Transcript Institutional Changes for Private Sector Development in Vietnam

Winners & Losers
in International Economic Integration:
Some Thoughts
Vo Tri Thanh (CIEM)
Presentation at the Conference
“Growth that Matters: ASEAN Integration and Inclusive Growth“
40th APS Annivesary Lecture Forum
Manila, 12 November 2014
Outline of presentation
 The impacts of economic integration: Do we
really understand?
 Some ideas for narrowing dev’t gap in ASEAN
 Lessons learnt from experience of poverty
reduction in VN
The impacts of integration:
Do we really understand?
Common understanding
 Trade liberalization  not a “zero-sum-game” but “win – win game”
(welfare improved in all trading partners)
 Globalizers seem to be winners (in most studies!)
 Impact of integration on poverty: Trade liberalization  Better
exploitation of comparative advantages and more efficient resource
allocation  Higher growth and lower poverty incidence
But the issue is more complex and complicated

Meaning of “winners & losers”?
•
Between countries and within an individual/a specific country
•
Absolute gains and relative gains (the “gaps”)
•
Political problem of the loss of a small social group

How to measure the degree of integration (for assessing the impacts
of integration)?
•
In most studies: trade barriers & trade policy (even then: NTMs?)
•
But integration now means freer flows of goods, services, investment, capital and
people as well as connectivity and cooperation (FTAs in East Asia tend to be ECPs)

Interaction between integration and country’s domestic reforms
•
Unless integration does go with domestic reforms, most benefits would be on the side
of trading partners (e.g. study on VN’s WTO accession by Roland-Holst et al 2002)
•
Welfare impacts could be positive/negative depending on several channels: relative
prices; flexibility of production factor markers; budget stance (Winters 2003)

Short term vs. long term impacts
•
Integration could have a net positive impact on an economy but imposing risk for
her to fall into “low cost labor trap”/”trade liberalization trap” in long run
•
Capital flows, business cycles and possible financial crisis
•
Future uncertainty about the impacts of the rise and restructuring of China and
India (flows of goods, services, and capital; power and income redistribution?)
creating both opportunities and challenges
Implications

More theoretical studies are needed

Case studies are necessary (cross-section comparison; individual
economy; at micro level)

It is important to develop scorecards for monitoring the
integration progress (eg. ASEAN & AEC?)
Some ideas for narrowing dev’t gap in ASEAN
 ASEAN Vision 2020: Transforming ASEAN into a stable,
prosperous, and highly competitive region with equitable
economic development
 AEC by 2015: Common market and prod base (Free flows of
goods, services, investment, and skill labour and freer flows of
capital)
 Key pillars:
•
Trade, investment, and services liberalization (Creation of opportunities)
•
Trade and investment facilitation (Reduction of transaction costs associated with
production networks and value chains)
•
Connectivity (MPAC) (Easier access to new opportunities and reduction of
transaction costs)
•
Cooperation (e.g. IAI and other programs) (Improvement of capacity for
exploiting efficiently new opportunities)
Lessons learnt from VN
Vietnam’s Reform and Performance
GDP Growth and Inflation (1977-2013)
growth rate
12
1985-88:
Macro Crisis
log(1+inflation*100)
2008: MacroInstability
2009: impacts of crisis
2010: Recovery & Higher risks of macroinstability
Since 2011-12: Improvement of macrostability,
rather slow growth, efforts to restructure the
economy
1996-99: Asian crisis &
Slowdown of reform
10
1976-80:
"Shortage" &
stagnated
economy
8
3,0
2,0
6
4
1,0
2
0
77
-2
-4
78 79 80
81 82 83
84 85
86 87 88
89 90 91
1976-80: A CPE + autarkic economy
1980-88: Modified Planned Economy (MicroReforms
+ Failure of "price-salary-money reform")
1986: Doi Moi began ("multi-components" economy)
92 93
94 95 96
97 98
99
0
01
02 03 04
05 06
07 08 09
10 11 12
13
0,0
Since 1989: Market-oriented reform (with socialism orientation) +
Integration (EU: 1992; ASEAN: 1995; APEC 1998; VN-US BTA
2000; WTO: 2007; ASEAN + 1 FTAs;…VN-Japan CEP; Currently in
negotiation: TPP; VN-EU FTA; RCEP; VN-Russia, Belarus,
Kazaxtan Costom Union FTA, VN-Korea FTA,..)
-1,0
 Nature of Doi Moi: To enlarge both sets of (economic) choices by people
and the country’s (people’s and institutional) capability to exploit benefits
from the newer choices
 The major reform dimensions (Domestic reforms + Integration)



Market-oriented reforms (price liberalization; private sector dev’t & rights of doing
business; SOE reform,..)
Macroeconomic and social stabilization
“Open door” policy and international economic integration (Trade liberalization; FDI
attraction; Regional integration, agreements with key trading partners and WTO
accession)
 Since Doi moi launched in 1986, achievements have been quite
impressive, but not outstanding
•
Some doubt about sustainability of high growth (even VN’s potential is huge) and there is
a possibility of falling into “Low cost labour trap” in long run
•
(Still) substantial poverty in isolated regions + “new poor” (multi-dimensional poverty)
•
Widening income (and asset) gap
Incidence of Poverty in VN, 1993 - 2010 (%)
1993
1998
2006
2010
Whole country
58.1
37.4
15.5
10.7
Urban Area
25.1
9.2
7.7
5.1
Rural Area
66.4
45.5
18.0
13.2
Major factors affecting poverty & Policy Implications
 Growth has been closely associated with the pace of poverty reduction
(Impact depends both on the rate of growth and the composition of
growth as well as structure of the economy)
•
Enhancement of comparative advantages (L-intensive industries) thanks to trade
liberalization (VN-US BTA; WTO; ASEAN & ASEAN + FTAs; …)
•
Private sector development (Private ownership and easier entry to markets)
•
Incentives for farmers (household-based farming)
 Macroeconomic instability and financial shocks/shocks can have
devastating effects on the poor
•
Essential of macroeconomic stabilization
•
Policies (direct income transfers; selective subsidies; “cheaper” credits to SMEs and
agricultural subsectors) for supporting low income/vulnerable people during difficult
time/crisis
 Infrastructure development has been crucial to growth and poverty
reduction
•
Importance of both highways and secondary networks
•
Priorities (due to financial constraints)
Impacts of public investment on rural poverty reduction
(No of poor reduced per 10 thousand Yuan/billion VND)
Sector
China
Viet
Nam
1. Agricultural R&D
3.4 (3)
246.5 (1)
2. Irrigation
0.4 (6)
23.3 (5)
3. Roads
3.0 (4)
102.5 (3)
4. Education
6.3 (1)
164.6 (2)
5. Electrification
2.9 (5)
90.7 (4)
6. Rural telecommunication
4.0 (2)
Note: Figures in parentheses are ranking of the impacts
 The specific (targeted) programs have played very essential role in
reducing poverty, especially the “hard-core” poverty (Small scale
infrastructure programs; employment programs; poverty reduction
programs)
•
The key: right targetings and sustainability of the programs (?)
Reasons behind the income and asset gaps
 Mismanagement of process of reallocating SOE assets and land
(Transition means the reallocation/redistribution of SOE assets and
land – the key assets owned by the State)
 Lack of access to new opportunities (Institutional reforms and
infrastructure development did not keep the pace with the
enlargement of economic and business opportunities)
 Lack of capability to exploit benefits from the newer opportunities
Thank you!