Symposium“Towards Realization of the ASEAN Connectivity Plus:

Moving forward with ASEAN‐India Connectivity(Bangkok, Thailand; November 27, 2013)

Economic Assessment of ASEAN‐IndiaEconomic Assessment of ASEAN India Connectivity

Fukunari KimuraChief Economist, Economic Research Institute 

for ASEAN and East Asia (ERIA)Professor, Faculty of Economics, Keio University, y , y

2013/11/27 1

1. The potantial of ASEAN‐India connectivity

• India is coming into production networks in d a s co g to p oduct o et o sASEAN 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 development gaps.g g p / p g p

• Well‐coordinated effort by countries in the region will be required.

2013/11/27 2

ASEAN-India connectivity

3Source: Kimura and Umezaki (2011).2013/11/27

Mekong‐India Economic Corridor and Dawei

Source: Isono and Kumagai (2013).

2013/11/27 4

2. Conceptual framework2. Conceptual framework

• The fragmentation theory (the 2ndThe fragmentation theory (the 2unbundling)– Development gaps motivate the task‐wise division p g pof 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 b t l ti d di i fbetween agglomeration and dispersion forces.

2013/11/27 5

The 2nd Unbundling

The 2nd 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 2nd unbundling in the manufacturing sector is most advanced in East Asia.

1st 2nd

⇒

Bay B

Bay A

⇒Bay BBay A

Ba C

ICT⇒Bay C

Bay C

S B ld i (2011)Source: Baldwin (2011).

62013/11/27

The fragmentation theory: Production blocks and service linksThe fragmentation theory: Production blocks and service links

Tradeoff between the reduction in production costs in PB and the enhancement of SL costs

B f f t ti

Tradeoff between the reduction in production costs in PB and the enhancement of SL costs.  Fragmentation of production occurs particularly between countries at different development stages (Jones and Kierzkowski (1990)).

Before fragmentation

After fragmentationLarge integrated factory

PB PBSL

SLSL

PB

PB

PBSL SL

PB: production blocksSL: service links

7

PB

2013/11/27

5.Opportunities and challenges for ASEAN (cont’d)

82013/11/27

The evolution of the 2The evolution of the 2ndnd unbundlingunbundling

Cross‐border production sharingProduction networks

(“ t k ” f t ti d l ti

The United StatesJapan

p g(back‐and‐forth; intra‐firm)

(“networks”; fragmentation and agglomeration;intra‐firm in short distance, arm’s length in long distance)

Consumers The United StatesConsumersKorea

MexicoConsumers

Vietnam

Taiwan

Vietnam

The Philippines

Headquarters or affliates

Unrelated firms with same firm nationality

Unrelated firms with different firm nationality

Malaysia Internetauction

Unrelated firms with different firm nationality

Agglomeration

Agglomeration

9Source: Ando and Kimura (2010).

2013/11/27

Agglomeration and dispersion in new economic geographyAgglomeration and dispersion in new economic geography

To achieve proper balance between agglomeration and dispersion effectsTo achieve proper balance between agglomeration and dispersion effects, supplementary policies to enhance location advantages, particularly on the periphery side, are necessary.

Reduction in trade costs2013/11/27 10

3. The current situation3. The current situation

• Big Three in machinery agglomerationsBig Three in machinery agglomerations– East Asia, North America, Europe

– East Asia enhances competitiveness.East Asia enhances competitiveness.

• Increasing number of countries in East Asia has come into production networkscome into production networks.– Development gaps motivate production networks.

