Insights and Analysis

Trends That Will Shape Asia’s Economic Future (Part 2)

February 11, 2015

By Véronique Salze-Lozac'h

In last week’s blog, I highlighted four top trends to look out for in Asia’s economic future, including: Asia as the driver of growth, the growing tide of inequality and disparity, Asia’s trendsetters, and regional integration and regional fragmentation. Here are four more top trends to watch:

1. Asian connectivity: the big revolution

In the coming years, Asia will experience improvements in different types of regional connectivity: physical, institutional, and people-to-people. Through a more connected Asia, the region can ensure that goods, investment, services, information, technology, and labor circulate more freely.

Bangkok slum

One consequence of Asia’s growth is rapid and mostly uncontrolled urbanization. Asia is currently home to over half of the world’s megacities and 53 percent of the world’s urban population. Photo/Karl Grobl

Many governments are starting to update their inadequate transport systems. Southeast Asia, for example, plans to spend an estimated $7 trillion upgrading infrastructure, while China intends to build a high-speed railway to Singapore. Yet massive new investments in highways, ports, hydrological structures, power grids, and dry ports will need to be mobilized in all countries to ramp up the regional integration project.

Countries are also moving toward greater institutional connectivity; for instance, through the creation of the ASEAN single window to expedite cargo clearance. Improving institutional capacity is often slow and difficult, however, since it requires harmonizing the standards and policies of multiple countries.

Meanwhile, high internet penetration rates in Asia have created a new wave of “e-empowered” netizens. More Asian consumers, from the bottom to the middle of the pyramid, are gaining access to digital devices and platforms – and the vast knowledge banks, real-time collaboration, and wide reach that they offer.

In Asia as in the rest of the world, the technology and software revolution is definitely “eating the world” as Netscape founder Marc Andreessen wrote in 2011, allowing “technology jumps,” lowering entry costs, and opening opportunities for innovative entrepreneurs with no assets or large technical or investment capacities. Similarly, corporations in retail, health, agriculture, financial services, and other industries will be adding software tools and technologies to their products and services. E-commerce, e-banking, mobile technologies, and much more will change the way business is done in Asia.

2. Asia will be increasingly urban

One consequence of Asia’s growth is rapid and mostly uncontrolled urbanization. Asia is currently home to over half of the world’s megacities and 53 percent of the world’s urban population. Already around 54 percent of China’s residents live in cities, and by 2050, India is projected to add 404 million urban dwellers, surpassing China’s expected 292 million new dwellers. With about 80 percent of the Asia-Pacific region’s economic output generated by cities, urbanization – with its opportunities and challenges – will be a key component of achieving more sustainable and inclusive growth.

Living in cities permits individuals and families to take advantage of the opportunities of proximity and diversity, such as better access to jobs, education and health care. However, the drive for rapid urban growth and efficiency of public services often leads to less equitable urban development. In many cases, low skilled or unskilled migrant workers who have moved to the cities from rural areas cannot find sustainable jobs or affordable housing and are forced to dwell in slums. In 2015 and beyond, the region’s sprawling megacities will witness increasingly scarce space to live – making the value of every square meter continue to rise. According to Indian Architect P.K. Das, in Mumbai, each citizen accesses 1.1 square meters of public green city space, 26 times less than New Yorkers, and much less than the nine square meters recommended by the UN World Health Organization.

According to the ADB, the future prospects for cities in the Asia-Pacific will rely on the management of three interrelated elements: economic sustainability (creating jobs and wealth), environmental sustainability (providing shelters, safe water, clean air, managing waste), and social sustainability (ensuring safety and security, equality of opportunities, inclusion of all groups, and social cohesion).

3. Asia’s human potential

Asia’s management of its human resources will underpin its future development.

According to the International Labour Organization (ILO), there are over 30 million migrant workers in the region, a number that is only expected to increase. 42 percent of these workers are women, as migration in Asia becomes more feminized. The economic contributions of Asia’s migrant workers are significant, since they provide skills, labor power, and services in their host countries, as well as financial remittances, skills, and knowledge once they return to their countries of origin. However, to take full advantage of the opportunities they provide, countries must increase their protection of migrant workers and create more effective governance of labor migration.

Additionally, harnessing the full economic potential of women in the economy is another powerful way to promote economic growth and reduce poverty. The United Nations estimates that the Asia-Pacific economy could grow by $89 billion annually if women were fully integrated into the workforce.

Asia’s capacity to provide quality and broad-based education and training will determine its capacity to take full advantage of its human resources. Today, the net primary school enrollment rate is 92.2 percent, a remarkable improvement compared to 40 years ago, when the region contained two-thirds of the world’s out-of-school children. However, the ADB found that education and human-resource shortfalls still exist at all levels. Developing countries especially will need to improve their training and skills development systems in order to equip graduates with competencies that meet the needs of the labor market.

4. A greener Asia

According to the UNEP, the Asia-Pacific region is now the world’s largest user of natural resources. Its rapid growth has relied heavily on fossil fuel-intensive infrastructure and the exploitation of its natural resource base. This has led to a sharp rise in resource use and emissions in the region – which continues to grow at a faster rate than any other region – as well as high levels of pollution and resource depletion.

If this trend continues, the economic impact could be staggering.

In China, for instance, environmental degradation is estimated to cost the country approximately 9 percent of its GNI, according to the World Bank. At the same time, domestic consumption in Asia has continued to expand, creating unprecedented demand for more energy, clean water, and natural resources. If current rates of depletion continue, competition for resources will intensify.

In Asia as in other parts of the world, more countries are recognizing the need to transition to green growth strategies, incorporating environmental considerations into their national development plans to foster low-emission and sustainable, as well as socially inclusive development. Sustainable management of resources can serve as an important driver of growth, allowing countries to gain a competitive edge and spur greater job creation and prosperity.

Many Asian economies also remain highly vulnerable to changes in the world’s climate, which is expected to cause extreme precipitation, inland and coastal flooding, rising sea levels, heat stress, and famine. The ADB estimates that climate change damage could eventually reduce economic growth in South Asia by 9 percent annually.

These environmental challenges pose significant hurdles to economic growth in Asian countries, and serve as a potential source for heightened tension and conflict in the future.

Policymakers remain skeptical on whether they can implement environmentally friendly policies without causing economic growth rates to drop. Yet the real question is not, “Can growth be more environmental friendly?” but rather, “How could Asia continue to grow if it doesn’t become more environmentally-friendly?”

This is a two-part blog. Read the first post published on February 4.

Véronique Salze-Lozac’h is The Asia Foundation’s senior director for Economic Development Programs based in Bangkok. She can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.

1 Comment

  1. Your concluding sentence on the imperative to adopt “environmentally-friendly” policies and practices is astute and refreshing to see. Environmental problems, while not unique to Asia alone, are none the less significant, and tend not to rate much mention in analyses on the optimistic growth forecasts for Asia. Undoubtedly, consideration needs to be given to issues such as unchecked deforestation, declines in air and water quality, impacts of climate change, unsustainable land-use practices etc. Turning a blind eye to such environmental issues will have repercussions for economic growth and stability in the longer run.

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