Asian Development Experience Vol. 1: External Factors for Asian Development

4 Upgrading Technology in ASEAN Countries and Japan’s ODA

70 Asian Development Experience, Vol. 1 4 Upgrading Technology in ASEAN Countries and Japan’s ODA Shujiro Urata 70 1. Introduction Upgrading technology plays a very important role in promoting economic development. Even with the same amount of factors inputs such as labour, capital, and land, improvement in technological level would result in an increase in the output level. Indeed, many episodes of economic development and economic growth have been accompanied by technological progress. A World Bank (1993) study found that the remarkable economic growth of East Asian countries in the post–WWII period was attributable to rapid technological progress. Various factors influence technological progress. For developing countries, indigenous technological capability and the inflow of foreign technology from developed countries, particularly their combination, play important roles in promoting technological progress. Indigenous technological capability depends on education, training, and research and development (R&D) among others, while inflow of foreign technology, which may take the forms of foreign direct investment (FDI), imports of technology, capital goods, technical experts, and others, depends on the policies and strategies of developing countries, foreign firms and the governments of developed countries. The purpose of this paper is two-fold. On one hand it serves to analyze the levels of technology and the factors affecting them for ASEAN countries, in order to find the ways to improve technological levels for these countries. On the other hand, it serves to examine the contribution of Japan’s official development assistance (ODA) to upgrading technological capability for ASEAN countries. We first examine the technological levels of ASEAN countries in Section 2, in order to set the stage for the later analysis. Section 3 investigates the factors that Upgrading Technology in ASEAN Countries and Japan’s ODA 71 determine technological levels of ASEAN countries by making an international comparison. Specifically, we shed light on the levels of ASEAN vis-à-vis other countries in terms of indigenous technological factors and inflows of foreign technology. Section 4 analyzes the contribution of Japan in transferring technology to ASEAN countries via ODA by reviewing selected past technical assistance programmes. Some concluding comments are given in Section 5. 2. Technological Level of ASEAN Countries The technological level of a country can be measured by various indicators. Recognizing the importance of technology in determining economic performance, one can assume per capita GDP to reflect the technological level. A more direct indicator of technological level is productivity. Among various measures of productivity, total factor productivity (TFP), which explains the component of economic growth not captured by the increase in factor inputs such as labour and capital, is considered to be most appropriate. Another indicator may be the composition of exports. A country with a high technological level is expected to export the products, which require extensive and intensive use of technological skills. We examine the technological level of ASEAN4 countries (Indonesia, Malaysia, Philippines and Thailand) by examining these three indicators. ASEAN countries achieved rapid economic growth in the pre-financial crisis period. Indeed, the average annual growth rate of ASEAN4 countries from 1980 to 1997 was 4.1%, significantly higher compared to 1.5% recorded for developing countries (Table 4.1).1 Although ASEAN4 countries achieved higher growth rates than other developing countries, NIEs and China performed more favourably as their respective annual average growth rates for the 1980–97 period were 6.1% and 8.6%. Among ASEAN4 countries some variations in their economic growth are observed. Thailand maintained high economic growth rates from 1980 to 1997, while Indonesia and Malaysia increased their respective growth rates from the 1980s to 1990s. In contrast to these countries, the Philippines experienced poor economic performance during the period. Indeed, it recorded negative growth rate in the 1980s. The level of economic development, expressed in terms of per capita GDP, rose for ASEAN4 as a result of rapid economic growth. The average per capita GDP for ASEAN4 countries almost doubled in 17 years from $2,389 in 1980 to $4,728 in 1997. Despite this rapid increase, the gap in the level of per capita GDP vis-à-vis the NIEs widened as the average per capita GDP for the NIEs increased 2.7 times during the same period from $5,891 to $16,044. It should also be noted the gap vis-à-vis China narrowed because China increased its per capita GDP more than four times during the period to a record $2,801 in 1997. Wide variations are 72...