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Economic Corridor as Part of Global Value Chains and Production
Networks
Prabir De
24 August 2017, Singapore
Outline
1. Current global trade scenario
2. Why and what is called economic corridor?
3. Stages of development of economic corridor
4. Economic corridor – value chain linkages illustration
5. Key factors and determinants of greater integration in Asia and role of economic corridor
Three cascading constraints of globalisation
Source: WTO (2017)
Evolving path of cross-border economic corridor
Transport corridor
SEZ/Industrial Zone/Township
Trade facilitation
Economic Corridor
Value chain Employment / Quality of life
ICT
A mobile myriad of concepts
• Global Value Chains – focus on value-added, across countries (trade in tasks, capabilities)
• Vertically-Integrated Supply Chains – focus on ensuring supply of inputs from one step to the next (trade in goods, availability of low-cost suppliers, infrastructure)
• Production Networks – focus on coordination of disparate but interconnected activities (service links, logistics)
• Outsourcing – theory of the firm; ownership; costs and externalities
• Offshoring – rapid recent growth; location; employment concerns/benefits
Production networks: Three distinctly prominent views on service link costs
• The costs of fragmentation depend on the associated service link costs (Jones and Kierzkowski, 2005), where service link costs are the costs arising from country’s infrastructure and regulations.
• Production processes and tasks in production are increasingly fragmented across boundaries, time-sensitive logistics infrastructure along with improved information and communication technology and trade facilitation have become prerequisites in building production networks across borders (Kimura, 2009).
• East Asia has recorded high intra-regional trade shares owing in particular to rapidly expanding intra-regional trade in parts and components and development of regional connectivity. In ASEAN, production network exports witnessed over 60% of total manufacturing exports in the last decade (Athukorala, 2010).
Production networks and service Links
Source: Kimura and Kobayashi (2011)
A new wind of change
• Emerging scenario:
– WTO dead (?)
– New institution for Asia: RCEP
– An integrated Asia-Pacific area
• New dimension of regional integration -connectivity, supply chains, outsourcing, offsouring, a.o.
Two emerging routes / corridors
RCEP >39% of world GDP Liberalization
BRI >42% of world GDP Cooperation
An uncertain global economy• World is in the throes of uncertainty
– Global growth is estimated to have fallen to 2.3% in 2016 (WEO, Jan 2017)
– WTO downgraded its forecasts for trade growth in 2016 from 2.8% to 1.7% (September 2016).
– Decline in world commodity prices had significant impact on merchandise trade.
– Trade protectionism is rising fast– A moderate recovery is expected in 2017 amid
heightened uncertainty.– Downside risks to growth include rising policy
uncertainty, particularly in the United States and Europe; financial market disruptions; and growth disappointments in major economies.
• Has west-led globalization reached its limit? • Is multilateralism back in action?• Is RCEP going to build a new institution for Asia?• India continues to grow over 7% till 2019 (WEO,
Jan 2017, World Bank)• India holds the key for Asia’s growth and
integration.
Global Economic Growth
Global Trade Growth
Source: GEP, the World Bank, Jan 2017
Growth in real GDP
2014 2015 2016 2017 2018 2019
Actual Actual Estimates Projections
World 2.70 2.70 2.30 2.70 2.90 2.90
United States 2.40 2.60 1.60 2.20 2.10 1.90
Euro Area 1.20 2.00 1.60 1.50 1.40 1.40
Japan 0.30 1.20 1.00 0.90 0.80 0.40
China 7.30 6.90 6.70 6.50 6.30 6.30
Indonesia 5.00 4.80 5.10 5.30 5.50 5.50
India 7.20 7.60 7.00 7.60 7.80 7.80
Bangladesh 6.10 6.60 7.10 6.80 6.50 6.70
Memo itemGrowth in world trade volumes* 3.70 2.80 2.50 3.60 4.00 3.90
*World trade volume for goods and non-factor services.
