Symposium Towards Realization of the ASEAN Connectivity Plus: Moving forward with ASEAN India Connectivity (Bangkok, Thailand; November 27, 2013) Economic Assessment of ASEAN India Connectivity Fukunari Kimura Chief Economist, Economic Research Institute for ASEAN and East Asia (ERIA) Professor, Faculty of Economics, Keio University 1
1. The potantial of ASEAN India connectivity India dais coming into production o networks in ASEAN and East Asia; connectivity becomes important. Particularly, MIEC can be one of the most competitive manufacturing corridor in the world. It can achieve both the deepening of economic integration and the narrowing of geographical/industrial g development gaps. gp Well coordinated effort by countries in the region will be required. 2
ASEAN-India connectivity Source: Kimura and Umezaki (2011). 3
Mekong India Economic Corridor and Dawei Source: Isono and Kumagai (2013). 4
2. Conceptual framework The fragmentation theory (the 2 nd unbundling) Development gp gaps motivate the task wise division of labor once service link costs are reduced. The two dimensional fragmentation Inter firm division of labor in short distance generates industrial agglomeration. New economic geography Corridor development must keep good balance bt between agglomeration and dispersion i forces. 5
The 2 nd Unbundling The 2 nd unbundling, i.e., international division of labor in terms of production processes and tasks, has developed since the 1980s, based on drastic reduction in coordination costs due to ICT revolution. The 2 nd unbundling in the manufacturing sector is most advanced in East Asia. 1 st 2 nd Bay A Bay B Bay A Bay B ICT Bay C Bay C Source: Baldwin Bld (2011). 6
The fragmentation theory: Production blocks and service links Tradeoff between the reduction in production costs in PBand the enhancement of SL costs. Fragmentation of production occurs particularly between countries at different development stages (Jones and Kierzkowski (1990)). Before fragmentation ti After fragmentation SL Large integrated factory SL PB PB SL PB PB SL PB SL PB: production blocks SL: service links 7
5.Opportunities and challenges for ASEAN (cont d) 8
Cross border production sharing (back and forth; intra firm) The evolution of the 2 nd unbundling Production networks ( networks ; fragmentation ti and agglomeration; intra firm in short distance, arm s length in long distance) The United States Japan Consumers Korea Consumers The United States Mexico Taiwan Consumers Vietnam The Philippines Headquarters or affliates Unrelated firms with same firm nationality Unrelated firms with different firm nationality Malaysia Internet auction Agglomeration Source: Ando and Kimura (2010). Agglomeration 9
Agglomeration and dispersion in new economic geography To achieve proper balance between agglomeration and dispersion effects, supplementary policies to enhance location advantages, particularly on the periphery side, are necessary. Reduction in trade costs 10
3. The current situation Big Three in machinery agglomerations East Asia, North America, Europe East Asia enhances competitiveness. Increasing number of countries in East Asia has come into production networks. Development gaps motivate production networks. Production networks (the 2 nd unbundling) vs. global value chains PN: time sensitive, synchronized, coordinatedlinks 11
Machinery exports and imports by regions (US$ millions) 2,000,000 1,500,000 1,000,000 Final Products 500,000 Parts and Components 0 Exports1993 Imports1993 Exports2011 Imports2011 Exports1993 Imports1993 Exports2011 Imports2011 Exports1993 Imports1993 Exports2011 Imports2011 Exports1993 Imports1993 Exports2011 Imports2011 Exports1993 Imports1993 Exports2011 Imports2011 ROW EU27 ASEAN+6 LA NAFTA Source: Chang and Kimura (2013). 12
Export shares of machinery parts and components in total exports indicate the degree of participation in international production networks. Source: Ando and Kimura (2013a). 13
