 13 -2,244 -1,785 -2,682 -5,799 74,120

Thailand -1,001 4 -2,087 -1,312 -2,107 -11,299 167,996

Vietnam -830 6 -1,042 -1,004 -1,230 -2,181 20,194

China 69 -3 77 -5,163 -10,831 16,091 700,219

Hong Kong 53 18 215 -8,615 -4,707 -6,053 139,242

S. Korea 101 11 325 393 -3,497 -7,212 489,258Taiwan 22 1 26 40 -44

Australia 196 27 513 399 1,026

New Zealand 19 2 33 44 79

Russia 84 5 162 334 536

USA 1,050 128 3,007 4,448 9,738

Canada 70 4 110 322 399

Mexico 34 1 54 137 167

Chile 7 1 20 35 70

Latin America 204 27 582 982 2,070

Western Europe 1,644 151 4,143 6,555 12,747

ROW 537 91 1,518 1,772 4,803

[Static Impact Only]

18

In tra -A P E C F D I a n d T ra d e F lo w s

(a v e ra g e fo r 1 9 9 2 -9 4 )

1

1 0

1 0 0

1 ,0 0 0

1 0 ,0 0 0

1 0 0 ,0 0 0

1 ,0 0 0 ,0 0 0

1 1 0 1 0 0 1 ,0 0 0 1 0 ,0 0 0 1 0 0 ,0 0 0

Inw a rd F D I (lo g o f U S $ m illio ns )

Bila

tera

l Exp

orts

(log

of U

S$ m

illio

ns)

In the APEC region, FDI inflows had already started to create exports (more than imports) in early 1990s.

19

I n d e x o f T r a d e C o m p le m e n ta r i ty :

( 1 ) 2/1

k i

ki

j

kj

ij X

X

M

MCMP ( 0 ≦ C M P ij ≦ 1 )

w h e r e i i s a n e x p o r t in g r e g io n , j i s a n im p o r t in g r e g io n , a n d k r e p r e s e n t s g o o d s c a t e g o r ie s . T h is

in d e x t a k e s t h e v a lu e o f o n e w h e n a c o m p o s it io n o f im p o r t n e e d s in a n im p o r t in g c o u n t r y m a t c h e s

p e r f e c t ly w it h t h e e x p o r t b u n d le o f a n e x p o r t in g c o u n t r y . A t t h e o t h e r e x t r e m e , w h e r e a n e x p o r t

b u n d le o f a n e x p o r t in g c o u n t r y h a s n o r e le v a n c e t o t h e im p o r t n e e d s o f a n im p o r t in g c o u n t r y , t h e

in d e x t a k e s t h e v a lu e o f z e r o .

20

In tr a -A P E C T r a d e C o m p le m e n ta r itie s a n d T r a d e F lo w s

(a v era g e fo r 1 9 9 2 -9 4 )

1

1 0

1 0 0

1 ,0 0 0

1 0 ,0 0 0

1 0 0 ,0 0 0

1 ,0 0 0 ,0 0 0

0 .0 0 0 .1 0 0 .2 0 0 .3 0 0 .4 0 0 .5 0 0 .6 0 0 .7 0 0 .8 0 0 .9 0 1 .0 0

C o m p le m e n ta rity Ind e x

Expo

rts (l

og o

f US$

mill

ions

)

21

Gravity Model of Directions of Trade Flows

Tradeij = f [GDPi, pcGDPi, POPi, GDPj, pcGDPj, POPj, Distanceij,

FDIij (and/or FDIji), CMPij, RTADijk, Other Dummies],

Tradeij --- trade flow from country i to country j,

pcGDP --- GDP per capita,

POP --- population,

FDI --- foreign direct investment (either direction),

CMP --- complementarity index,

RTAD --- a set of dummy variables for a set of k different regional trade arrangements (=1 if both i and j

are members of the particular RTA).

