The Contribution of Micro-enterprises to Economic Recovery and Poverty Alleviation in East Asia

The economic and social crisis that afflicted East Asia from mid 1997 produced the biggest setback to poverty reduction in the region for several decades, as well as aggravating social vulnerabilities. There were many dimensions to this, including: falling incomes; rising absolute poverty and malnutrition; declining public services; threats to educational and health status; increased pressure on women and children; and increased crime and violence. The objective of this paper is to analyse the potential contribution of one subset of small and medium sized enterprises, micro-enterprises and the role of micro-finance more generally, to regional economic recovery and poverty alleviation.micro-enterprises, micro-finance, economic recovery, poverty alleviation, East Asia

East Asian SME Capacity Building, Competitiveness and Market Opportunities in a Global Economy

Over the past decade the economies of East Asia, and APEC more generally, have been opening up their markets and in the process have achieved significant gains in exports and economic growth. In conjunction with this increased economic integration there has been increased recognition by regional governments of the potential for a substantial increase in the participation by small businesses in the generation of regional income, employment, exports, investment and expanded economic growth. Advances in information and communications technology add credence to this potential. In addition, developing economies are especially seeing small businesses as potential instruments for the alleviation of poverty. This viewpoint has been given further stimulus since the financial and economic crisis of 1997-98, arising from which there has been a growing recognition of the need for the East Asian economies to engage in comprehensive restructuring of their corporate sectors, with the objective of achieving transparency, improving corporate governance and developing globally competitive enterprises. The small and medium enterprise (SME) sector can play a key role in the attainment of such objectives. This paper reviews the contribution of the SME sector to the growth and development of the regional (East Asian) economies, and their increasing importance in the attainment of a sustained recovery of the region in terms of economic growth, employment, trade and investment and the development of globally competitive economies. It also identifies: barriers to their development; key factors essential for their capacity building; strategies to enhance their competitiveness in the global marketplace; and key components relating to their export success.East Asia, small and medium-sized enterprises, competitiveness, export success

The Australia-Korea Economic Relationship and Prospects for an FTA

Since the 1960s, trade opportunities based on complementary economies have driven the Australia-Korea economic relationship. Australia exported raw materials, principally minerals and energy, which Korea processed and subsequently sold on domestic and international markets. In return, Australia purchased increasing volumes of Korean manufactures, initially textiles, clothing and footwear and later automobiles. With the onset of the financial and economic crisis in Korea during 1997-98, trade and investment opportunities were severely constrained. However, in the wake of the crisis, and the rapid recovery of the Korean economy underpinned by corporate and financial sector reforms, trade and investment opportunities in traditional areas have re-emerged as well as in new areas. Australia's rapid economic growth has also increased demand for the sorts of consumer products produced by Korea. It is, therefore, opportune to consider the benefits, and obstacles, to the establishment of an Australia-Korea Free Trade Agreement. The paper analyses trends in Australia's trade and investment with Korea. New areas for trade are also highlighted as well as prospects for an FTA between the two countries. In doing so it: reviews the Australia-Korea bilateral trade relationship; reviews the nature and extent of foreign direct investment between Australia and Korea; reviews trade and investment prospects and opportunities between the two countries; analyses the prospects for a Korea-Australia Free Trade Agreement (KAFTA); reviews the potential economic effects from a KAFTA; and identifies key policy implications.Australia, Korea, free trade agreement, trade and investment

Firm Performance in Vietnam:Evidence from Manufacturing Small and Medium Enterprises

This paper examines the performance of domestic non-state manufacturing small and medium enterprises (SMEs) in Vietnam. Specifically, it evaluates firm level technical efficiency and identifies the determinants of technical efficiency of these SMEs. The paper uses an econometric approach based on a stochastic frontier production function to analyse 5,204 observations of SMEs from three surveys conducted in 2002, 2005 and 2007. The results from the estimations reveal that manufacturing SMEs in Vietnam have relatively high average technical efficiency ranging from 84.2 percent to 92.5 percent. The paper further examines the factors influencing efficiency. It finds that firm age, size, location, ownership, cooperation with a foreign partner, subcontracting, product innovation, competition, and government assistance are significantly related to technical efficiency, albeit with varying degrees and directions. Exporting does not appear to influence technical efficiency. The paper offers some evidence-based policy recommendations to improve the technical efficiency and competitiveness of manufacturing SMEs.manufacturing small and medium enterprises, firm performance, technical efficiency, stochastic frontier production function, Vietnam.

