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Aid for Trade WorkshopTrade Liberalization, Integration and Inclusive
Growth
Shandre M Thangavelu
13October,2016
Faculty of Professions
Structure of the Presentation
• Motivation• Trade and Inclusive Growth • Emerging Challenges for ASEAN and LDCs• Key Fundamentals for Inclusive Growth• Policy Discussions
Observation 1: ASEAN Successful Story in terms of liberalization but also Rebalancing – Growth Potential is slowing down, Why?
3
PotentialGrowthofGDPperCapitalforSelectedASIANCountriesto2015-2050 2008-2014 2015-2020Cambodia 5.8 4.3China 8.3 7.7HongKong 2.3 1.2India 5.6 5.5Indonesia 4.5 4.4Korea 2.9 2.3Philippines 5.5 5.0Singapore 2.5 1.9Taiwan 3.0 1.9Thailand 2.9 2.4Vietnam 4.9 4.0 Source:ADBEconomicOutlook2016
Challenges in Growth in Asia
• Several Challenges are emerging in Asia: Questions on economic and trade liberalization
• Rising inequality: More openness leading higher wage inequality• Rising Wage gap between the skilled and unskilled• Middle skills are disappearing – Polarization of skills (Singapore, Malaysia,
Thailand, Japan, South Korea, etc.)• New economics terms: “working poor”, “middle-income trap”, outsourcing,
Global Production Value-Chain, “demographic dividend”• Inclusive growth: PPP, social enterprise and entrepreneurs• Moving from Skills development to Task – importance of training• Aging population and demographic dividend
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CHALLENGES FOR ASEAN
Challenge 1: Rising inequality in the region
• Liberalization has released huge amount of economic resources in the region• Greater mobility of unskilled labour• Increased the vulnerability of domestic workers• Example: Philippines
– Philippines “human capital” Syndrome– Dual economy– Social issues– Sustainable growth
Challenge 2: Rising inequality due to Trade and Globalization• Technology and innovation is increasing the demand for skilled workers –
skilled gap • Innovation is increasing the demand for high technology consumer products
– increasing demand for skills• Skilled gap: due to supply of human capital not keeping up with the demand
for skills
Challenge 3: Slowing down of growth at CLMV Countries (ASEAN LDCs)• Base growth effects are declining as initial stages of resources are utilized• There is no dynamic effects in the region
Challenge 4: Develop Regional Innovation and MNCs
• Need indigenous innovation• Need Regional MNCs• Need to develop strong backward and forward linkages• Development of SMEs
Figure 2: Share of Agriculture, Industry, and Services Sectors to GDP for Selected Asian Countries, 2000–2013
Agriculture Industry Services 2000 2013 2000 2013 2000 2013
China 15.1 10.0 45.9 43.9 39.0 46.1 Hong Kong 0.1 0.1 12.6 7.0 87.3 93.0 Korea 4.4 2.3 38.1 38.6 57.5 59.1 India 23.4 18.4 26.2 24.7 50.5 57.0 Brunei 1.0 0.7 63.7 68.2 35.3 31.0 Cambodia 37.9 33.8 23.0 25.7 39.1 40.5 Indonesia 15.6 14.4 45.9 45.7 38.5 39.9 Laos 48.5 30.0 19.1 30.0 32.4 40.0 Malaysia 8.3 9.4 46.8 41.0 44.9 49.6 Myanmar 57.2 36.9 9.7 26.5 33.1 36.7 The Philippines 14.0 11.2 34.5 31.1 51.6 57.7 Singapore 0.1 0.0 34.8 25.1 65.1 74.9 Thailand 8.5 10.6 36.8 40.1 54.7 49.3 Viet Nam 24.5 18.4 36.7 38.3 38.7 43.3
Source: Asian Development Bank Statistics Database.
Observation 2: Rising Share of Services Sector in Asia
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Tradeable
• Services are becoming more tradeable
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Services Trade
• Mode 1: Cross-border supply – services are delivered from one country to another
• Mode 2: Consumption aboard – services delivered to consumers from another country, e.g. Tourism, education, healthcare etc.