Source: GEP, the World Bank, Jan 2017
(%)
Top 10 world economies in terms of economic size (PPP term) in 2050
Rank Actual Projected Projected
GDP (PPP) GDP (PPP) GDP (PPP)
Country(US$
trillion) Country(2014 US$
trillion) Country(2014 US$
trillion)
Year: 2014 Year: 2030 Year: 2050
1 China 17.632 China 36.112 China 61.079
2 United States 17.416 United States 25.451 India 42.205
3 India 7.277 India 17.138 United States 41.384
4 Japan 4.788 Japan 6.006 Indonesia 12.21
5 Germany 3.621 Indonesia 5.486 Brazil 9.164
6 Russia 3.599 Brazil 4.996 Mexico 8.014
7 Brazil 3.073 Russia 4.854 Japan 7.914
8 France 2.587 Germany 4.59 Russia 7.575
9 Indonesia 2.554 Mexico 3.985 Nigeria 7.345
10 United Kingdom 2.435 United Kingdom 3.586 Germany 6.338
Source: PriceWaterhouseCoopers, The World in 2050 Will the shift in global economic power continue?, February 2017
Several big challenges facing Asia
• World is in the throes of uncertainty
• A gloomy outlook is enveloping the world’s economies
• Weak global demand has started reducing Asia’s exports– Global trade growth remains below 3%
– Exports of Asian open economies having strong links in global value chains slowing faster
• Slowing Chinese economy rippling across Asia
• Rising tide of protectionism across the world
• Connectivity development across Asia may pick-up pace and high prospects of value chain
Asia’s export growth
-20.000
-10.000
0.000
10.000
20.000
30.000
40.0001
99
1
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
%
Source: Drawn based on ARIC
Asia’s import growth
-20.000
-10.000
0.000
10.000
20.000
30.000
40.0001
99
1
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Source: Drawn based on ARIC
Trends in intra-Asia trade
0.00
10.00
20.00
30.00
40.00
50.00
60.001
99
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
%
Source: Drawn based on ARIC
Why Asia’s trade has been slowing?
1. Fall in commodity prices in major petroleum products
2. Structural changes in China’s import demand
3. Shrinking ASEAN’s market size
4. Shifting of demand from labour/resource intensive to capital intensive
5. Countries are yet to transform to meet the new demand
Optimism also growing further • China’s growth deceleration may continue, it is likely to be gradual.
– China’s focus is on productivity growth through a greater focus on innovation and industrial upgrading, to offset the impact of declining working-age population. This is among priorities of China’s new Five-Year Plan (2016-2020).
– China’s shift in growth model from heavy reliance on manufacturing exports and investment towards domestic consumption
• Changing face of Asia:
– India is the fastest growing major economy and has developed a comparative advantage in services particularly IT services. India is presently attempting to foster manufacturing development and linkages to global value chains through a Make in India Programme.
– Indonesia is attempting to shift away from a dependence on natural resources into manufacturing development.
– Growing at 7-8% annually, Cambodia, Lao PDR, and Myanmar continue to catch up with the rest of ASEAN
• Prime Minister Modi’s economic policies and energetic diplomacy
– placed the Indian economy into a qualitatively high growth path
– India itself in the forefront of the international community
• Regional integration is increasingly linking markets and production through the spread of GVCs, FTAs, FDI, and greater mobility of skills.
Expected developments in Asia this time
• Physical and digital connectivity development
– China’s BRI, economic corridors, e.g
• Improving the quality of trade – new phase of trade facilitation
– WTO TFA
• Ratified in March 2017
– Easing the burdens of NTMs
• Product and process standards, e.g
• Rise of global and regional value chains
Trade in P&C has been increasing in importance worldwide
World Manufacturing Trade: Total Volume, Trade in Parts & Components (P&C), and the share of P&C in the Total Trade
Source: Authukorala (2011)
Trade in parts and components in Asia
In developing Asia…
• Roughly 50% of developing Asia’s exports are intraregional
• Most intraregional trade appears to be intra-industry as well (esp. electronics, auto parts)
• Tripolar expansion of China, India and ASEAN expected to boost intraregional trade further
• East Asian countries as a group are more strongly dependent on fragmentation-based trade than any other region in the world
Smile curve of China’s export of electrical and optical equipment between 1995 and 2009
Trade in components show three interrelated production hubs
Rising trends in India’s Trade in P&C with Southeast Asia (TEU)
Country 2006 2014 CAGR (%)
Export Import Export ImportExport Import
(2006-2014) (2006-2014)Brunei 7 0 46 0 27.25Cambodia 80 0 123 0 5.56China 2244 25270 7769 111385 16.79 20.37
Hong Kong 518 1133 798 938 5.57 -2.33Indonesia 2537 1092 9016 2070 17.18 8.33Japan 1768 7840 4782 21999 13.25 13.77Lao PDR 23 0 69 0 14.55Malaysia 2425 1115 5097 2741 9.73 11.90Myanmar 1014 0 2585 1 12.41
Philippines 2545 250 3478 871 3.98 16.88Singapore 3309 3152 4201 2413 3.03 -3.29South Korea 2774 11913 3137 32077 1.55 13.18Thailand 2017 3625 8845 13299 20.30 17.64Vietnam 974 83 2604 3344 13.08 58.85World 212726 110370 386517 280764 7.75 12.38
Source: Calculated based on UNCOMTRADE * P&C follows BEC codes
Case studies
Manufacturing of Boeing Airplane
Suppliers of parts and components of Boeing Dreamliner 787
Manufacturing Apple Products in China
Value chain of Apple iPhone
Thailand-centred hard disk drive network
Asian automobile networks
Toyota’s Innovative International Multi-purpose Vehicle
Source: http://www.eria.org/RPR-2013-7.pdf
Type of supply chains
Supply chain of mobile phones
Source: http://www.capturingthegains.org/publications/workingpapers/wp_201325.htm
Standard supply chain of IBM
Dell’s Value Web Model
CMs/OEMs
Repair and support
companiesDistributors
Third party HW and SW
suppliers
CustomerComponent suppliers DELL
System Integrators
Logistics companies
Physical flows, including products and services
Information flows
Stages of development of economic corridor•According to Banomyong (2007), there are four types of corridors: (i) transport, (ii) multimodal (2+ modes combinations); (iii) logistics (institutional framework), and (iv) economic (investment in less developed areas). •An EC an be national (e.g. Tokyo-Osaka corridor), subregional (e.g. GMS corridors), regional (e.g. TEN-T corridors), or international (e.g. submarine telecom cables). •Trade facilitation and logistics services are the main catalysts in its development. •EC helps strengthen industrial (or, services) agglomeration over time through industrial zones (or, SEZ). •EC facilitate cluster-type development of enterprises.
