Economic Dynamics and Integration in Eastern Europe and Asia

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1 Economic Dynamics and Integration in Eastern Europe and Asia Nan Yu Prof. Dr. Paul Welfens Chair for Macroeconomic Theory and Politics, University of Wuppertal Jean Monnet Chair for European European Institute for International Economic Relations(EIIW) Campus Freudenberg Rainer-Gruenter-Str. 21 Tel: (0) yu@wiwi-uniwuppertal.de

2 Content Introduction and history Green Growth Economic Outlook

3 Introduction and history Source:

4 Introduction and history ASEAN was preceded by an organisation called the Association of Southeast Asia (ASA), a group consisting of the Philippines, Malaysia, and Thailand that was formed in ASEAN itself was created on 8 August Indonesia, Malaysia, the Philippines, Singapore, and Thailand, signed the ASEAN Declaration, more commonly known as the Bangkok Declaration. Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN.

5 Introduction and history AIMS AND PURPOSES: 1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations; 2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter; 3. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; 4. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; 5. To collaborate more effectively for the greater utilisation of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples; 6. To promote Southeast Asian studies; and 7. To maintain close and beneficial cooperation with existing international and regional organisations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

6 Introduction and history Milestones of ASEAN Economic Cooperation Yu, Nan Seite 6

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8 Yu, Nan Source: Wikipedia Seite 8

9 Source:ADBI 2014 Yu, Nan Seite 9

10 Source:ADBI 2014 Yu, Nan Seite 10

11 ASEAN GDP Growth, (annual average growth rates in current $) Yu, Nan Seite 11

12 Selected Indicators for ASEAN and Other Asian Economies, 2012 Source: ADBI 2014 Yu, Nan Seite 12

13 ASEAN Trade by Economy and Region, 1992 and 2012 (% shares on total trade) Yu, Nan Seite 13

14 Exponential Growth of ASEAN Trade and Investment Agreements, (total number of agreements signed, under negotiation, or being proposed) Yu, Nan Seite 14

15 Foreign Direct Investment Inflows into ASEAN, ($ billion) A. By host economy Source:ADBI 2015 Yu, Nan Seite 15

16 Foreign Direct Investment Inflows into ASEAN, ($ billion) B. By source economy Source:ADBI 2015 Yu, Nan Seite 16

17 Gravity models begin with Newton s law for the gravitational force GFij between two objects i and j. Gravity models: Gravity models utilize the gravitational force concept as an analogy to explain the volume of trade, capital flows, and migration among the countries of the world. Where A is a constant Tij is the trade flow from origin contry i to destination country j Y is GDP or GNP D is distance Yu, Nan Seite 17

18 Modified: Where Eij is exports from county i to country j Yu, Nan Seite 18

19 A. Export equation: where ln denotes natural logarithm, EXPij denotes the value of exports from emerging economy i to partner j, lagged FDIij denotes the inward FDI stock position of emerging economy i from partner j at the end of the previous year, and Xij denotes the vector of the following bilateral variables: log of the product of the two economies GDP, log of distance, the border dummy (1 if the two economies share a border, and 0 otherwise), the common language dummy (1 if the two economies share an official language, and 0 otherwise), the FTA dummy (1 if the two economies have an FTA, and 0 otherwise), exchange rate volatility (standard deviation of monthly depreciation rates within each year), the ASEAN supply chain dummy (1 if the exporter is an ASEAN member state and the importer is either the PRC; Hong Kong, China; Japan; the Republic of Korea; or Taipei,China; and 0 otherwise), and the interaction of exchange rate volatility with the ASEAN supply chain dummy. Yi is the exporter s (emerging economy i s) GDP per capita, and Zj is the partner s (economy j s) GDP per capita. The error term is denoted by uij. Yu, Nan Seite 19

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21 B. Import equation: where IMPij denotes the value of imports of emerging economy i from partner j, and vij denotes the error term. The set of explanatory variables in equation (2) is identical to that in equation (1). Yu, Nan Seite 21

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23 C. Inward FDI equation: where TRADEij denotes total bilateral trade flows, i.e., the sum of bilateral exports and imports, for emerging economy i and its partner j. The vector X ij includes the following bilateral variables: log of the product of the two economies GDP, log of distance, the FTA dummy, the BIT dummy (1 if the two economies have a BIT in effect or signed, and 0 otherwise), exchange rate volatility, the rate of real exchange rate depreciation, difference in financial risks between economies i and j, and the ASEAN partnership dummy (1 if i is an ASEAN member and j is Australia, the PRC, India, Japan, the Republic of Korea, or New Zealand, and 0 otherwise). Y i is the vector of the following host economy-specific variables: GDP per capita, the tax haven dummy, institutional quality, a measure of transportation infrastructure, and costs of doing business. Z j is the vector of the following source economy-specific variables: GDP per capita and tax haven dummy. The error term is denoted by wij. Yu, Nan Seite 23