• Mode 3: Commercial presence – services delivered by a service provider through commercial presence in another country – FDI
• Mode 4: Movement of natural persons – services delivered by movement of a service provider as natural person
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0
50
100
150
200
250
300
export Import
Figure4:ASEANExportandImportofServices:2005-2011(US$Billion)
2005 2011
RisingServicesTradeinASEAN
Service content as a percentage of gross export, by Asian countries
29/09/2016
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0
10
20
30
40
50
60
70
NewZealand
India
Japan
Singapore
Australia
Philippines
Cambodia
China
Thailand
Korea
Indonesia
Malaysia
VietNam
BruneiDarussalam
ServiceDVA(%ofexport)2011 ServiceFVA(%ofexport)2011 ServiceDVA(%ofexport)1995 totalservices--1995
Figure 4: Share of Services Exports to Value-Added of Services Sector for Selected Asian Countries, 1990–2009
Source: Authors’ calculations, reconstruction from Park and Shin, 2012.
1.Highshareofservicesexportstovalue-added– Malaysia,Singapore,Thailand2.Higherthan10%forPhilippines,VietNam
4.GVCandImportanceofServicesforASEANandAsia:DriversofValue-Chain- RisingServiceslinksandtradeand
humancapitaltoundertake“tasks”
3.!Industrial!agglomera2ons!and!services�
• Agglomera2on!for!arm’s*length!transac2ons!
• Local!firms!have!opportuni2es!to!have!business!rela2onships!with!mul2na2onals;!technology!transfer!and!process!innova2on.!
• Contribu2on!of!services!– Urban/suburban!transport,!large*scale!port/airport!
– Reduc2on!in!transac2on!costs!– Harmoniza2on/convergence!of!economic!ins2tu2ons�
Technology!transfer!and!process!innova2on�
Evolu2on!of!produc2on!networks�
Source:!ERIA!(2015,!forthcoming).�
�
How to create agglomerations in services activities and technologies? Need new ways – human capital, connectivity and cities
Bay B
Bay A
Bay C
Bay B
Bay A
Bay C
Bay B
Bay A
Bay C
1) Two-way flows of goods, ideas, technology, capital, and technicians.
2) Investment and application of technical, managerial and market know-how abroad.
Connecting factory & doing business abroad: The “trade-investment-services nexus”
Source: Theoriginal is inBaldwin (2011),slightly modified byERIA.
Figure: The 1st and the 2nd unbundling: How Singapore will participate in the 2nd and 3rd unbundling (services and tasks?)
18
Production Networks: Supply Chains
3Source: “ASEANConnectivity andEastAsia”,Economic Research Institute forASEANandEastAsia (ERIA)
Thailand
COVER: NHKDISK:HOYASCREW: KATAYAMASEAL: KOKOKU, TOKAIRAMP: DAICHITOP CLAMP: BPI, SOODELATCH: NOKPLATECASE: BRIDGESTONELABEL: SANSAIFILTER: SSRETEKPCBA: SSCISUSPENSION: NHK
Japan
SPNDLE MOTOR: NIDEC, NMB
BASE: WEARNSCARRIAGE:
FUJIKURA, SANEIFLEX CABLE: NOKPIVOT: NMBSEAL: KOKOKUVCM: SMT,TDKTOP COVER: NOK, NHKPCBA: SSCIHGA:UTCHAS:UTC
Thailand
BASE: KENSEISHAPIVOT: NSK SPACER:KENSEISHAVCM:SHINETSUBASE:ASAHICARD:SCI, CELESTICATOP CLAMP: SCL,
CELESTICA, SOODEDISK: KOMAG
COVER: KURODA,CHEUNGWOH
SCREW:TIORMAC,SPURWAY
PIVOT: NSKPC ADP: JSTDISC: HOYA
Singapore
PCBA:GBM,SSCICARRIAGE:TDKHGA: HSPCBASE: BPIHEAD: HGSTSUSPENSION:NHK
DAMPING PLATE: IMEASCOIL SUPPORT: TOTOKUPCBA: IONIX
TOP CLAMP: GML
DISK: HGSTHEAD: HGSTSUSPENSION:HTI
USA
FILTER CAP: GML
W.SUSPENSION: SUMITOMOVCM: SHINETSUPCBA: SOLECTION
Malaysia Hong Kong
Taiwan
Philippines
Indonesia
China
HEAD: GDL
Mexico
Procurement of Parts by a Hard Disc Drive Producer (Production Network) – ASEAN has to participate in the
regional growth – more policy coordination among ASEAN
Observation 3: Importance of Cities, Services and Urban Amenities• The efficiency of Asian and ASEAN cities to create the network and linkages
are important in the GVC• Cities should be developing the second stage growth:
– trade-off between network (connectivities) and big cities as globalization increases - the returns to local scale in innovation may be decreasing in cities, and that makes networks more appealing than mega-cities (Glaeser et al, 2015).
