Transcript trade and investment in the greater mekong sub

Globalisation of the Transitional Economies of the
Greater Mekong Subregion:
Trade and Investment Linkages
Jayant Menon
Principal Economist
Office of Regional Economic Integration
Asian Development Bank
International Conference on
Globalisation Trends and Cycles: The Asian Experience,
GEP, 12-13 January 2011, KL
The views expressed in this presentation are those of the author and do not necessarily
reflect the views and policies of the Asian Development Bank, or its Board of Governors or
the governments they represent.
Presentation Outline



Socioeconomic Progress in the
Greater Mekong Subregion: 19902009
Changing patterns of trade and
investment in GMS
Remaining Issues and Challenges
- Unfinished Policy Agenda
- Reducing vulnerability to shocks
Progress in the GMS




The GMS enjoyed sustained economic growth in the
lead up to the Global Financial Crisis in 2008/09.
In real terms, the GMS has grown at a faster pace than
the whole of East Asia and the Pacific, with much of
this growth coming from the CLMV countries.
This growth has been accompanied by a gradual shift
away from agriculture towards manufacturing and
services, which now account for a bigger share of
value added.
Economic progress has also translated into marked
improvements in human development outcomes across
the subregion.
Table 1. Economic Growth and
Restructuring in the GMS
Real GDP growth (%)
Country/
Region
Value Added as a % of GDP
(in constant US$2000)
Industry
Manufacturing
Services
19951999
20002004
20052008
..
6.9
8.5
9.9
49.6
34.6
14.8
23.9
9.5
16.4
35.6
41.5
Lao PDR
6.1
6.4
6
7.7
55.7
34.7
19.2
28.2
14.3
9.3
25.1
37.1
Myanmar
5.07
7.2
12.9
13.2
60
48.3
9.9
16.2
6.9
11.6
30.1
35.4
Thailand
9.01
1.5
5.1
4.3
9.5
11.6
40.7
44.2
29.9
34.9
49.7
44.2
Viet Nam
7.32
7.5
7.2
7.8
27.2
22.1
28.8
39.7
15
21.1
44.1
38.2
East Asia
& Pacific
9.45
3.6
4.1
5.2
19.3
12.2
44.3
47
30.9
32.8
36.5
40.9
Cambodia
19901994
Agriculture
1995
2008
1995
2008
Source: World Bank World Trade Indicators 2009/10 and World Development Indicators 2010
1995
2008
1995
2008
Table 2. Socio-economic and Poverty
Indicators in the GMS, 1995-2008
Country/Region
GDP per capita
(constant 2000
US$)
1990
Cambodia
Lao PDR
Myanmar
Thailand
Viet Nam
East Asia and the
Pacific
Infant mortality
rate, (per 1,000 live
births)
2008
1995
Literacy rate, adult
total
(% of people
ages 15 and above)
Poverty headcount
ratio at $1.25 a day
(PPP) (% of
population)
2008
206/1
511
86.3
69.3
67.3
(1998)
77.0
(2008)
48.6
(1994)
25.8
(2007)
227
475
81.5
47.5
60.3
(1995)
72.7
(2005)
55.7
(1992)
44.0
(2002)
-
-
80.6
70.6
89.9
(2000)
91.9
(2008)
-
-
1400
2640
21.1
12.5
92.7
(2000)
93.5
(2005)
5.5
(1992)
2.0
(2004)
227
647
32.9
11.8
90.3
(1999)
92.5
(2008)
63.7
(1993)
21.5
(2006)
481
1760
38.9
23.1
90.6
(2000)
93.1
(2008)
50.8
(1993)
16.8
(2005)
/1 Cambodia data for 1993
Source: World Bank World Trade Indicators Online, 2009/10, World Bank Development Indicators 2010
Increased openness and economic
cooperation have helped spur growth in GMS

Unilateral liberalization in CLMV economies



Cambodia in 1985
Lao PDR and Viet Nam in 1986
Membership in economic cooperation and
trade agreements