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25 Source: ABDI No.545 Yu, Nan Seite 25

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28 In 2015, its members will be launching the ASEAN Economic Community (AEC). This initiative, which is part of a broader ASEAN Community including political-security and socio-cultural pillars: (i) a single market and production base; (ii) a competitive economic region; (iii) equitable economic development; and (iv) integration into the global economy. Yu, Nan Seite 28

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30 Intra-ASEAN Tariff Rates under the Common Effective Preferential Tariff (CEPT) and the ASEAN Trade in Goods Agreement (ATIGA), , % Source:ADBI 2015

31 Trade Creation: When imported goods from another FTA member replace high cost domestic goods. Trade Diversion: When trade is diverted from an efficient exporter towards a less efficient one by the formation of FTA or customs union.

32 This image shows what happens to societal welfare when free trade is not enacted. Tariffs cause the consumer surplus (green area) to decrease, while the producer surplus (yellow area) and government tax revenue (blue area) increase. The amount of societal loss (pink area) is larger than any benefits experienced by the producers and government. Free trade does not have tariffs and results in net gain for society. Source: Boundless. Costs of Trade. Boundless Economics. Boundless, 21 Jul Retrieved 17 Jan from

33 Green Growth in ASEAN Environmental challenges threaten long-term growth and human well-being: Natural resources are being depleted Air and water pollution pose serious threats to well-being Waste is a growing problem Vulnerability to climate change-related disasters is high carbon dioxide emissions are negligible globally but rising sharply

34 Green Growth in ASEAN Air pollution is generally high in ASEAN countries Source: OECD 2014

35 Green Growth in ASEAN High levels of fertiliser consumption and organic water pollution Source: OECD 2014

36 Green Growth in ASEAN Urban waste production is on the increase Kg per capita per day Source: OECD 2014

37 Green Growth in ASEAN Climate change could have a large impact on GDP in Southeast Asia in 2060 Percent change in GDP compared to baseline Source: OECD 2014

38 Green Growth in ASEAN ASEAN countries small but growing share in global CO2 emissions Source: OECD 2014 Yu, Nan Seite 38

39 Green Growth in ASEAN CO2 emissions are higher per unit of GDP produced than per capita Source: OECD 2014 Yu, Nan Seite 39

40 Green Growth in ASEAN The right framework conditions will ease the way towards green growth: Governance and institutional capacity are the bedrocks of green growth Development co-operation can do more to support green growth Well-designed environmental tax reforms can yield multiple benefits Removing fossil fuel energy subsidies is integral to green growth Low and inefficient tax collection systems are an obstacle to green growth Innovation rates will need to increase Effective competition is necessary to unleash productivity growth and green innovation The education system and the quality of the workforce should be strengthened

41 Green Growth in ASEAN Source: OECD 2014 Yu, Nan Seite 41

42 Green Growth in ASEAN Only two ASEAN countries have green growth strategies, but more have climate change plans --- Cambodia and Viet Nam. Other countries have designed strategies which pursue sustainable development more broadly or which only address climate change. Two concepts: green growth & sustainable development Green growth < Sustainable development

43 Green Growth in ASEAN Source: OECD 2014 Yu, Nan Seite 43

44 Green Growth in ASEAN Green growth is increasingly integrated into ASEAN national development plans: natural resources management, including forest and land management as well as energy and minerals extraction air, water and waste pollution green technology and energy efficiency climate change adaptation and mitigation. Source: OECD 2014 Yu, Nan Seite 44

45 Green Growth in ASEAN Green growth objectives in selected countries national development plans Source: OECD 2014 Yu, Nan Seite 45

46 Green Growth in ASEAN 1. develop an overarching strategy for green growth and ensure it is well integrated within current national development plans 2. prioritise low-emission development paths and climate change adaptation policies so as to ensure that economic growth does not lead to an increase in the levels of pollution, helps to contain greenhouse gas emissions and reduces the negative impact of climate change 3. seek complementarities and synergies among national priorities, such as pursuing energy security through the development of the renewable energy sector so as to promote green growth 4. do more to enable joined-up government whereby all relevant departments have clear objectives and responsibilities concerning green growth and therefore work towards the same ends. Yu, Nan Seite 46

47 Economic Outlook Real GDP growth of ASEAN, China and India Source: OECD 2015 Yu, Nan Seite 47

48 Economic Outlook US monetary normalisation, the implementation of Abenomics in Japan, and the slowdown of the Chinese economy will pose moderate risks for the region. Political uncertainties in the region could undermine growth for Emerging Asia, in particular in Thailand. Structural policy reforms will need to be effectively but skillfully implemented. Expedited efforts will be required to attain ASEAN economic integration (by 2015) with narrowing development gaps within the region a key regional challenge. Yu, Nan Seite 48

49 Thanks! Yu, Nan Seite 49