Effects of Social Policy on Domestic Demand Annual Conference 2009 Edited by Masahiro Kawai and Gloria O. Pasadilla Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan www.adbi.org ©2010 Asian Development Bank Institute ADBI Publishing [email protected] ISBN: 978-4-89974-035-3 Freely available electronically at: http://www.adbi.org/effects.social.policy.annual.conference.2009/ The views expressed in this work are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its board of directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this work and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. Contents Foreword .................................................................................................. v Preface ..................................................................................................... vii Presenters and Discussants ...................................................................... viii Abbreviations ........................................................................................... xii Overview ................................................................................. 1 I Masahiro Kawai and Gloria O. Pasadilla Keynote Address ...................................................................... 25 II Haruhiko Kuroda Social Protection in Developing Asia and the Pacific ................. 29 III Bart Édes Household Savings Rates and Social Benefit Ratios: IV Country Comparisons .............................................................. 63 Charles Yuji Horioka and Ting Yin Comments ........................................................................... 76 Mukul Asher Influence of Age Structure on Savings and Social Spending ...... 81 V Davide Furceri and Annabelle Mourougane Comments .......................................................................... 104 Hyungpyo Moon Household Savings and Social Protection Policies in the PRC .... 109 VI Ming Yan and Pan Yi Comments ........................................................................... 138 Yasuyuki Sawada Consumption, Income Distribution, and VII State Ownership in the PRC ...................................................... 141 Yuqing Xing Comments ........................................................................... 168 Yvonne Sin Public Expenditures on Social Programs and Household VIII Consumption in the PRC .......................................................... 171 Emanuele Baldacci, Giovanni Callegari, David Coady, Ding Ding, Manmohan Kumar, Pietro Tommasino, and Jaejoon Woo Comments ........................................................................... 202 Akiko Terada-Hagiwara Social Policy Reforms and Growth Rebalancing in ASEAN ........ 205 IX Gloria O. Pasadilla and Prayoga Wiradisuria Comments ........................................................................... 244 Hiroshi Yamabana X Panel Discussion ....................................................................... 249 Foreword v Foreword The role of social policy in improving domestic demand will remain a relevant issue in Asia for many years. The issue was highlighted at the ADBI’s 12th Annual Conference. I am delighted to see the important contributions of the conference now compiled in this volume. As I noted in my address at the conference, the global financial and economic crisis has forced Asia to re-examine its development strategy and explore sources of growth from both domestic and regional demand. Moreover, enhanced social policies are an important centerpiece to achieve a socially inclusive Asia and Pacific region. ADB is committed more than ever to supporting regional economic integration as a way to boost regional demand and to lessen the region’s dependence on Western economies for growth. It is high time for the Asia and Pacific region to be a locomotive of global growth instead of being highly reliant on external demand, particularly from American and European markets. For domestic demand growth—especially in countries with large current account surpluses and domestic savings—improved social protection policies will play a vital role in reducing excessive savings caused by precautionary motives. As the chapters in this volume indicate, improved social policies have value beyond their role in stimulating domestic demand. At ADB, enhanced social protection policies are inextricably linked with our inclusive growth agenda. Indeed, even before the crisis, ADB has long been involved in strengthening social protection programs in developing member countries. But the global economic and financial crisis has made our organization more acutely aware that exposure to various sources of risk, such as economic shocks and natural disasters, can leave a profoundly damaging impact on economic well-being and human development when institutional structures such as those for social protection are weak. Thus, ADB is even more resolute in its belief that there is a need to strengthen institutional structures to help reduce vulnerability and respond effectively to various risks. The chapters in this volume are a welcome addition to the current discussions on how to help countries in Asia and the Pacific improve their social protection policies and make growth more inclusive. Haruhiko Kuroda President, Asian Development Bank Preface vii Preface In 2009, ADBI organized a series of conferences on the global financial and economic crisis that analyzed the crisis’ impact on Asian economies; developed scenarios for growth rebalancing away from exports to developed countries; and articulated recommendations on macroeconomic policy, regional economic integration, and financial and regulatory reform. ADBI’s 12th Annual Conference pursued the same objective of formulating appropriate long-term responses to the global financial crisis, focusing on social policies and their impact on domestic demand. The conference examined the extent to which improved social protection policies can help reduce household savings in Asian countries with very high savings rates and induce a long-term increase in consumption spending. More specifically, the annual conference tackled these questions: t 8IBU BSF UIF UIFPSFUJDBM BOE FNQJSJDBM SFMBUJPOTIJQT CFUXFFO TPDJBM protection, household savings, and income? t8IBUJTUIFFYQFSJFODFPGTPDJBMQSPUFDUJPOQPMJDJFTJOEFWFMPQFEBOE emerging economies? t )PXEPGBDUPSTMJLFEFNPHSBQIJDEFWFMPQNFOUTBOEJODPNFEJTUSJCVUJPO between labor and capital affect savings and demand? t 8IBUJTUIFJNQBDUPGJODSFBTFETPDJBMQSPUFDUJPOTQFOEJOHPOIPVTFIPME savings and consumption in Asian countries? On behalf of ADBI, I would like to express my gratitude to the distinguished paper writers, moderators, and discussants who shared their insights on this important topic, as well as to the conference attendees for their very stimulating discussions and contributions. Masahiro Kawai Dean, Asian Development Bank Institute viii Effects of Social Policy on Domestic Demand Presenters and Discussants Mukul G. Asher is a professor of applied public sector economics and economic reasoning for public policy at the National University of Singapore. He was educated in India and the United States (US) and is regarded as the leading authority on social security arrangements in Southeast Asia. He has authored or edited several books as well as published numerous articles in national and international journals. Mr. Asher has been a consultant to the World Bank, International Monetary Fund (IMF), ADB, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), and Oxford Analytica, and he was a visiting professor at the Fiscal Affairs Department of the IMF. He has served as a resource for policymakers in India, Indonesia, Viet Nam, People’s Republic of China (PRC), and Sri Lanka. David Coady is deputy division chief of the Expenditure Policy Division, Fiscal Affairs Department, IMF. Previously, he was a senior economist and technical assistance advisor in the IMF’s Fiscal Affairs Department. He holds a bachelor of commerce degree and a master of economic science degree from University College Dublin. He also earned a PhD in economics from the London School of Economics in 1992. Mr. Coady has written numerous papers and books on social issues and his teaching experience includes development economics, public economics, cost-benefit analysis, and environmental economics. He has also acted as referee for many academic journals. He has served several institutions, including the World Bank, as a consultant. Bart W. Édes is director of ADB’s Poverty Reduction, Gender, and Social Development Division. Previously, Mr. Édes oversaw communications for SIGMA, the Paris-based joint initiative of the European Union and the Organisation for Economic Co-operation and Development (OECD), assisting central and eastern European countries with public governance reform. Mr. Édes has a bachelor’s degree in government from Georgetown University and a master’s degree in public policy from the University of Michigan. Davide Furceri is an economist in the Macroeconomic Analysis Division of the OECD. Prior to joining the OECD, he was an economist in the Fiscal Policies Division of the European Central Bank. He graduated from the University of Palermo in 2001, where his thesis was recognized as the best