Transport
corridor
Logistics
corridor
Economic
corridor
Catalysts: Trade
facilitation, logistics
services, a.o.
Source: Srivastava (2011)
Functional specification of EC
• As noted in Srivastava (2011), an EC contains following facilities and assets: (i) links or develops SEZs or both,
(ii) links to minimum on sea port handling international cargo,
(iii) connects at least one neighbour,
(iv) allows transit of goods or passengers or both,
(v) accepts electronic customs, and
(vi) monitors through a special institutional arrangement.
GMS economic corridors
CAREC transport corridors
Source: http://www.carecprogram.org/index.php?page=carec-corridors
SAARC Corridors
• 10 regional road corridors/gateways
• 5 regional rail corridors/gateways
• 10 maritime gateways
• 7 aviation gateways• Policy measures to
improve transport & trade facilitation
Source: ADB
MIEC alignment and linking industries
Source: ERIA
Economic corridor development policy
Stage Corridor Policy Measure Role
1 Transport
corridor
Trade
facilitation
Integrated trade
facilitation
Customs
cooperation
Government
Private
2 Trade
corridor
Trade
liberalization
Border policies
Behind-the-border
policies
Government
3 Economic
corridor
Economic
development
Corridor value
chains
Corridor township
development
Cross-border
investments
Government
Private
Trade facilitation –paperbased to paperless trade
Business Process Analysis
Process simplification and harmonization
Document simplification and alignment
Cross-border data harmonization & exchange
e-Single Window & paperless trade
National data harmonization
Intuitional arrangement for economic corridor development in CAREC
Ministerial Conference
Senior Official's Meeting
Customs Coordination Committee
Transport Coordinating committee
Trade Policy Coordinating Committee
Energy Sector Coordinating Committee
National Focal Points
Multilateral Institutions
Dealing trade costs
Caveat: Scale economy vs. Trade cost
1. When trade costs decrease from economic corridor, MNEs may concentrate their activities on one country and develop trade flows rather than open a plant in a foreign member country.
2. Apparently, as MNEs derive more benefits from economies of scale than tariff jumping, strategies after conclusion of FTAs, the production network might fall.
Some key challenges to deeper Asian integration with economic corridor
• High NTBs / NTMs
• Inadequate connectivity – national and regional
• Lack of trade facilitation and absence of Asia-wide seamless trade
• Poor infrastructure at border
• Inconsistent and difficult border crossing formalities and procedures
• Restrictive visa regime
• Different standards on vehicles and drivers across countries
• Restrictions on entry of motor vehicles
• Limitations in movement of skilled labours
Fostering economic corridor: basic enabling environment
1. Facilitate private sector investments2. Accession to the International conventions and agreements3. Promote intermodal transport and transit
– Air connectivity (ASEAN Single Aviation Market?)4. Strengthening and harmonizing rules, regulations, and standards
(trade facilitation)5. Development of value chains6. Financing cross-border projects, particularly transport7. Human resource development, skill development, a.o8. Strengthening coordination among countries and stakeholders9. Closer cooperation on security10. Promote regional cooperation 11. Strengthen capacity of existing institutions12. Involvement of international and regional development partners,
bilateral organizations, etc.
Thanaleng (Lao PDR) and Nonkhai (Thailand)
Source: Prabir De
Dawki (India) – Tamabil (Bangladesh)
Source: Prabir De
