Productivity growth key to Asia's success: BOJ governor

He made the remark in his speech at the Amartya Sen Lectures, hosted by the Cambridge Society of Thailand on Tuesday. It is the first time the event has been held in Asia. Originally initiated by alumni from Trinity College, Cambridge, the event has been held in London and Brussels for some years now.

Kuroda said the continuing accumulation of human capital, the market-friendly business environment and strong financial sector were among many elements that had played an important role in productivity growth. 

“We have seen many positive developments in this respect in Asia, but much more needs to be done,” he said.

He believes that there are three traps Asia must avoid falling into if the region wants to sustain its economic growth. They are the middle-income trap, the demographic trap and what he calls the Malthusian trap. Productivity growth is the key to helping Asia avoid these traps.

In the region, Japan and the Asia’s newly industrialised economies (NIEs) – Hong Kong, Singapore, Taiwan and South Korea – have already overcome the middle-income trap and joined the group of high-income countries, Japan in the 1970s and the NIEs in the 1990s. Mainland China and some Asean countries, including Thailand, have reached the upper-middle-income stage, which means they have great opportunities to advance further towards high-income status. 

There are many other countries in the region that are still at the lower-middle-income stage, but with great potential for continued growth for years to come.

Regarding the demographic trap, he said some Asian countries, particularly those at the high- and upper-middle-income stages, were experiencing, or were about to experience, population ageing: the result of longer life expectancies combined with lower fertility rates. 

Population ageing implies a continued decline in the proportion of the working-age population, which in turn poses a challenge to sustaining per-capita income growth, as a given income earner has to transfer a larger share of his or her income to the retirees.

In the Malthusian trap, according to English scholar Thomas Robert Malthus’ (1766-1834) original work, the existence of a limited resource constrains growth. Likewise, limitations in the supply of natural resources could affect global growth in the long term.