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Part - IV

In all economies of South east Asian region, exports as a proportion of GDP is less than 10%. On the other almost all south east Asian economies are heavily dependant on exports with exports/GDP ratio more than 50% (Taiwan, Philippine, Malaysia and Singapore). Then we have Chinese economy which is somewhere in the middle with exports contributing 23% to the GDP*. Another aspect is the composition of exports. Most south east Asian economies are electronics/technology goods heavy exports. Downturn in the semiconductor industry during the mid 90s was one of the major reasons of South east Asian crisis. On the other hand, only exports of some substantial quantity that Middle East economies have are that of oil. SAARC region economies have a mixed bag of exports items, while China exports are heavily biased towards manufactured exports though has a wide diversity than technology-oriented exports of SEA economies.

Another major dimension where economies' nature can assessed is the contribution of manufacturing, services and agriculture to the overall GDP. Though the contribution of services in all the economies is going up, still there are major differences. 50% of India's GDP comes from services whereas in south east Asian economies manufacturing plays the major role. Contribution of agriculture to the GDP is quite high in the Indian and Chinese economy (25% and 20% respectively). Whereas on the other hand agriculture** contributes a meagre 2% to the Japanese economies.

The second condition for an optimum currency area is that the economic cycles of the member countries be similar. In other words, they should move into and out of economic recessions and expansions at the same time. Under this condition, each country will need the same interest-rate adjustments at the same time and one monetary policy would be appropriate. When this condition is not met, each country's interest-rate needs diverge from those of the others and sharing one currency would be inappropriate.

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* http://www.entrust.com.tw/international/monthly/2001/08/China.asp
** http://www.pemsea.org/downloads_pdf/1stop/economybussenviron/eb&e_japan.pdf

* Contributed by -
Harshdeep Jolly, Anshul Mittal & Pankaj Jain,
PGP 2,
IIM Bangalore.