Identifying and Measuring Technical Inefficiency Factors:Evidence from Unbalanced Panel Data for Thai Listed Manufacturing Enterprises

This study employs stochastic frontier analysis (SFA) and two-stage DEA approaches to predict firm technical efficiency and analyse an inefficiency effects model. Aggregate translog stochastic frontier production functions are estimated under the SFA approach using an unbalanced panel data of 178 Thai manufacturing enterprises listed in the Stock Exchange of Thailand (SET), covering the period 2000 to 2008. The maximum-likelihood Tobit model is used to conduct the second-stage of the two-stage DEA model to investigate the relationship between technical inefficiency and environmental variables. Both parametric and nonparametric approaches are found to produce consistent results. The empirical evidence from both approaches highlight that Thai listed manufacturing firms had been operating under decreasing returns to scale over the period 2000 to 2008. The SFA approach reports that technical progress decreased over time, and relied on labour input. Both estimation approaches suggest that leverage (financial constraints), executive remuneration, managerial ownership, exports, some types of listed firms (i.e., family-owned firm and foreign-owned firm), and firm size have a negative (positive) and significant effect on technical inefficiency (technical efficiency). The empirical results obtained from both approaches also suggest that liquidity, external financing, and research & development (R&D) have a significantly positive (negative) effect on technical inefficiency (technical efficiency)Stochastic Frontier Analysis (SFA); Data Envelopment Analysis (DEA);Technical Efficiency; Manufacturing; Thailand

A Comparison of the Performance of SMEs in Korea and Taiwan: Policy Implications for Turbulent Times

A comparison of the role and performance of SMEs in Korea and Taiwan during the 1990s and early 2000s shows that the reputation for SMEs to be flexible in the face of adversity is well deserved, but should not be take for granted. Both Taiwan and Korea have built much of their economic success on SMEs. Both economies are very open to external shocks; both were affected by the 1997 Asian Crisis, and to a lesser extent, the "tech wreck" of 2001. Both economies have faced the need to restructure their industrial competitiveness, and both have active policies to support entrepreneurship and SMEs. Within this broad context of similarities, there are also some differences in approach and structure. All of this can give a better understanding of how managers and policy makers can help to create jobs and build a more competitive economy. SMEs provide about 80 percent of private sector employment in both economies, so SME performance is an important economic and social issue. The paper shows, for example, that Korean SMEs were subject to rather bigger devaluation shocks and currency volatility than their Taiwanese counterparts. However SME exporters in both economies showed considerable resilience in the face of shocks and SMEs in both economies have significantly improved their liquidity and debt ratios since 1997, suggesting they are better prepared now than before. They have done so in the face of a sharp decline in bank lending to SMEs. Over the decade there has been a steady structural decline in the importance of manufacturing SMEs in both economies. The paper examines the relative performance of SMEs in Taiwan and Korea over a turbulent decade, and it examines the SME policies and initiatives adopted. It seeks to extract some lessons for other economies seeking to develop an entrepreneurial and resilient SME sector in the face of global turbulence.small and medium enterprises, Taiwan, Korea, performance

New Regionalism in East Asia: How Does It Relate to the East Asian Economic Development Model?

In recent years a new regionalism has begun to emerge in East Asia that represents a clear break from the region's strong history of multilateralism. The countries of East Asia have been giving more attention to ways of expanding intra regional trade that include: the establishment of regional trade agreements (RTAs) such as ASEAN+3; plans to establish a free trade area involving the economies of ASEAN and China; as well as moves towards bilateral trade agreements (BTAs). This paper focuses upon the meaning and implications of this new regionalism for the "old" EADM, and explores the key ingredients of an emerging "new" EADM growth and development paradigm, incorporating the new regionalism, that appears to be emerging in the wake of the 1997-98 crisis.new regionalism, East Asia, East Asian economic development model

