If you board a flight after breakfast in Kathmandu, you can make it to lunch in Singapore—a sovereign nation whose citizens enjoy one of the best living standards in the world. Singaporeans’ convenient access to top-quality healthcare and educational opportunities, modern housing and sanitation facilities, advanced infrastructure, etc., reflects the quality of life they have achieved. Their living standard is almost incomparable to that of a typical citizen in other Asian countries such as Cambodia, Myanmar and Nepal. Most of us may not know that Singapore was a poor tropical island just a few decades ago, with a Gross Domestic Product (GDP) per capita income of a mere $428 in 1960.

Economists use GDP per capita in purchasing power parity ($PPP) to compare prosperity across countries. In 2019, GDP per capita in Asia ranged from the poorest, Afghanistan, at $PPP2,080 to the richest, Singapore, at $PPP98,455. This is a prosperity gap of 47 to 1, meaning that the well-being of a citizen born in the richest Asian country is 47 times higher than that of a citizen from the poorest nation. Even if we disregard city-economies (or small island states) and use the next richest East Asian economy, South Korea, with its GDP per capita of $PPP42,759, the ratio is still 20:1. In fact, Asia is composed of relatively equal countries internally that differ among each other tremendously in terms of their average incomes.

How do such large personal income differences occur in this increasingly interconnected region of the world? Why are some countries prospering while others are stuck in poverty for millennia? As Robert Lucas, the Nobel-Prize-winning economist, said, “The consequences for human welfare involved in questions like these are simply staggering, once one starts to think about them, it is hard to think about anything else.” These are the pertinent questions that make us ponder.

Extensive migration

One obvious effect of the huge difference in average incomes between countries is extensive migration. Rich Asian nations, such as South Korea and Malaysia, have hundreds of thousands of migrant workers from other poor Asian countries, such as Nepal, Myanmar, Cambodia and Bangladesh. For example, Malaysia was the top destination for Bangladeshi migrant workers in May 2023, with 35,190 monthly recruitments. Similarly, the stock of Bangladeshi migrant workers in Singapore was close to 150,000 in 2022. What are the implications of these massive labour migrations?

Clearly, foreign job opportunities serve as a safety-valve for the origin country’s labour market by absorbing a large share of new workers into employment. Remittances sent by migrants are their families’ lifeline back home, a primary stabiliser of the country’s balance of payment position and a shield against adverse macroeconomic shocks.

Yet emigration may set the stage for economic and political deterioration of the migrant country. The unrelenting workforce loss and exit of the youth generation can erode the citizens’ productivity. It becomes less attractive as a destination for foreign direct investment, impeding market competition, trade activities and private-sector business. This may lower the long-term economic growth, widening the country’s divergence from its wealthy neighbourhood.

On the other hand, migrant-receiving countries benefit tremendously from foreign workers. Their industrial conglomerates get cheap labour, significantly reducing production costs and increasing corporate profits. Despite lower birth rates and a growing ageing population, rich Asian nations have maintained higher economic growth rates using migrant workers. For example, South Korea initiated the Employment Permit System (EPS) in 2004 to offset the shortage of industrial workers as the country’s birth rate was falling at the fastest pace worldwide. Hong Kong, Taiwan, Japan, etc., have experienced similar economic and demographic scenarios. In effect, parts of Asia have prospered unprecedentedly while many poor countries continue to diverge.

Economic divergence in Asia is not a recent episode. While a few Asian countries were trying to reshape their economic future through globalisation opportunities after World War II, several others in the continent faced structural challenges to growth and development. The lack of reforms in transforming governance and policies, poor infrastructure, unskilled and illiterate labour force, etc., impeded these countries’ ability to break into the global market. They got stuck in a narrow export base with subsistence farming and weak manufacturing. Apparently, these countries missed the boat, making it harder for them to catch up with their prospering neighbours.

Economists have long tried to explain economic divergence. The success stories of rich Asian countries appeared to start with economic and political stability. Next, they established firm commitments to sharing the benefits of economic growth by expanding their citizens’ access to healthcare, education and housing. Such policies enabled them to develop a skilled, highly literate labour force, resulting in greater productivity. As a result, they attracted a massive amount of foreign direct investment (FDI). Lastly, by promoting exports, these countries accumulated a large stock of foreign exchanges while importing new technologies and products for sustained growth.

Reducing economic divergence

Economists often prescribe the success models for those who fell apart. A significant living standard disparity across neighbouring countries may lead to numerous challenges at the national and regional levels. It seems the extreme poverty in Afghanistan and Myanmar fed into political instability that fueled protracted insurgency, refugee crisis and human trafficking. North Korea’s economic decline has threatened peace and security not only for the Korean Peninsula but for the entire region. The adverse effects of poverty also transcend national borders through disease outbreaks, terrorism and Mafia networks. Reducing economic divergence serves as a regional public good with spillover benefits for the whole continent.