A similarity index│ pcGDPi – pcGDPj│ that represents the Linder Hypothesis is not included in the

current study so as to focus on trade complementarity given the flying geese pattern of Asian

production and trade.

22

(Dependent variable is Export ij)1 2 3 4 5 6 7 8 9 10 11

Year 1984 1993 1993 1993 1993 1993 1993 1993 1993 1993 1993Constant -8.44 -6.03 -6.46 -6.77 -7.11 -7.25 -5.02 -5.22 -5.81 -5.94 -6.21

(-4.65)a (-3.34) (-3.54) (-4.19) (-4.32) (-4.27) (-3.11) (-3.17) (-4.03) (-4.00) (-3.97)Distance ij -1.19 -1.03 -1.03 -0.87 -0.87 -0.93 -0.92 -0.93 -0.78 -0.78 -0.86

(-7.84) (-8.98) (-8.92) (-7.50) (-7.50) (-7.91) (-7.55) (-7.55) (-6.43) (-6.42) (-7.05)GNP i 0.22 0.25 0.23 0.21 0.19 0.19 0.19 0.18 0.16 0.15 0.15

(4.01) (5.11) (4.84) (4.61) (4.36) (4.25) (4.67) (4.58) (4.11) (4.05) (3.92)GNP j 0.28 0.26 0.27 0.18 0.19 0.23 0.25 0.25 0.18 0.18 0.23

(4.76) (5.23) (5.48) (4.20) (4.48) (5.15) (4.97) (5.07) (4.04) (4.12) (4.95)Per capita GNP i 0.76 0.51 0.45 0.57 0.52 0.44 0.36 0.35 0.43 0.42 0.34

(8.20) (7.25) (5.85) (8.71) (7.18) (6.58) (4.51) (4.18) (5.61) (5.33) (4.38)Per capita GNP j 0.69 0.50 0.50 0.31 0.31 0.39 0.42 0.43 0.26 0.26 0.35

(7.09) (6.87) (6.84) (4.26) (4.30) (5.47) (6.09) (6.05) (3.57) (3.57) (5.05)

Border Dummyb 0.62 0.69 0.66 0.40x 0.39x 0.47x 0.67 0.66 0.40x 0.40x 0.49(1.71) (2.02) (1.93) (1.21) (1.14) (1.37) (2.31) (2.26) (1.41) (1.38) (1.65)

Complementarity 3.67 3.52 3.29 3.20 2.92(4.41) (4.09) (4.13) (3.84) (3.51)

FDI ij 0.22 0.18 0.08x 0.06x

(2.03) (1.70) (0.77) (0.54)FDI ji 0.68 0.66 0.62 0.62

(7.02) (6.98) (7.00) (7.03)FDI ij x FDI ji 0.40 0.32

(4.84) (3.99)Sample size 238 240 240 240 240 240 240 240 240 240 240F-statistics 41.07 43.33 38.05 46.19 41.01 44.41 44.26 38.70 46.63 41.34 43.14SSE 642.08 460.19 453.30 406.80 402.33 416.11 416.95 416.05 372.39 371.98 390.42

Adjusted R2 0.504 0.515 0.520 0.570 0.573 0.600 0.559 0.558 0.604 0.603 0.585Note:a. Numbers in the parentheses are t-statistics.b. This dummy takes the value one when two countries share the border.x = Insignificant at the 5% significance level (t-value<1.645)

Results for APEC Trade Gravity Models with FDI

23

Simulation Design Matrix

Perfect Competition

Monopolistic Competition

Transfer of Capital Stock

Simulation 1 Simulation 4

Transfer of Capital Stock

&

Technology

Simulation 2 Simulation 5

Cofinance

— Joint Venture

Simulation 3

(on top of Simulation 2)

Simulation 6

(on top of Simulation 5)

Analyzing Welfare Implications of Japan’s FDI Activities in Asia

24

Simulation 1: Transfer of Capital Stock under the Assumption of Perfect Competition (CRTS)