ADB’s GMS Program
ASEAN, AFTA and WTO
Preferential trading agreements (PTAs)
Trade in the GMS: Overall Trends


Unilateral policy reforms and greater
economic cooperation have led to positive
trade growth in the GMS.
With the exception of Myanmar, trade
openness has increased throughout the
region, with trade as a percentage of GDP
above 100% in Cambodia, Thailand and
Viet Nam.
Figure 2. Increasing Trade and Trade
Openness in GMS, 1990-2009 (in current US$)
(b) Lao PDR
(a) Cambodia
140%
12000
120%
10000
100%
8000
80%
5000
100%
16000
100%
4500
90%
14000
90%
4000
80%
3500
70%
3000
60%
10000
60%
2500
50%
8000
50%
6000
40%
6000
60%
2000
40%
4000
40%
1500
30%
1000
20%
500
10%
2000
20%
Total Trade, in million US$
0
350000
300000
20%
10%
0
0%
Total Trade, in million US$
Trade Openness Trade as % of GDP
Trade Openness Trade as % of GDP
(e) Viet Nam
(d) Thailand
400000
30%
2000
0%
Total Trade, in million US$
Trade Openness Trade as % of GDP
70%
4000
19
90
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
0%
19
90
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
0
80%
12000
19
90
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
14000
(c) Myanmar
140%
160000
180%
120%
140000
160%
100%
140%
120000
120%
100000
250000
80%
200000
100%
80000
80%
60%
150000
60000
20%
50000
0%
19
90
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
0
Total Trade, in million US$
Trade Openness Trade as % of GDP
60%
40000
40%
20000
20%
0
0%
19
90
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
40%
100000
Total Trade, in million US$
Sources: IMF Directions of Trade Statistics; IMF World Economic Outlook database
Trade Openness Trade as % of GDP
Direction of Trade



Except for Cambodia, the direction of trade over
the past two decades suggests a marked
expansion in GMS’ countries trade not only with
the world, but more particularly among
themselves.
Thailand and Viet Nam have shown modest
increases in intra-GMS trade, and trade
predominantly with the rest of the world, and
have more diversified partners.
The share of intra-GMS trade in total trade has
been higher for the smaller countries, Lao PDR
and Myanmar.
Figure 3. Direction of Trade, 1990-2008
(b) Lao PDR
(a) Cambodia
70%
35%
30%
65%
61%
59%
31%
30%
27%
60%
51%
26%
50%
25%
22%
1990-1994
1990-1994
20%
17%
14%
15%
13%
10%
13%
11% 11%
2000-2004
5%
4%
1%1%
2005-2008
5%
7%8% 7%
1%
0%0%0%1%
ASEAN 5
Japan
EU
ASEAN 5
Japan
EU
PRC
GMS
US
(c) Myanmar
PRC
17%
18%
30%
16%
16%
24%
25%
15%
14%
14%
30%
20%
19%
26%
22%
1990-1994
21% 21%
20%
1995-1999
18%
2000-2004
20%
16%
15%
2005-2008
15%
7%6%
3%
1%
3%2%
8%8%
5%4%
6%
4%
3%
0%
5%
5%
16%
13%
11%
13%
16%
16%
14%
2000-2004
10%
10%
6%
5%
4%
3%
1%1%
Japan
EU
PRC
US
Source: IMF Direction of Trade Statistics
2005-2008
10%
10%
6%
14%
10%
10%
9%9%
8%
8%
7%
8%
4%
6%
5%
5%
4%
ASEAN 5
Japan
EU
PRC
US
3%
0%
GMS
ASEAN 5
1995-1999
2005-2008
0%
GMS
1990-1994
2000-2004
6%5%
2%
0%
ASEAN 5
1990-1994
1995-1999
14%
14%
12%
12%
19%
8%9%8%
6%
10%
9%9%9%
0%
GMS
US
(e) Viet Nam
35%
10%
1%1%1%1%
(d) Thailand
40%
35%
9%
7% 7%
4%
0%
GMS
5%
14%
9%
4%
2%2%
10%
0%
25%
2000-2004
20%
8%
4%
2%2%
1995-1999
30%
2005-2008
11%
8%
5%
40%
1995-1999
16%
Japan
EU
PRC
US
Composition of GMS Exports