GDP per capita in 2018 in extended East Asian countries GDP / capita (USD) 2000 2005 2010 2018 Estimate Singapore 22,791 28,498 44,697 57,134 Brunei 18,477 26,587 31,982 43,537 Malaysia 3,992 5,421 8,634 14,567 Thailand 1,983 2,825 4,992 9,284 Indonesia 800 1,291 2,986 5,569 Philippines 1,055 1,209 2,155 4,191 Vietnam 402 637 1,174174 2,474 Lao PDR 308 474 1,105 2,354 Cambodia 288 455 753 1,583 Myanmar 178 216 742 1,218 Australia 20,734 35,570 56,220 74,635 Japan 37,304 35,781 42,917 47,281 New Zealand 13,833 27,118 32,455 44,527 South Korea 11,347 17,551 20,540 33,644 China 946 1,726 4,423 10,711 India 465 727 1,356 2,249 Source: World Economic Outlook, International Monetary Fund. Notes: grey indicates GDP per capita < USD 1,000; yellow indicates USD 1,000 < GDP per capita < USD 3,000; light orange indicates USD 3,000 < GDP per capita < USD 10,000; green indicates GDP per capita > USD 10,000. 14
Income levels at the provincial level (2005) Income gaps are still huge at both country and provincial level. There is still a lot of room for taking advantage of the mechanics of fragmentation of production. Source: ERIA=IDE JETRO GSM Team. 15
GRDP per-capita ( 05), 3 sub-regions, & industrial agglomerations Mekong Industrial Agglomerations IMT+ BIMP+ Source: ERIA (2010). 16
Border development with enhancement of connectivity GDP per capita (2005) 17 (source) Kudo and Kumagai (forthcoming)
Production networks and distribution of the industries: A few clusters in ASEAN (2005) E&E industry Food processing industry Source: IDE GSM team We have limited number of economic clusters in ASEAN. 18
4. Policies for MIEC development Required policies Latecomers: how to participate in production networks Check (i) network set up cost, (ii) service link cost, and (iii) production cost per se and solve bottlenecks. Forerunners: how to form efficient/innovative industrial agglomerations Connect both by economic corridors to take advantage of economic dynamism. 19
Source: Ando and Kimura (2013b). 20
LPI 2012 4.5 40 4.0 3.5 3.0 2.5 India Philippines Viet Nam Cambodia Myanmar Lao PDR China Malaysia Thailand Indonesia Singapore Hong Kong Korea Correlation between LPI and GDP per capita 2.0 Source: Modified from ERIA 1.5 (2010) 300 3,000 30,000 GDP per capita (2012, Nominal USD) LPI 2012 ASEAN 2012 CLMV 2007 Fitted line (LPI 2012) LPIs in forerunner ASEAN and East Asia Ai are relatively l higher h compared with ihthe indices obtained by regression = higher LPI compared with GDP/GNI per capita = better access between primary cities to primary ports = high competitiveness in the global market 21
22
Growth poles and growth nodes proposed by the ERIAERIA-MIEC Project Source: ERIA (2009). 23
Transportation sector projects proposed by the ERIA-MIEC Project New International Airport near HCMC Source: ERIA (2009). 24
Selected prospective projects in Mekong sub-region Vientiane International Airport Security and Safety Improvement Nam Theun 2 and Nam Ngum 2 Hydropower Plant Hanoi Special Border Zone at Myawadi Route No.8: Kawkareik-Mawlamyyne - Thaton Hanoi - Ports: Cai Lan, Lach Huyen - Noi Bai Airport terminal 2, Expansion of Cat Bi Airport - Rail link from Hanoi: Hai Phong, Noibai, Lang Hoa Lac - Hoa Lac high tech park, Vietnam space center - ICT infrastructure enhancement Yangon port: Quay cranes Thilawa port improvement Pharma & biotech city in Ayutthaya IT & ITES part in Phthum Thani CDZ Yangon NSEC Vientiane North-South High Speed Railway (to HCMC) Savarnnakhet airport improvement SEZ in Savarnnakhet Upgrading Dawei airport Dawei deep sea port Highway: Kanchanaburi - Dawei SEZ/FTZ in Dawei Multimodal logistic park in Dawei MIEC Myawadi Khon Kaen Mawlamyaing aing Bangkok Dawei Savannakhet EWEC Da Nang Border Trading Zone in Dansavanh Da Nang airport: Passenger terminal Da Nang port improvement SKRL: PP Loc Ninh HCMC Cross-border facility at Bavet-Moc Bai Bangkok - MRT network - Suvarnnabumi airport: Phase 2 development - Laem Chabang port: Phase 2 development - Highway management improvement SKRL: Poipet - Sisophon (48km) Poipet Industrial Estate Koh Kong Industrial Estate Source: ERIA (2010). Sihanoukville Enhancement of port security, improvement of port maintenance, port related procedures, port management and operation. Phnom Penh Ho Chi Minh Ho Chi Minh City (HCMC) - Bypass and express ways around HCMC - Cai Mep Thi Vai port: development, improvement - Rail link: HCMC Vung Tau, HCMC My Tho - Software technology park, petro-chemical complex - Transmission line: Can Tho HCMC - Power plants in O Mon Mekong bridge in Neak Loung (NR1) Phnom Penh port rehabilitation Reconstruction of NR3: PP-Kampot Expressway: PP - Sihanoukville Sihanoukville airport upgradation Sihanoukville port expansion 25
5-2. Key infrastructure projects (1) Source: Kimura and Umezaki (2011). 26
5. Some simulation results Geographical Simulation Model by ERIA and IDE=JETRO MIEC vs. threeeconomic economic corridors in Mekong MIEC: manufacturing link, foster industrial agglomerations Myanmar development and MIEC Two polar development in Myanmar Implication of Dawei 27
Scenario 3c Mekong India Economic Corridor (MIEC- III): Ho Chi Minh to Chennai Scenario 3b is implemented. Connect Dawei and Port Madras by a sea route that is equivalent to the other routes between internationally important ports. The average speed on the land part of MIEC is set at 60km/h. Region Ranking by Region Country MIEC-III Economic Effects Country Ranking by Country Economic Effects Taninthayi Myanmar 272.9% Cambodia 76.5% Soc Trang Vietnam 203.8% Myanmar 66.0% Ca Mau Vietnam 191.5% Vietnam 63.5% Samut Sakhon Thailand 157.8% Thailand 38.8% Bac Lieu Vietnam 140.2% Lao PDR 14.5% Mon Myanmar 114.8% India 13.4% Phnom Penh Cambodia 112.0% Bangladesh 4.6% Long An Vietnam 109.1% Philippines 1.7% Ba Ria-Vung Tau Vietnam 105.6% Indonesia 0.8% Binh Phuoc Vietnam 104.3% Malaysia 0.4% 100% or more 11 China -2.0% 20% 50% to 100% 41 Brunei -2.5% Number of regions with 0% to 50% 488 Hong Kong -2.9% Less than 0% 416 Macao -3.3% Total Economic Effect in 956 Regions 7.82% Singapore -3.5% Source: ERIA (2010). 28
Scenario 4 Three Economic Corridors in the Indochina Peninsular (3ECs) Scenarios 1a, 2, and 3c are implemented. Region Ranking by Region Country 3ECs Economic Effects Country Ranking by Country Economic Effects Taninthayi Myanmar 250.0% Myanmar 82.1% Khammouan Laos 195.6% Cambodia 54.7% Samut Sakhon Thailand 194.1% Lao PDR 50.9% Soc Trang Vietnam 176.9% Thailand 49.6% Ca Mau Vietnam 166.5% Vietnam 49.3% Xekong Laos 163.6% India 12.8% Mon Myanmar 142.6% Bangladesh 7.3% Lamphun Thailand 129.9% Malaysia 1.1% Bokeo Laos 127.5% China -1.9% Bolikhamxai Laos 120.0% Indonesia -2.1% 100% or more 16 Philippines -6.4% 50% to 100% 66 Singapore -7.8% Number of regions with 0% to 50% 428 Brunei -8.1% Less than 0% 446 Hong Kong -13.9% Total Economic Effects in 956 Regions 6.24% Macao -14.4% Source: ERIA (2010). 29
Connect the regions with the primary cities: A simulation study on Myanmar s reform and MCDV [Scenario 1] Reforming Myanmar and the Yangon Development [Scenario 2] Two Polar Development + Domestic Connectivity Enhancement (excluding Dawei) (Impact Density, USD per square kilometer, 2030) Need to achieve high economic growth and inclusive development. Source: ERIA (forthcoming). 30
[Scenario 3] Scenario 2 + Dawei Development Dawei project has a huge economic impact on the Mekong region and India. (Impact Density, USD per square kilometer, 2030) Nt Note: NAfor Bhutan, Bht Nepal, lnorth thkorea, SiL Sri Lanka, Timor-Leste, and djammu and dkashmir due to the data availability. Source: IDE/ERIA-GSM 6. Source: ERIA (forthcoming). 31
6. Conclusion ASEAN India connectivity, particularly Mekong India Economic Corridor (MIEC), will push up the region to one of the most competitive manufacturing corridor in the world. It will provide a new development model to pursue both the deepening of economic integration i and the narrowing of geographical/industrial development gaps. 32
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