A transfer of capital stock from Japan to nine developing Asian economies/regions (Indonesia, Malaysia, Philippines, Thailand, China, Hong Kong, Taiwan, South Korea, and Singapore) is emulated in order to assess the “stock effects”. Capital stock endowments of recipient Asian economies are augmented by 1 percent while Japan’s capital stock is reduced by the amount equivalent to a total increase in the recipients’ capital stock. Without an accompanied technology transfer, there is no distinction between indirect investments and direct investments. International capital mobility is assumed. The savings rate is fixed.

Simulation 2: Transfer of Capital Stock and Technology under the Assumption of Perfect Competition

Production and managerial technologies accompany the transfer of capital stock. Assuming FDI flows to manufacturing sectors and there is resultant intra- and inter-industry technology spillover, the rate of technology growth is augmented in all seven manufacturing sectors (food & beverages, textiles, chemicals, metals, transport equipment, machinery, and other manufacturing) by 1 percent.

Simulation 3: A Matching Increase in Capital Stock by Domestic Investment-Savings (Cofinance)

Perceived higher rates of return in industrial activities with FDI inflows prompt domestic investors to mobilize domestic resources (savings) to cofinance the industrial projects. Recipient countries’ capital stock is further increased by an increment in domestic investment equivalent to the amount of the initial inflow of FDI. This simulation is conducted on top of Simulation 2 using the output file produced in Simulation 2. International capital flows are suppressed and the trade balance is fixed in order to force domestic savings to finance new domestic investment. The savings rate is thus endogenized on the marginal base.

Simulation 4: Transfer of Capital Stock under the Assumption of Monopolistic Competition (IRTS)

Transfer of capital stock (Simulation 1) is repeated, but this time, under an assumption of monopolistic competition with scale economies in all of the seven manufacturing sectors (food & beverages, textiles, chemicals, metals, transport equipment, machinery, and other manufacturing). International capital mobility is assumed. The savings rate is fixed.

Simulation 5: Transfer of Capital Stock and Technology under the Assumption of Monopolistic Competition

Transfer of capital stock and technology (Simulation 4) is repeated, except that monopolistic competition is assumed for the manufacturing sectors.

Simulation 6: A Matching Increase in Capital Stock by Domestic Investment-Savings (Cofinance)

Same as Simulation 3 except that the simulation is conducted under the assumption of scale economies and that the output file of Simulation 5 is used. International capital mobility is suppressed. The savings rate is endogenized.

25

World Aggregates(percent change)

Simulation 1 Simulation 2 Simulation 3 Simulation 4 Simulation 5 Simulation 6Equivalent variation (US$ million) 2,220 16,141 5,347 2,837 16,665 6,315Global net return on capital 0.01 0.06 0.02 0.04 Global net investment 0.03 0.23 0.00 0.05 0.29 0.00World trade volume 0.07 0.18 0.10 0.08 0.21 0.08World trade price -0.02 -0.06 -0.01 -0.01 0.00 -0.01

FDI is a positive-sum game, not a zero-sum game!

26

Simulation Results under Perfect Competition (CRTS) -- Economy-Wide Effects(percent change)

GDP Export Import Export Import Terms Trade Equivalent Variation (US$ million)quantity Volume Volume Prices Prices of Balance due to due toindex Trade (US$ million) Total TOT Technology

changes changesSimulation 1: Transfer of Capital Stock

J apan -0.11 -0.4 0.12 0.07 -0.02 0.09 -1,483 -1,811 936 0

Simulation 2: Transfer of Capital Stock & TechnologyJ apan -0.11 -0.24 -0.11 -0.01 0.01 -0.02 -698 -3,042 -225 0

Simulation 3: Cofinance-J oint Venture (on top of Simulation 2)J apan 0 0.02 0.09 0.02 -0.01 0.03 0 310 309 0

