presentation trade development aid for trade · aid for trade workshop trade liberalization,...

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?

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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

The University of Adelaide 4

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


Tradeable

• Services are becoming more tradeable


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


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

University of Adelaide 14

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?)

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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

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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

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10

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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

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


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]

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