adoption of advances in production technology and resource management enhanced competitiveness, along with the accumulation of human resources. the second mechanism that i want to highlight is the autonomous growth in domestic demand spurred by the development of export industries. as export industries grew, a large proportion of the labor force moved from the rural agricultural sector to take up employment in urban factory sites. as income level rose with economic expansion, the number of middleincome households gradually increased, which underpinned the strong growth in consumption. as a result, the ground was laid for an autonomous expansion of domestic demand, which, along with exports, underlined asian economic growth. as evidenced in the recent increase in direct investment in the non - manufacturing sector, asia is now recognized not only as “ the factory of the world, ” but is also gaining prominence as the world ’ s biggest “ consumer base. ” middle - income trap the question here is whether asia can maintain its position as the world growth center in the future. according to long - term forecasts by international organizations and private - sector economists, asia is expected to continue to enjoy relatively high growth and thus its share in the global gdp will increase steadily. these forecasts depend largely on the implicit assumption that asia will maintain its growth momentum without falling into the “ middle income trap. ” the so - called follower group economies can move from low - income to middle - income status by continuing on the road to high growth, leveraging their abundant resources and importing technology. this catch - upstyle growth will be short - lived though, unless it is underpinned by the gradual sophistication of the industrial structure. history shows that many economies have faced difficulties in advancing beyond the status of a middle - income economy. this is known as the “ middleincome trap. ” a low - income economy can strengthen export competitiveness in the process of reaching middle - income status by using the abundant inflow of human resources from the bis central bankers ’ speeches rural agricultural sector, which puts downward pressure on wages. however, wages tend to rise after passing what is called “ the lewisian turning point ” in development economics. this in turn reduces corporate profits and weakens export competitiveness, which together lead to sluggish economic growth. several asian economies have taken the world by surprise by achieving the “ miracle ” of actually escaping the shackles of the middle - income trap ( chart 3 ). japan reached the lewisian turning point in the 1960s, but then marked

the “ izanagi ” boom years from the mid1960s to the early 1970s, growing by more than 10 percent year - on - year. the “ four tigers ” have also continued on a growth path after escaping from the middle - income trap. in these economies, there were many factors at play. on the supply - side, abundant investment in plant and equipment led to higher productivity in manufacturing and other sectors together with higher capital equipment ratios. on the demand - side, the investment in plant and equipment translated into an increase in demand, and higher competitiveness through higher productivity led to a sustained expansion of exports. the population shift from rural agricultural areas to urban areas created a sizable middle - income tier, heralding an increase in consumption. ii. challenges for the asian economy : expanding productivity so, how can asia as a whole continue to enjoy prosperity while ensuring that those asian economies still in the early stages of growth continue to progress without falling into the middle - income trap? i will focus on three issues that need to be addressed or the “ challenges ” facing asian economies. the first challenge is to ensure a continuous increase in productivity. in particular, there are a number of issues to be addressed if we are to strengthen the traditional asian growth model based on a combination of both exports and domestic demand. staying competitive in the changing global environment in order to remain competitive and further develop export industries, asian economies need to keep on adapting to changes in the global competition environment. the global trade volume has been rather depressed of late compared with global economic growth. the concept of “ slow trade ” is now being actively debated among economists ( chart 4 ). this “ slow trade ” phenomenon can be explained in part by the cyclical factor that investment in plant and equipment, which has a greater tendency to induce imports, is lower than in the past. at the same time, a more structural factor can also be identified. the expansion of global supply chains, which has underpinned asian growth for some time, has reached its maturity stage, thus contributing to the “ slow trade ” phenomenon. one prominent example of these structural changes can be observed in china, which has been playing a major role as the assembly and export center in global supply chains within asia. the growth in exports to china from other asian economies has been depressed as china, by increasingly using domestically produced parts, has become less dependent on imports. additionally, this year will almost certainly become an epoch - making year for china when outward direct investment exceeds