Conclusion

In summary, overall gross national saving in the Asian tiger economies remained higher than overall gross investment and the S-I balance for the grouping widened only slightly over the past decade. As for the individual countries, the S-I gap in Hong Kong, China and Taipei,China widened steadily. While the increase in gross saving in Hong Kong, China was driven by the public sector, it was private saving that boosted gross saving for Taipei,China. Public investment slipped in both countries and private investment fell in Hong Kong, China as well. Meanwhile, the increase in S-I balance for Korea and Singapore reversed somewhat from 2006, with a pickup in gross investment. When the trend in the real effective exchange rate is superimposed on the S-I balance, a negative association is discernible between the levels of the two variables. However, cross-correlation coefficients suggest a depreciation in the real effective exchange rate in the Asian tigers may not necessarily be linked to a future increment in the S-I balance in the short run.

Although a key component of the rebalancing strategy is the implementation of structural policies that reduce the reliance on external demand, a new growth model that leverages more on the domestic economy is not suited for the small open economies of Hong Kong, China and Singapore. The high propensity to import in these countries limits the leverage that domestic demand components have on output growth and thereby, reduces the scope for them to become drivers of growth. In other words, the small size of these economies dictates that they remain open and reliant on foreign demand. Nonetheless, the authorities of the Asian tigers, particularly the larger economies of Korea and Taipei,China, should use domestic polices such as those aimed at raising the productivity and wages of workers in the services industry as well as the introduction of financial products that alleviate the need for precautionary saving to boost domestic consumer demand.

Nevertheless, it is crucial for all the Asian tiger economies to retain their openness and international orientation. Trans-Pacific rebalancing could also be fostered by gearing the trade structure of the Asian tigers in terms of trade in final goods towards regional markets. The rising affluence and living standards in the fast growing regional economies such as PRC offer potential as a strong source of independent end demand from within the region. In fact, the economic integration of “Greater China” economies of PRC; Hong Kong, China; and Taipei,China is already taking place and is likely to intensify. Indeed, the Asian countries should make greater efforts to advance the establishment of a common market to position themselves well to benefit from the growing consumer and service demand in its own prospering region.

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