Emerging Asia continues to drive global growth but it must ramp up productivity to graduate to high-income status, the Asian Development Bank (ADB) warned in a new report.
More than 95 per cent of the region's population currently reside in middle-income economies, versus just 10 per cent in 1991, the poverty-fighting institution outlined in its 2017 outlook released Thursday.
While that's a testament to Asia's dynamic pace of development, governments cannot rest on their laurels, the ADB warned.
"Policymakers will need to change their approach to reach high-income. It is no longer a question of them using more resources to sustain growth, economies must become more productive to clear the final hurdle," said chief economist Yasuyuki Sawada.
Middle versus high
Countries with gross national income (GNI) per capita between $1,026 and $4,035 are defined as lower middle-income, those with GNI per capital between $4,036 and $12,475 are upper middle-income and high-income nations are $12,476 or higher, according to the World Bank.
China, Malaysia and Thailand are defined as upper middle-income while India, Indonesia, Vietnam and the Philippines are classified as lower middle-income, as per World Bank rankings.
Japan, South Korea, Singapore, Hong Kong and Taiwan meanwhile are high-income nations.
Unsurprisingly, those five countries boasted the region's highest labour productivity per person employed in 2016, data from The Conference Board showed.
Climbing up the ladder
Focusing on innovation is one way for emerging markets to raise productivity, the ADB said.
"Innovation requires a skilled workforce, and hence an emphasis on improving education quality...A 20 per cent increase in human capital spending per capita can increase labour productivity by up to 3.1 per cent."
Infrastructure investment, particularly in energy and information technology, is another means.
"A one-time public investment in infrastructure equal to 1 per cent of gross domestic product can lift a country's output by as much as 1.2 per cent in seven years," the ADB said.
Asia's growth outlook
The ADB also estimated Asia-Pacific's economic growth would hit 5.7 per cent in 2017 and 2018 - a touch below the 5.8 per cent expansion recorded last year.
Tighter US monetary policy and the accompanying risk of capital outflows in addition to currency volatility are among the primary threats to Asia's outlook, the ADB warned.
Rising household debt and frothy housing markets were also worrisome, it added.
Meanwhile, inflation projections for the next two years are still well below the 10-year regional average of 3.9 per cent, the ADB said.