– Human capital development – attracting skills and talents to drive next stage of services growth.
– Institutional reforms to SMEs and Entrepreneurship.– Services, productivity and GVC
21
Inclusive and Sustainable Growth: Human Capital Policy
• The idea of improving the value of workers and their economic and social value-added activities in the domestic economy reflects the centrality of human capital and empowerment of workers in driving economic growth in the economy.
Figure1:Balancing Growth through Human CapitalDevelopment
1.Cumulativecausation ofeconomic well-beingandsocial well-beingdrivenbytheinvestment anddevelopment ofhumancapital.
2.Themutualcomplementarityeffectsofeconomicwell-being andsocialwell-being reinforceseachother andcreates thecumulative causationeffects thatdriveinclusive andsustainable growthinthedomesticeconomy.
HumanCapitalDevelopment:Education-Training and
Health
InclusiveGrowthSocialWell-Being:
Health,LowPoverty,LowIncomeInequality,
Empowerment,LowCrime,increaseintergenerationalSocialMobility
Industries:innovative,
Entrepreneurship,Regionalism,Global Value-
AddedActivities,Corporate SocialResponsibilities,
PPP,SocialEnterprises
SustainableGrowth
Economic Well-Being:AbilitytoUndertakevalue-addedtaskandactivities
Institutions: Forward-Looking,
Regulations,Property Rights,Fiscal State
Figure2.Economic catching-up of somecountries inEastand South EastAsia(% ofUSrealincome), 1950-2010
0
10
20
30
40
50
60
70
80
90
100
1950195219541956195819601962196419661968197019721974197619781980198219841986198819901992199419961998200020022004200620082010
%
Japan
Taiwan
S. Korea
Singapore
China
Malaysia
Thailand
Indonesia
Philippines
Vietnam
Cambodia
Myanmar
Laos
Source:Source:TheMaddison-Project,http://www.ggdc.net/maddison/maddison-project/home.htm,2013version (Percapitarealincomeismeasuredby1990InternationalGeary-Khamisdollars)
1. Example: Low Rate of Returns to Education in Laos and Cambodia: “Missing Centre – Hollowing out” effects in Education system, Lao PDR higher – even with economic growth
Figure5A:RatetoInvestmentinEducationforCambodia(%):1997-2008
Source:MontenegroandPatrinos,2014
Figure5B:RateofReturnstoInvestmentinEducationinSelectedASEANCountries(%):2000-2008
Source:MontenegroandPatrinos,2014
“Missing Centre” Problem
• The low rate of returns on investment in secondary level education and large share of labour force with primary school education (labour supply decisions) clearly reflects industrial structural problems and labour market mismatch.
• “Missing Centre” problem is also due to lack of Medium sized local enterprises to link large and small industries in Laos and Cambodia – lack of entrepreneurship
• This is a critical policy issue for regional value-chain activities in the region
2. Need investment in education to increase the demographic dividend: Level effects (shift to the right and higher) and growth effects (change the slope of the dividend – rate of return)- Lao PDR has higher dividend and experience longer (another 10
years) Figure7:Ratioofworkingagepopulation(15-64)overdependentpopulation(0-14and65+)
LaoPDR
Key factors for next stage of growth in ASEAN: Weak Human Capital Accumulation for next stage of growth in GVC
Table 1: Selected Education Indicators for Cambodia ASEAN MIC and HIC: 1970-2012
Variables 1970 1980 1990 2000 2010 2012
Averageschoolingyearsofpeopleages15andabove
Cambodia 1.5 2.1 2.6 3.0 3.7
OtherASEAN 2.5 3.2 3.7 4.1 4.6
Middleincome 3.5 4.2 5.1 5.9
HighIncome 7.9 9.2 9.5 10.1
Persistencetolastgradeofprimary,total(%ofcohort)
Cambodia 54.7 61.3
OtherASEAN 90.4 64.1 72.0 86.6
Middleincome 69.9 76.1 76.0 76.7
Highincome 89.8 93.1 93.6 94.3
Publicspendingoneducation, total(%ofGDP)
Cambodia 1.7 2.6
OtherASEAN 6.2 2.7 4.0 3.4 3.7 4.4
Middleincome 4.0 4.8
Highincome 4.9 4.6 4.9 5.5
Pupil-teacherratio,primary
Cambodia 35.0 50.1 48.4 45.7
OtherASEAN 28.3 32.0 28.7 25.5 19.0 18.4
Middleincome 31.6 30.7 27.4 27.5 23.9 24.2
Highincome 18.9 17.6 16.1 14.3 14.5
Variables 1970 1980 1990 2000 2010 2012
