The Impact of Financial Integration on Poverty in Developing Countries in Asia.

in 2016 due to increased funding sources. The size of the local currency bond market of developing Asian countries increased to about 11 trillion USD in 2016. In addition, total FDI inflows in the region increased from 21 billion USD in 2000 to 136 billion USD in the period 2005-2018 (ADB Report, 2017).

In summary, in order to facilitate economic development through foreign investment, developing countries in the Asian region have been trying to take advantage of the opportunity of financial integration. FDI inflows dominate the total capital flows moving into the country, creating conditions for domestic enterprises to improve their technology and productivity. Some countries have seen the ratio of foreign assets and liabilities/GDP increase by 2 or 3 times in the period from 2005 to 2018. The ratio of foreign debt to GDP has improved significantly after the recent global crisis, and the ratio of direct investment to total private capital has also grown steadily. Finally, we can see an increasing trend in the scale of cross-border portfolio holdings of developing countries in the Asian region. This shows that the position of developing countries in the Asian region is gradually being consolidated and attracting more foreign capital flows compared to other regions in the world.

3.2. The current situation of the impact of financial integration on poverty in developing countries in Asia.

3.2.1. Overview of poverty in developing countries in Asia

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October 17 is the International Day for the Eradication of Poverty, an important milestone marking the world's impressive achievements in poverty reduction. According to the latest figures from the World Bank, since 1990, nearly 1.1 billion people have escaped severe poverty. In 2012 and 2013, that number was about 100 million people, which is a good sign. However, worldwide, nearly 800 million people still lived on less than $1.90 a day in 2013, half of whom were children, with virtually no education. According to the World Bank (2019) report, many of the world's poor live in countries where civil war often occurs. In addition, one-third of the world's severe poor live in developing countries in Asia. The international community has envisioned a world in 2030 free of extreme poverty and with greater opportunity for all. This is why the World Bank has committed to two long-term goals: ending extreme poverty by 2030 and promoting shared prosperity for the poorest 40% of people in all countries. During the period 2005-2018, in the group of countries

While Asia is developing, populous countries like China and India are catching up with richer countries in poverty reduction rates.

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2010

2014

2018

Poverty Gap ($1.9/day) Poverty Gap ($3.2/day)

Per capita index ($1.9/day) Per capita index ($3.2/day)

According to the Asian Development Bank (ADB), developing countries in Asia have the fastest economic growth in the world, but to create sustainable development in the long term, it is necessary to achieve the goal of poverty reduction (ADB, 2019). A country's growth must bring many benefits to the poorest people, for example, opening up opportunities for the current severely poor to get better jobs, access better quality services and create a foundation for the next generation to escape the severe poverty line. With appropriate policies and government attention, developing countries in Asia can end severe poverty by 2030 and promote shared prosperity for the poorest 40% in every country .

Figure 3.6: Poverty levels by per capita index and poverty gap index in developing countries in Asia

Source: World Bank

To assess the level of poverty, some traditional measures are used such as poverty lines through the “headcount index” , the “poverty gap or income ratio in the lowest income percentile”. The poverty level measures through the above two indices are determined by establishing a poverty line. The standard poverty line is used based on the minimum poverty rate, with a fixed poverty line at 1.9 USD/day and 3.2 USD/day, ignoring the average income of the population. To assess poverty more clearly, studies often use only the poverty gap index at 1.9 USD/day and 3.2 USD/day.

3.2/day. For each poverty level, the poverty gap is measured as the average shortfall from the poverty line. Most poverty gap indicators have shown a downward trend, ranging from 9% to 3% for the $3.2/day level and decreasing by about 2% at the $1.9/day level. This is accompanied by a reduction of about 50% in the poverty rate for both the $1.9/day and $3.2/day levels from 2006 to 2018 (Figure 3.6).

However, these indices fail to capture the extent to which individuals’ income (or expenditure) falls below the poverty line. Furthermore, poverty gap indices do not account for differences between poverty lines, and thus tend to ignore inequality among the poor. Poverty gap indices can complement per capita indices, but they still fail to capture the full extent of poverty in a country.

To assess the poverty situation more specifically and in detail, the Human Development Index (HDI), based on per capita income as well as education and life expectancy, is used together with the multidimensional poverty index (MPI). Figure 3.7 shows the continuous increase in the HDI and the decreasing trend of the MPI during the period 2005-2018. From 2005, the HDI was only 0.61, increased to 0.66 in 2012 and reached nearly 0.7 in 2018. In contrast, the MPI in 2018 decreased by nearly half compared to 2010. While the HDI reflects the change in specific poverty status over each year during the period, the multidimensional poverty index (MPI) reflects the poverty status every few years during the same research period.

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Figure 3.7: Correlation between MPI index and HDI index of developing countries in Asia

Source: World Bank

Figure 3.8 shows the average HDI index of developing countries in Asia fluctuates between 0.6-0.7, only in the group of countries with human development.

average in the period 2005-2018. However, it can be seen that the growth rate of the index is being maintained steadily, increasing to 0.69 and approaching the average human development level of the whole world of 0.73 in 2018. This result shows the improvement of factors related to income, health and education of these countries. With such an increasing trend, in just the next decade, the HDI index of developing countries in the Asian region may soon reach or even exceed the world average.