Changing demand for export products has helped transform the
structure of exports from the subregion.
In Cambodia, textiles and garments quotas from the US and EU
led to the emergence of an extremely narrow export base
dominated by clothing and footwear.
In Thailand, trade in machinery and other equipment comprised
almost half of total exports in 2008 due to production
fragmentation trade.
In Viet Nam, primary commodities still make up close to 40% of
total exports, but there is a clear shift towards a more diversified
export base.
In Lao PDR and Myanmar, there was a similar shift away from
primary commodities in 2000. However, this trend has since
been reversed due to increased external demand for primary
commodities, particularly ores and metals in the case of Lao PDR,
and natural gas in the case of Myanmar.
FDI in GMS: Overall Trends

In 2008, total FDI stock in GMS amounted to US$153 billion,
or 37% of total GDP. Historically, Thailand has been the
largest FDI recipient in the region, but Viet Nam has been
catching up in the last couple of years.

Cambodia and Viet Nam have FDI stock to GDP ratios well
above the GMS average, with Thailand just slightly below it.

The source country composition of FDI to GMS countries is
characterized by a clear (Asian) regional bias.

As for intra-GMS FDI flows, data for 1995-2005 suggest that
these have been important sources of capital for the smaller
GMS countries, particularly Lao PDR, where they accounted
for more than a third of total FDI flows, originating mostly
from Thailand.
Figure 6. FDI and FDI Openness in
GMS, 1990-2008
(b) Cambodia
(a) GMS
45%
5
153 40%
5
35%
4
30%
4
180
160
145
140
120
120
100
100
84
80
60
46
40
20
22 27
16 18
10 13
55
57
63
90
25%
71
20%
33 31
10%
5%
0
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
FDI Stock (current US$) in billions
4.6
3.8
3
2
0.9 1.0
1
1
0.2
0.0 0.0 0.1 0.1
3.7
4.1
4.2
4.5
5.0
4.8 4.9
5.3
5.5 70%
60%
1
0.3
20%
0.6
15%
5%
0.34
0.42
40%
77.2
80
60.4
48.9
20%
40
20
10%
0
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
25.5
30
10
8.2
31.1 29.9 33.3
53.2
38.4
17.7 19.7
14.1 15.7
13.3
10.3 12.3
0.06
0.01 0.02 0.03
10%
5%
0.0
0%
30%
60
80%
48.3 70%
50
40.3
40
25%
20%
15%
5%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: UNCTAD World Investment Report 2010
Lao PDR FDI stock as % of GDP
35%
0%
Thailand FDI Stock (current US$) in billions
15%
0.12
30
26.1
20
13.3
10%
0
Myanmar FDI stock as % of GDP
20%
(f) Viet Nam
94.1 93.0 45%
60
25%
0.62 0.64 0.67
0.21
0.2
Lao PDR FDI Stock (current US$) in billions
90
40%
0.47
0.58 0.60
0.52 0.56
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
100
70
35%
0.86
0.4
Cambodia FDI stock as % of GDP
50
1.2
Myanmar FDI Stock (current US$) in billions
0.8
40%
30%
1.0
25%
0%
50%
30%
0.8 0.9
0.5 0.7
1.18
1.2
10%
Cambodia FDI Stock (current US$) in billions
1.8
2
40%
45%
1.41
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2.7
3
1.7
1.4
(e) Thailand
5
3.4
1.6
0
FDI stock as % of GDP
6
4
1.4
2.1
1.9 2.0
0.4
(d) Myanmar
3.9
1.2
1.6
45%
30%
2.5
3
50%
35%
3.0
2
15%
(c) Lao PDR
Thailand FDI stock as % of GDP
10
3.4
1.6 2.0 2.5
5.4
7.1
15.6
18.2
20.6
27.5
29.1
31.1
33.5
60%
50%
40%
23.0
30%
20%
10.1
10%
0
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Viet Nam FDI Stock (current US$) in billions
Viet Nam FDI stock as % of GDP
Figure 7. FDI Inflows into GMS Countries
by Source Country, 2000-2008
(b) Lao PDR
(a) Cambodia
ASEAN , 22%
Others , 15.1%
Others , 30.8%
ASEAN , 28%
USA, 4%
Unclassified*,
5%
USA, 0.5%
EU, 23%
PRC, 9%
EU, 6%
PRC, 18%
Japan, 4%
Japan, 2%
Asian NIEs,
22%
(c) Myanmar
(d) Thailand
Others , 2.5%
USA, 6%
Asian NIEs,
11%
(e) Viet Nam
Others , 15.7%
Others , 21.5%
ASEAN , 16%
ASEAN , 26%
ASEAN , 16%
USA, 7%
PRC, 17%
PRC, 2%
USA, 4%
EU, 18%
PRC, 0%
Japan, 1%
EU, 9%
Japan, 13%
EU, 33%
Asian NIEs, 5%
Asian NIEs, 24%
Japan, 34%
Source: ASEAN Statistical Yearbook 2008
Asian NIEs,
28%
Figure 8. Share of Intra-GMS Inflows in
Total FDI, 1995-2005
35.0%
30.6%
30.0%
25.0%
20.0%
Intra-GMS FDI
Inflows Share
of Total FDI
15.0%
10.0%
5.4%
5.0%
2.8%
0.1%
0.0%
Cambodia
Lao PDR
Thailand
Vietnam
Source: ASEAN (2006). Statistics of Foreign Direct Investment in ASEAN, Eighth Edition
Unfinished Policy Agenda and
Reducing Vulnerability
Two general issues considered.
Unfinished policy agenda:
- trade policy reform
Reducing vulnerability to shocks:
- Diversification of exports and
export markets
- Rebalancing growth