Schoolenrollment,primary(%gross)
Cambodia 111.0 106.3 129.9 124.2
OtherASEAN 99.5 100.7 101.2 104.7 108.0 105.4
Middleincome 90.9 99.7 104.5 101.0 110.2 109.8
Highincome 99.8 101.6 102.5 101.4 101.7 101.3
Schoolenrollment,primary(%net)
Cambodia 92.0 98.2 98.4
OtherASEAN 84.2 82.4 87.1 89.5 95.1 94.5
Middleincome 84.0 85.8 90.1 89.7
Highincome 94.4 95.7 95.8 95.7 95.6
Schoolenrollment,secondary (%gross)
Cambodia 17.0
OtherASEAN 35.3 40.2 39.9 55.6 70.8 81.0
Middleincome 30.1 40.3 44.8 56.8 71.7 74.2
Highincome 79.9 87.5 92.1 97.7 99.2 100.2
Schoolenrollment,tertiary(%gross)
Cambodia 0.1 0.6 2.5 14.1
OtherASEAN 2.9 7.4 9.3 16.8 28.0 29.7
Middleincome 4.4 6.4 8.0 13.3 24.5 28.1
Highincome 28.3 34.8 43.3 56.1 72.8 75.1
Table 1: Selected Education Indicators for Cambodia ASEAN MIC and HIC: 1970-2012
Table 2: Enrolment Rates and Quality of Education in Cambodia and other ASEAN countries – Quality of Education is very low
Source:ADBStatisticalWebsite
University education is not at technical and engineering for Cambodia, Laos, Myanmar, Vietnam and also Indonesia (ADB Statistical Database)
Figure 16: Majors of University Graduates
Policy discussions: Human Capital Development is the Key
• Human Capital development is important• Two components: (1) Education and (2) Training and Re-tooling• Education is the flow of human capital and it adds to the stock• Training and re-tooling are important to maintain the stock• Skills to task is the key for sustainable growth in services in regional and
global value chain• Future skills and services trade
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Policy discussions: Human Capital Development is the Key for Services Trade
• Need to develop a model for “Learning for All” (see the website for http://www.skillsfuture.sg/)
• Need to develop “Life-Long Learning Fund” – Individual learning fund co-funded with individuals (locals) and government: Create greater flexibility for individuals to invest in themselves early and also to create a portfolio of human capital
• Portfolio of human capital will allow workers to undertake value-added tasks, which is increasingly becoming important for Global Value-Chain Activities
• This allows them to diversity their skills and ride the fragmented growth better
Policy Discussions
• Creating complementarity between manufacturing and services from a regional perspectives
• Productivity of services is key• The importance of human capital development for improving the productivity
of the services sector and also for the greater trade in services. • Higher human capital will improve the mobility of skilled labour and hence
will allow for greater improvements in the regional trade in services – MRAs on skills and degrees are important (Australia-Singapore Comprehensive Strategic Agreement).
• There is a need to train and re-tool the workers in relevant skills
Policy Discussion: Industrial Policy and PPP
• Alignment of industrial policy with education policy is important – to sustain and increase the returns to education– To reduce any mismatch in the labour market and reduce the skills gap
• Information gap: Need to collect more information on training and skills education
• Invest in the infrastructure for skills and vocational training• Public Private Partnership is very important in education and training – the
returns are more to the business
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Policy Discussion: TVET and SMEs development are important to balance up the human capital• Weak investment in science and technical education in the region• Need to balance this up with Training and re-tooling to maintain the
relevance of the human capital in both urban and rural sectors• There are great opportunities to develop local SMEs by pushing them into
regional activities – integration and building into the regional supply chain mapping
• The mapping of SME supply Chain should be in line with the regional activities.
www.adelaide.edu.au
ThankYou!Email:[email protected]