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Developing Asia

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Figure 3.8: HDI index in developing countries in Asia and the world in the period 2005-2018

Source: Human Development Report, 2019

During the period 2014-2018, the HDI of developing countries in Asia increased rapidly compared to the periods 2005-2008 and 2009-2013 with an increase ranging from 0.04-0.08. Some countries with HDI in the group of high human development countries such as Brunei, Darussalam (0.82-0.84), Palau (0.82) or Malaysia (0.8) while only Papua New Guinea and Myanmar in the period 2005-2008 were in the group of low human development countries. In general, the HDI of developing countries in Asia increased by an average of about 0.8 and the gap between countries is gradually narrowing in the near future.

The World Bank (2018) Human Development Index (HDI) report shows that no region has experienced faster human development than developing countries in Asia. Countries such as India, Vietnam, Indonesia, China are the fastest growing countries (46% growth in the period 1990-2018), followed by

are some other countries such as Thailand, Malaysia, Philippines with 43%. Part of the reason is because most developing countries in Asia are leading in technology transformation, contributing to economic growth.

Average life expectancy

Life expectancy is the number of years a person can live from birth, and is also an important factor in assessing human development and quality of life in each country, thereby assessing poverty reduction. Looking at Figure 1.16, the average life expectancy of developing countries in Asia tends to increase, in line with the average of countries in the world. Poverty in some countries in the region tends to increase with age after 45 years old, before or at the oldest age (ADB Report, 2020).

Unit: Age (Years)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Developing Asia World

Figure 3.9: Average life expectancy of developing countries in Asia and the world in the period 2005-2018

Source: Human Develop Report

In 2005, the average life expectancy of developing countries in Asia was about 68 years old, while that of the world was about 69 years old. The average life expectancy has been increasing steadily over the years, fluctuating between 1-2 years old, by 2018, the average life expectancy of developing countries in Asia and the world were 71.5 and 72.5 years old, respectively. The average life expectancy tends to increase, showing that people's income is getting better and better.

to improve the quality of life and prolong life. The life expectancy of people in developing countries in Asia is increasing steadily every year compared to the world average. This shows that the lives of people in the region are increasingly improving, due to the opportunity to access high-quality health care services.

Average income per capita

The research results of Lundberg and Squire (2003) show that per capita income has a direct impact on poverty reduction, in addition to the indirect impact through growth.

Unit: USD

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Figure 3.10: Average income per capita of developing countries in Asia and the world in the period 2005-2018

Source: Human Develop Report

The average per capita income in developed Asian countries is from 8,000 to 10,000 USD/year and is on the rise. Compared to 2005, the average income has increased from 8,000 USD to nearly 11,000 USD in 2018. However, this average income is still quite far from the world average. In most developing countries in Asia, there is a significant income gap between rural areas and urban areas. Therefore, increasing foreign investment in developing countries through high-tech manufacturing and processing industries in different regions will create more jobs, helping to significantly reduce the poverty gap between rural and urban areas.

Developing Asia has undergone a dramatic shift over the past five decades from a region dominated by low-income economies to one comprised largely of middle-income countries. However, the region faces the challenge of sustaining rapid growth after the transition from low- to middle-income economies and moving further to high-income. According to the World Bank (2019), it takes longer for economies to move from middle-income to high-income than from lower-middle-income to upper-middle-income. However, developing Asian economies may still move faster than the rest of the world, whether the transition is from lower-middle-income to upper-middle-income or from middle-income to upper-middle-income. The experience of newly industrialized economies shows that innovation, human capital, and infrastructure all play an important role in their faster transition from middle-income to above-average income. However, the period from 2005 to 2018 witnessed a positive change in the income transition of developing economies in Asia. Specifically, during this period, there were 3 upper-middle-income countries, 13 middle-income countries, and 9 lower-middle-income countries. Looking at Figure 3.11, it can be seen that upper-middle-income countries have higher HDI scores than middle-income and lower-middle-income countries. In contrast, the multidimensional poverty index (MPI) in lower-middle-income countries is about 5 times higher than that in upper-middle-income countries. Therefore, when considering financial integration in developing countries in Asia, there will be different impacts and influences on the poverty status of families with different income levels.

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High Income High Average Income Low Average Income

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Figure 3.11: Correlation between MPI index and HDI index with each group of countries according to GNI/capita income of developing countries in Asia

Source: Author's synthesis

Education situation

Developing countries in Asia have made great strides in educating their children. Overall, nine out of ten children in the region now attend primary school. In the 1980s, this was only two-thirds, a remarkable improvement. In this study, the educational situation in developing countries in Asia will be assessed through the education index, which is the average of years of schooling (for adults) and expected years of schooling (for children).

Developing Asia

World

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 3.12: Education Index of developing countries in Asia and the world in the period 2005-2018

Source: Human Develop Report

Developing countries in Asia have an education index ranging from 0.5 to 0.6 and are getting closer to the world average. The gap in education indexes of developing countries in Asia is gradually narrowing and tends to balance, even surpassing the world average. This may be the result of economic growth and policy reforms by governments that have contributed to the increasing rate of children and adults going to school in this region. Specifically, people's lives in developing countries in Asia are getting higher and higher, the poverty rate is decreasing, leading to increased investment in education. The contribution of education to the development of the socio-economy in developing countries in Asia is very clear, spreading to the lives of individuals, households and the whole community.

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