Introduction and overview

In the past years, Asian economies have become more vulnerable to external shocks. The global financial crisis of 2007-2009 resulted in a huge downturn in export demand, and in some cases, capital flow volatility resulted in turbulence in foreign exchange and capital markets. The export-led growth model which had driven growth of Asian economies showed its limitations and may have aggravated the negative consequences of the global financial crisis for these economies. Asia’s growth path needs to avoid large and unsustainable imbalances and address the widening economic and social divide and increasing environmental degradation that accompanied its rapid economic growth. This chapter argues that Asian economies need a new paradigm for development that will create more balanced growth. This new model would entail not only growth that is less dependent on exports, but also growth that is inclusive and environmentally sustainable. This change will require a series of domestic structural reforms in Asia and intensive regional policy coordination.