• Production networks (the 2nd unbundling) vs• Production networks (the 2 unbundling) vs. global value chains– PN: time‐sensitive synchronized coordinated linksPN: time sensitive, synchronized, coordinated links

2013/11/27 11

Machinery exports and imports by regions (US$ millions)

2,000,000 

1,500,000 

1,000,000 

Final Products

0 

500,000 

Parts and Components

Expo

rts199

3

Impo

rts199

3

Expo

rts201

1

Impo

rts201

1

Expo

rts199

3

Impo

rts199

3

Expo

rts201

1

Impo

rts201

1

Expo

rts199

3

Impo

rts199

3

Expo

rts201

1

Impo

rts201

1

Expo

rts199

3

Impo

rts199

3

Expo

rts201

1

Impo

rts201

1

Expo

rts199

3

Impo

rts199

3

Expo

rts201

1

Impo

rts201

1

ROW EU27 ASEAN+6 LA NAFTA

Source: Chang and Kimura (2013). 12

ROW EU27 ASEAN+6 LA NAFTA

2013/11/27

Export shares of machinery parts and components in total exports indicate the degree of participation in international 

d ti t kproduction networks.

13Source: Ando and Kimura (2013a).2013/11/27

GDP per capita in 2018 in extended East Asian countries

GDP / capita (USD) 2000 2005 2010 2018 EstimateGDP / 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 1 174 2 474Vietnam 402  637  1,174  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 S th K 11 347 17 551 20 540 33 644South 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. , yNotes: 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.

142013/11/27

Income levels at the provincial level (2005)

Income gaps are still hugeat both country and provinciallevel.  There is still a lot ofroom for taking advantage ofthe mechanics of fragmentationthe mechanics of fragmentationof production.

15Source: ERIA=IDE‐JETRO GSM Team.2013/11/27

GRDP perGRDP per--capita (‘05), 3 subcapita (‘05), 3 sub--regions, & industrial regions, & industrial agglomerationsagglomerations

Mekong Industrial Agglomerations

Mekong

BIMP+IMT+

16Source: ERIA (2010).2013/11/27

Border development with enhancement of connectivity

GDP per capita (2005)

(source) Kudo and Kumagai (forthcoming)172013/11/27

Production networks and distribution of the industries:A few clusters in ASEAN (2005)( )

E&E industry Food processing industry

Source: IDE‐GSM team

18

We have limited number of economic clusters in ASEAN.

2013/11/27

4. Policies for MIEC development4. Policies for MIEC development

• Required policiesRequired policies– Latecomers: how to participate in production networksnetworks

• 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.

2013/11/27 19

20Source: Ando and Kimura (2013b).2013/11/27

4 0

4.5Singapore 

LPI 2012 

Hong Kong

Correlation between LPI and GDP per capita

3.5

4.0

Malaysia

Thailand

Hong Kong

Korea

China

India

p p

2.5

3.0 Indonesia

Philippines

Viet Nam 

Cambodia 

India 

2.0

Lao PDR Myanmar 

Source: Modified from ERIA1.5

300 3,000 30,000

LPI 2012 ASEAN 2012 CLMV 2007 Fitted line (LPI 2012)

GDP per capita (2012, Nominal USD)

LPI i f ASEAN d E A i l i l hi h d i h h

Source: Modified from ERIA (2010)

LPIs in forerunner ASEAN and East Asia are relatively higher compared with the indices obtained by regression

= higher LPI compared with GDP/GNI per capita

better access between primary cities to primary ports= better access between primary cities to primary ports

= high competitiveness in the global market 212013/11/27

222013/11/27

Growth poles and growth nodes Growth poles and growth nodes proposed by the ERIAproposed by the ERIA--MIEC ProjectMIEC Project

23

Source: ERIA (2009).

2013/11/27

Transportation sector projects Transportation sector projects proposed by the ERIAproposed by the ERIA--MIEC ProjectMIEC Project

New International Airport near HCMC

24

Source: ERIA (2009).2013/11/27

Selected prospective projects in Mekong subSelected prospective projects in Mekong sub--regionregion

