pre - tax wages ) and reduce the returns to capital. 5 the pressures on the labour supply will be felt more acutely by industries that rely more heavily on labour. most notably, this includes services industries, such as aged care and health care ( graph 2 ). there is, however, likely to be scope for labour to be reallocated across services industries. in particular, an older population will require relatively fewer workers to care for and educate children. graph 2 more demand for services at the same time as labour will tend to be in shorter supply, larger shares of the population will need a degree of assistance and care. indeed, demand can be expected to shift towards services ( away from goods ) given that services constitute a larger share of total consumption for older people than for the rest of the population ( graph 3 ). 6 much of this reflects spending on health care. this extra demand for services will be in addition to that associated with rising wealth. people tend to spend an increasing share of their rising incomes on services in part because there are ultimately limits to the consumption of food, wearing of clothes and use of other goods. this discussion ignores the role of international capital mobility, but given that population ageing is a global phenomenon, the qualitative results of closed and open economy models will be comparable. to gauge the true extent of this we need to account for goods and services that people purchase for themselves directly, as well as those they obtain through the public provision of goods and services, which is what graph 3 has done. bis central bankers ’ speeches graph 3 so, we can expect that ageing will lead to extra demand for services at the same time that it weighs on the supply of services ( via declining labour force participation ). more demand and less supply will push up the prices of services, relative to the prices of goods. this rise in the relative price of services has long been apparent for other reasons. one reason for this is that productivity growth has tended to be greater for goods than for services. that is, we ’ ve got better at producing more goods for a given level of inputs, more so than has been the case for services. another reason is that the global integration of much of asia over recent decades has brought large numbers of workers into the production of traded goods, increasing their supply and therefore pushing down the relative prices of goods. it is important for stronger wage growth, and an increase in the relative prices of services to occur. such signals will encourage higher labour

but from economic liberalisation. they postulate that a flood of speculative capital first caused a real - estate bubble, which affected the rest of the economies when the bubble burst. the problem therefore was not a lack of openness but too much of it, too soon. they also suggest that as capital rushed out of asia, countries like taiwan and others still had sound fundamentals - budget surpluses, low inflation, high savings rates. some critics also maintain that the imf ’ s actions made a bad situation worse. draconian prescriptions, such as bank closures, budget cuts, higher interest rates and structural reforms intended to root out everything wrong with the asian approach to the economic policy, had an excessive deflationary effect. whether the imf ’ s actions were entirely appropriate in all instances during the asian crisis is a matter for another day, but the important characteristic distinguishing the asian crisis from other crises was the prominence of private financial institutions and other private enterprises as both creditors and debtors. as michel camdessus, former managing director of the imf, pointed out, a number of trends in the integration of capital markets stand out. these trends make the process more complex, and include the following : the domestic private sector is playing a far more important role in the economy of most countries. domestic financial and capital markets have sprung up in beijing and moscow and a host of other cities in the developing world. the foreign investment community is far more diverse, comprising direct investors, portfolio investors, banks and bondholders. the different types of investment have responded to globalisation in different ways and even during crisis periods flows of direct investment have in many instances not fallen steeply. it is too simple to conceive of nations as belonging to either the debtor or creditor group. there are powerful flows in many directions. the largest source of direct foreign investment in asia is, for example, asia itself. korea, hong kong, thailand and japan are all important sources of foreign investment within the region, and remain so even though some were at the heart of the asian crises. globalisation accelerates and spreads the international consequences of domestic policies. no country can escape the consequences of globalisation, and all countries are being called upon to ensure “ rigour and transparency in overall economic management ; banking and financial sector soundness ; reform of the institutions of the state in terms of seeking public sector efficiency, appropriate regulation, emphasis on the rule of law, independence of the judiciary ( and the central