Simulation Results under Monopolistic Competition (IRTS) -- Economy-Wide Effects(percent change)

GDP Export Import Export Import Terms Trade Equivalent Variation (US$ million)quantity Volume Volume Prices Prices of Balance due to due toindex Trade (US$ million) Total TOT Technology

changes changesSimulation 4: Transfer of Capital Stock

J apan -0.13 -0.35 -0.02 0.04 0 0.04 -1,071 -2,970 456 -585

Simulation 5: Transfer of Capital Stock & TechnologyJ apan -0.15 -0.28 -0.34 -0.06 0.05 -0.11 -571 -5,279 -1,127 -848

Simulation 6: Cofinance-J oint Venture (on top of Simulation 2)J apan 0 0.01 0.04 0.02 0 0.02 0 220 203 -17

27

Major strategic implications of the study for Japan (FDI-supplier) are:

 

(1) 　 In order to benefit from the positive-sum game of FDI, Japan (or any FDI-supplier) should also provide a conducive environment to attract inward FDIs. Outward FDI alone is not likely to improve domestic welfare (just like the case in international trade) unless it is driven by welfare-improving domestic causes. Also, two-way flows in a large number of countries should enlarge the positive sum of FDI.

(2) 　 In order for Japan (FDI-supplier) to avoid the possible secondary burden of a transfer of productive resources, it should also mobilize local savings by looking for local partners and/or raising local funds when executing FDIs.

(3) 　 It may be important to retain R&D facilities in the domestic market and preserve technology terms of trade if one supplies technology abroad along with capital.

Looking at the results from Indonesia’s (or any other FDI-recipient) point of view:

(1) Indonesia should promote (call back?) inward-FDIs.

(2) Intra-APEC FDIs should promote Indonesia’s exports and mitigate BOP problems.

(3) Technology (productivity) enhancement is the key.

(3) Cofinancing (mobilizing domestic savings/investment together with inward-FDIs) will increase Indonesia’s welfare, even though it turns TOT slightly against Indonesia.

28

Revolutions and the Evolution of Economic Systems

Private ownership of the means of production

State ownership ofthe means of production

Larger-scale-organization oriented Smaller-scale-organization oriented

Primitive Market Economy

IT-driven Market Economy

Capitalism

Socialism Utopian Socialism

Industrial Revolution

Socialist Revolution

IT Revolution

Imperialism

Monopoly Capitalism The US economy after the IT revolution

Linux

USSR

Industrialized China

China under Mao Zedong(Maoist China)

Colonialism

State SocialismDevelopment Planning

Primitive Economy

Market-oriented

Transitional

Informal Sector

29

Spending per Capita on Information Infrastructurein 1998 (US$)

19.93

28.28

22.89

13.49

11.56

129.11

0 20 40 60 80 100 120 140

OECD Countries

Middle East & North Africa

Sub-Saharan Africa

Latin America & Caribbean

Eastern Europe & Central Asia

Asia Pacific

Source: John Gage, “From Digital Divide to Digital Opportunity: Business Leaders Report for Davos”, Development Outreach, World Bank Institute (Spring 2000).

30

Expansion of Corporate　Activity and Investment

Self-reliance of Individuals

Compact and Efficient Government

Corporate governance

Corporate accounts disclosure

Corporate restructuring

FDI into Indonesia IT revolution

Employment practices

Corporate pension (401k type)

Job choice society

Human capital investment

Personal income taxationCorporate taxation

Entrepreneurship promotion

Social security

Education reform

Labor market liberalization

Budget consolidation

Administrative reform

SOE reform

Local gov’t autonomy

Financial system reform

Regulatory reform

Electronic government

Public investment reform

Information network

SME policy

Portfolio investment diversification

Structural Reform for Sustainable GrowthStructural Reform for Sustainable GrowthChanging Roles of Government, Corporate, and Household Sectors

31