Hanoi Vientiane International Airport Security and Safety Improvement

Nam Theun 2 and Nam Ngum 2 Hydropower Plant

Yangon port: Quay cranes

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

Hanoi Special Border Zone at Myawadi

Route No.8: Kawkareik-Mawlamyyne - Thaton

Nam Theun 2 and Nam Ngum 2 Hydropower Plant

Upgrading Dawei airport

Yangon port: Quay cranes Thilawa port improvement

Savarnnakhet airport improvement Pharma & biotech city in Ayutthaya IT & ITES part in Phthum Thani CDZ Yangon

Ma lam aingMyawadi

Khon Kaen

Vientiane

Savannakhet

North-South High Speed Railway (to HCMC)

SEZ in Savarnnakhet

Border Trading Zone in Dansavanh

NSEC

Highway: Kanchanaburi - Dawei

SKRL: PP – Loc Ninh – HCMC

Dawei deep sea port

Cross-border facility at Bavet-Moc Bai

Upgrading Dawei airport

Da Nang airport: Passenger terminal Da Nang port improvement

Mawlamyaing

Dawei

Da Nang

BangkokSEZ/FTZ in Dawei Multimodal logistic park in Dawei

MIEC

EWEC

Bangkok - MRT network - Suvarnnabumi airport: Phase 2 development - Laem Chabang port: Phase 2 development - Highway management improvement

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

Ho Chi Minh

Phnom Penh

Sihanoukville

Mekong bridge in Neak Loung (NR1)

Reconstruction of NR3: PP-Kampot Phnom Penh port rehabilitation

Koh Kong Industrial Estate Poipet Industrial Estate SKRL: Poipet - Sisophon (48km)

- Transmission line: Can Tho – HCMC - Power plants in O Mon

Enhancement of port security, improvement of port maintenance, port related procedures, port management and operation.

25

Sihanoukville airport upgradation

Expressway: PP - Sihanoukville

Sihanoukville port expansion Source: ERIA (2010).2013/11/27

5-2. Key infrastructure projects (1)

26Source: Kimura and Umezaki (2011).2013/11/27

5. Some simulation results5. Some simulation results

• Geographical Simulation Model by ERIA andGeographical Simulation Model by ERIA and IDE=JETRO

• MIEC vs three economic corridors in Mekong• MIEC vs. three economic corridors in Mekong– MIEC: manufacturing link, foster industrial agglomerationsagglomerations

• Myanmar development and MIEC– Two‐polar development in Myanmar

– Implication of Dawei

2013/11/27 27

Scenario 3cMekong India Economic Corridor (MIEC-III): Ho Chi Minh to Chennai

SScenario 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 g p p60km/h.

MIEC-IIIRanking by Region Ranking by Country

Region Country Economic Effects Country Economic

EffectsTaninthayi 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%

28Source: ERIA (2010).

Number of regions with

100% or more 11 China -2.0%50% to 100% 41 Brunei -2.5%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%2013/11/27

Scenario 4Three Economic Corridors in the Indochina Peninsular (3ECs)

S i 1 2 d 3 i l t dScenarios 1a, 2, and 3c are implemented.

3ECsRanking by Region Ranking by Country

Region Country Economic Effects Country Economic

EffectsTaninthayi 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%

29

Number of regions with

100% or more 16 Philippines -6.4%50% to 100% 66 Singapore -7.8%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).2013/11/27

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)(excluding Dawei)

(I D i USD kil 2030)

30

Need to achieve high economic growth and inclusive development. (Impact Density, USD per square kilometer, 2030)

Source: ERIA (forthcoming).2013/11/27

[Scenario 3]Scenario 2 + Dawei Development

Dawei project has a huge economic impact on the Mekong region and India.

N t NA f Bh t N l N th K S i L k Ti L t d J d K h i d t th d t

(Impact Density, USD per square kilometer, 2030)

31

Note: NA for Bhutan, Nepal, North Korea, Sri Lanka, Timor-Leste, and Jammu and Kashmir due to the data availability.Source: IDE/ERIA-GSM 6.

Source: ERIA (forthcoming).2013/11/27

6. Conclusion6. Conclusion

• ASEAN‐India connectivity, particularlyASEAN 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 i i d h i fintegration and the narrowing of geographical/industrial development gaps.