Public Policy and Small and Medium Enterprise Development

We review the policy arguments in favour of assisting SMEs in various areas of their operations. Our review suggests that many of the arguments put forward for subsidising SME activities (as distinct from some activities of firms regardless of size) are not economically justified. Nonetheless, it is widely acknowledged that SMEs suffer from disadvantage relative to large firms, principally in the areas of access to information and technology. We then study the possibilities offered by networks in helping SMEs deal with the disadvantages they experience. Our examination indicates that there are benefits that firms can derive from participating in networks. Further, because networks can assist firms overcome some of their inherent disadvantages, they can become less reliant on public assistance and more able to compete on an equal footing with larger firms once the initial impetus is provided for the formation of cooperative networks that can enable firms to compete more effectively.small and medium enterprises, public policy, government intervention, networks

Korea's Fading Economic Miracle 1990-97

By the late 1980s Korea's interventionist and export-oriented development model had contributed to a number of serious structural weaknesses in the economy. Ongoing government involvement in the banking and corporate sectors, weak prudential supervision of financial institutions, and restricted financial market and corporate competition created moral hazard, as banks and corporates believed they would not be held accountable for their actions due to their close relationship with government. This resulted in financial sector risk mismanagement and highly leveraged growth of the chaebols. After 1988, when the new democratically elected civilian administration removed long-standing restrictions on union activity, rapid wage growth, in excess of productivity gains, eroded profitability. These structural weaknesses, and policy errors and mismanagement, made Korea increasingly vulnerable to external shocks during the 1990s. In mid 1995, a rapid depreciation of the Japanese yen and a world semi-conductor glut and price fall provided the trigger for a rapid slowdown in exports and industrial output, and an unprecedented wave of chaebol bankruptcies that undermined the solvency of financial institutions. Korea's long period of sustained economic growth, low inflation, strong investment and balanced budgets had lulled policy makers into complacency. They failed to act decisively to tackle the growing structural weaknesses. Korea's high exposure to short term foreign debt and loss of foreign exchange reserves through a vain and unsustainable attempt to defend the won further undermined foreign investor and creditor confidence. This paper discusses in some detail these developments and their contribution to the financial and economic crisis experienced by the country during 1997-98. It also identifies key lessons for countries contemplating similar rapid development, and key warning signs that need to be heeded to avoid similar happenings to that which occurred in Korea.South Korea, export-oriented development model, structural weaknesses, financial and economic crisis

Resource Price Turbulence and Macroeconomic Adjustment for a Resource Exporter: a conceptual framework for policy analysis

Increased global demand for energy and other resources, particularly from the rapidly developing economies of China and India and the opening up of global resource markets to global investors and speculative activity, has resulted in considerable recent turbulence in resource prices. The recent magnitude of change in resource prices, both positive and negative, and their macroeconomic implications is of considerable contemporary importance to both resource importing and exporting economies. For a resource exporting economy, such as that of Australia, the recent resource price boom has resulted in: increased government taxation revenue, increased employment and wages in the resource and resource related sectors, increased spending in the domestic economy that contributed to buoyant economic growth, increased resource exports to the booming economies of China and India and contributed to a stronger domestic currency with beneficial effects upon inflation. On the other hand these developments have had adverse effects on the non resource sector by: subjecting it to more intense competition for limited resources, contributing to a loss of international competitiveness and reduced exports arising from a stronger exchange rate, reducing employment in the relatively more labour intensive non resource sector, and contributing to an eventual slow down in the overall economy. These positive and negative effects, and the overall impact of a resource price boom, require a fundamentally closer analysis of the structure of the economy under scrutiny. In this context the policy response by government is likely to be pivotal in determining the overall macroeconomic outcomes from a resource price boom. The aim of this paper is to develop a generic analytical framework to appraise economic outcomes in the wake of a resource price boom for a resource producing and exporting economy. To this end a dynamic long run macroeconomic model is developed, emphasising the important role and contribution of government fiscal policy in influencing subsequent macroeconomic outcomes. The adjustment process in the model arising from a resource price shock emphasises a spending (or wealth) effect, an income effect, a revenue effect, a current account effect and an exchange rate effect, which facilitate a robust analysis of subsequent macroeconomic outcomes from such a shock as well as related policy responses.Resource price shock, dynamic macroeconomic model, simulation analysis, macroeconomic adjustment, policy analysis