Abstract

Asia’s heavy reliance on trade in general, and its integration in global value chains in particular, have been critical elements behind the region’s stellar growth record. But rising income levels and wages in the region combined with a less buoyant medium-term outlook in advanced economies suggest the need for Asia to reconsider its growth model, currently oriented toward meeting final demand in other regions (IMF 2016, Mano 2016). In addition, China has not exited labor-intensive light manufacturing sectors as quickly as Korea and Japan did in earlier eras, possibly limiting opportunities for the next wave of Asian developing economies and again suggesting the need for a new model (Mathai and others 2016). Finally, the secular decline in manufacturing’s share in employment combined with the fast rise in automation (for example, robotics), also points to a needed shift toward tradable services (IMF 2018e).