2013/11/27 32

References• Ando, Mitsuyo and Kimura, Fukunari. (2010) “The Spatial Pattern of Production and Distribution Networks in East Asia.”  In 

Prema‐chandra Athukorala, ed., The Rise of Asia: Trade and Investment in Global Perspective, London and New York: Routledge: 61‐88.

• Ando, Mitsuyo and Kimura, Fukunari. (2013a) “Production Linkage of Asia and Europe via Central and Eastern Europe” Journal of Economic Integration Vol.28 No.2, pp.204‐240. Baldwin, Richard (2011) “21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules”. CEPR Policy Insight No. 56.

• Ando, Mitsuyo and Kimura, Fukunari. (2013b) 

• Chang, Mateus Silva and Kimura, Fukunari. (2013) “The Evolution of Production Networks in Machinery Industries.”  mimeo.

• Economic Research Institute for ASEAN and East Asia (ERIA). (2009).  Mekong India Economic Corridor Development, ERIA Research Project Report 2008, No.4‐2, Jakarta: ERIA (http://www.eria.org/publications/research_project_reports/mekong‐india‐economic‐corridor‐development.html).

• Economic Research Institute for ASEAN and East Asia (ERIA). (2010) Comprehensive Asia Development Plan. ERIA ResearchEconomic Research Institute for ASEAN and East Asia (ERIA). (2010) Comprehensive Asia Development Plan.  ERIA Research Project Report 2009‐7‐1, Jakarta: ERIA (http://www.eria.org/publications/research_project_reports/the‐comprehensive‐asia‐development‐plan.html).

• Economic Research Institute for ASEAN and East Asia (ERIA). (forthcoming) Myanmar Comprehensive Development Vision.

• Isono, Ikumo and Kumagai, Satoru. (2013) “Dawei Revisited: Reaffirmation of the Importance of the Project in the Era of Reforms in Myanmar.” ERIA Policy Brief 2013‐01 (May)(http://www.eria.org/publications/policy briefs/dawei‐revisited‐Reforms in Myanmar.   ERIA Policy Brief 2013 01 (May)(http://www.eria.org/publications/policy_briefs/dawei revisitedreaffirmation‐of‐the‐importance‐of‐the‐project‐in‐the‐era‐of‐reforms‐in‐myanmar.html).

• Jones, R. W. and Kierzkowski, H. (2001), ‘A Framework for Fragmentation’, in Arndt, S.W. and H. Kierzkowski(eds.), Fragmentation: New Production Patterns in the World Economy, Oxford: Oxford University Press.

• Kimura, Fukunari. (2010) “The Spatial Structure of Production/Distribution Networks and Its Implication for Technology Transfers and Spillovers ” In Daisuke Hiratsuka and Yoko Uchida eds Input Trade and Production Networks in EastTransfers and Spillovers.   In Daisuke Hiratsuka and Yoko Uchida, eds., Input Trade and Production Networks in East Asia, Cheltenham: Edward Elgar: 158‐180.

• Kimura, Fukunari and Ando, Mitsuyo. (2005) “Two‐dimensional Fragmentation in East Asia: Conceptual Framework and Empirics.”  International Review of Economics and Finance (special issue on “Outsourcing and Fragmentation: Blessing or Threat” edited by Henryk Kierzkowski), 14, Issue 3: 317‐348.

• Kimura Fukunari and Umezaki So eds (2011) ASEAN‐India Connectivity: The Comprehensive Asia Development Plan PhaseKimura, Fukunari and Umezaki, So, eds. (2011) ASEAN India Connectivity: The Comprehensive Asia Development Plan, Phase II.  ERIA Research Project Report 2010‐7 (December)(http://www.eria.org/publications/research_project_reports/asean‐‐‐india‐connectivity‐the‐comprehensive‐asia‐development‐plan‐phase‐ii.html).

2013/11/27 33