World Economy

Asia must do this if it wants to get richer

Emerging Asia continues to drive global growth but it must ramp up productivity to graduate to high-income status, the Asian Development Bank (ADB) warned in a new report.

More than 95 percent of the region's population currently reside in middle-income economies, versus just 10 percent in 1991, the poverty-fighting institution outlined in its 2017 outlook released Thursday.

Motorists pass the Saigon Notre-Dame Basilica in Ho Chi Minh City, Vietnam.
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While that's a testament to Asia's dynamic pace of development, governments cannot rest on their laurels, the ADB warned.

"Policymakers will need to change their approach to reach high-income. It is no longer a question of them using more resources to sustain growth, economies must become more productive to clear the final hurdle," said chief economist Yasuyuki Sawada.

Middle versus high

Countries with gross national income (GNI) per capita between $1,026 and $4,035 are defined as lower middle-income, those with GNI per capital between $4,036 and $12,475 are upper middle-income and high-income nations are $12,476 or higher, according to the World Bank.

China, Malaysia and Thailand are defined as upper middle-income while India, Indonesia, Vietnam and the Philippines are classified as lower middle-income, as per World Bank rankings.

Japan, South Korea, Singapore, Hong Kong and Taiwan meanwhile are high-income nations. Unsurprisingly, those five countries boasted the region's highest labor productivity per person employed in 2016, data from The Conference Board showed.

Climbing up the ladder

Focusing on innovation is one way for emerging markets to raise productivity, the ADB said.

Buffett: Growth is all about productivity
Buffett: Growth is all about productivity

"Innovation requires a skilled workforce, and hence an emphasis on improving education quality...A 20 percent increase in human capital spending per capita can increase labor productivity by up to 3.1 percent."

Infrastructure investment, particularly in energy and information technology, is another means.

"A one-time public investment in infrastructure equal to 1 percent of gross domestic product can lift a country's output by as much as 1.2 percent in seven years," the ADB said.

Asia's growth outlook

The ADB also estimated Asia-Pacific's economic growth would hit 5.7 percent in 2017 and 2018 — a touch below the 5.8 percent expansion recorded last year.

Tighter U.S. monetary policy and the accompanying risk of capital outflows in addition to currency volatility are among the primary threats to Asia's outlook, the ADB warned. Rising household debt and frothy housing markets were also worrisome, it added.

Meanwhile, inflation projections for the next two years are still well below the 10-year regional average of 3.9 percent, the ADB said.