Trade Policy Reform




Biggest challenge is dealing with
trade facilitation and NTBs
Widely recognized, focus of
attention, work ongoing
Should not neglect traditional area
of tariff related liberalization since
reforms incomplete
Furthermore, growth in FTAs
present new challenges in
rationalizing tariff structures
Multilateralizing AFTA Preferences



Original ASEAN members have been
multilateralizing most of their CEPT
tariff preferences.
When fully multilateralized, margin
of preference (MoP) is zero, as is
potential for trade diversion
In this way, AFTA a building block
towards open and free trade
Multilateralizing AFTA Preferences




New ASEAN members have not.
MoPs in 2007 around 15% in Viet Nam, and
7-8% in Cambodia and Lao PDR
Running two-tier tariff (MFN and CEPT)
system on most tariff lines
This will increase to at least 6 rates and
then more when the ASEAN+1 and other
individual bilateral FTAs kick-in; with as
many deadlines and potentially as many
RoOs!
Multilateralizing AFTA Preferences



Why? Trying to mitigate revenue
loss?
Unlikely, given trade deflection
opportunities and potential for
increased rent seeking behavior
Furthermore, cost of administering
two-tier system and implementing
RoOs costly and burdensome, given
institutional weaknesses and an
overstretched customs bureaucracy
Reducing vulnerability to shocks
Diversification of exports
Intra-sectoral diversification more
viable and less costly than intersectoral diversification
Can be mostly accommodated by factor
transfer within export-oriented
industries
Consider activities related to agroprocessing eg. rice milling, before
cars and planes!
Rebalancing Growth




GFC highlighted the need to
rebalance growth from foreign to
domestic sources
China should, and maybe Thailand,
but what about other GMS?
Despite growing exports, net
exports contribution to growth still
small or negative
As capital importing countries, most
run trade & current account deficits
Thank you!
For inquiry or comments, please
contact:
Jayant Menon
Principal Economist, OREI
Telephone: (63-2) 632-6205
Email: [email protected]