BE-4310

ASEAN Economies

Lecture Topic 3

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 Analysis of ASEAN Development Process

Readings:
Kabayashi et al (2018)
See more references on the last slide

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 Overview of ASEAN and its evolution

SUMMARY
- Areas of Concern
- Factors Determining Future Prospects
- Challenges
- Future Planning

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 Areas of Concern
• Domestic non-tariff barriers (NTBs) have become strong
obstacles to bringing about effective liberalization. The
definition of NTBs varies country by country and the
removal of NTBs often encounters strong domestic
resistance.
• Although physical infrastructure, especially the ASEAN
Highway Network, has been developed significantly,
regulatory frameworks on transport facilitation have not
been fully realized.
• For example, four protocols under the ASEAN Framework
Agreement on the Facilitation of Goods in Transit (AFAFGIT) have
been signed but not ratified by all ASEAN member states, and
protocol 2 remains to be signed.
• The ASEAN Framework Agreement on the Facilitation of the Inter-
State Transport (AFAFIST) and the ASEAN Framework Agreement
on Multimodal Transport (AFAMT) have not been ratified by all
member states.
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 Areas of Concern
• The services sector has evolved into the major sector,
accounting for 50.2 per cent in 2014 in terms of the
economy, but its regional integration is limited.
• The ASEAN Framework Agreement on Services (AFAS)
was signed in 1995, but commitments under AFAS do
not go beyond the applicable non-preferential regimes
of many ASEAN member states.

• The free flow of skilled labor is also hard to realize. Eight

Mutual Recognition Agreements (MRAs) – such as on
engineering services, nursing services and medical
practitioners – have been concluded, but MRAs are not
expected to override local laws: they are applicable only in
accordance with prevailing laws and regulations of the host
country. the countyr hv to modify their regulatory structure

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 Areas of Concern

• While financial markets have become an important tool in

facilitating the flow of funds, capital market integration has
made little progress due to the great disparity in regulatory
systems among member states.

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 Factors Determining Future Prospects
• Sound economic growth
• Large and promising population structure
• 625million population; 9 percent of the world
population; 3rd largest market (in terms of population);
50% percent population under 30 years of age
• Expansion of middle and upper income classes
• Share of middle and upper income is projected to
increase from 48.3% (2010) to 78.6% (2030).
• Number of middle and upper income household
projected to increase from 71 million (2020) to 156
million (2030).
• This will increase consumer market from US$1,098
billion (2010) to US$4,425 (2030).
• Infrastructure network (as explained in previous slides)
• Supply chain network
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 Challenges
• Demographic trends
• ASEAN has enjoyed a period of growth of working age
population (age 15-64)> young (age 0-14) + elder (age
65 and over).
• This has already passed for some (Singapore, Thailand
and Vietnam) and will soon be over for others. medical
birth rate
• This is expected to slow down economic growth.
Country Change in growth rate of Country Change in growth rate of working
working age population (2010- age population (2010-2025)
2025)
Brunei Myanmar 1.3% to 0.5%

Cambodia Philippines 2.2% to 1.6%

Indonesia 1.3% to 1.0% Singapore 2.7% to -0.2%

Laos Thailand 0.5% to -0.7%

Malaysia 2.4% to 0.9% Vietnam 1.8% to .4%

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 Challenges
• Domestic disparity
• Disparity ASEAN is expected to decline.
• JICA estimates that GDP disparity between
Myanmar and Singapore to decline from 63.1 times
(2012) to 36.3 times (2025)
• However, disparity within a country in some cases will
remain large and could result is social instability.
like indonesia high population

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 Challenges
• Business competitiveness
• Some ASEAN countries lags behind in global
competitiveness.
• Some experiencing high increase in wages (Indonesia,
Vietnam and Cambodia) while labour productivity is
stagnant and low
• These high wages and low productivity could impact
foreign investment (cheap labour is the main attraction).

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 Total Factor Productivity

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 Business Competitiveness

rigth itself,
how long it gonna take,
investors may nit intrest due to
productivity.

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 Challenges
• Urbanisation, disaster risks, and changes in consumption
patterns
• ASEAN was expected to experience 30 percent growth
in urban population between 2010-2025.
• Hence efforts are needed for urban planning,
improvement in infrastructure, transportation and
water and sanitation system.
• ASEAN is vulnerable to natural disasters (typhoons,
earthquakes, tsunami and forest fires).
• Increase in population and urbanization is expected to
impact consumption patterns such as energy and food
its global rpob, where there is missgap with estimation.
consumption.

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 Urbanisation

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 Future Planning
Improvement in competitiveness

ASEAN rely heavily on FDI. Should continue measures to

attract FDI and to avoid outflow of foreign investment

ASEAN has to improve its competitiveness on all points,

which include good governance, business practices,
infrastructure development, human resource development,
promotion of innovation and R&D, financial stability, support
for SME and entrepreneurs, and ASEAN integration.

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 Future Planning
Improvement in competitiveness
• Good governance
• important for creating market confidence among foreign
companies and governments
• governance by rule of law; elimination of corruption,
human rights violations, and human trafficking; control
of crimes, terrorism, and drugs; consistency in
regulation; and protection of intellectual property rights
(Ohba, 2015).

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 Future Planning
Improvement in competitiveness
• Business practices
• Ease of Doing Business
• Transaction costs and detention time at ports
• Relaxation and reduction of business regulations

• Infrastructure development
• Decline observed since 1997 AFC
• In some cases, structural primary deficits and large
public debt are responsible for this decline
• PPP scheme is gradually introduce to fill the gap.
• Lach Huyen Port in Vietnam

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 Investment
total investment in the country

GFCF included foreign direct investment

growth --> productivity

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 Future Planning
Improvement in competitiveness
• Human resource development
• The gross enrollment rate in secondary education in ASEAN
is relatively high at 74.2 per cent in 2013, but its ratio in
tertiary education is low at 30.8 per cent as compared to
73.9 percent in high-income economies. (UN ESCAP, 2016).
• Education in science and technology has to be improved.
• High performer: Singapore; Malaysia
• Role of ASEAN University Network (AUN)
• Training for skilled laborers [improvement of quality and
quantity in vocational training centers is needed.]
• Human resources development has to be linked with the
expansion of job opportunities.

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 Future Planning
Improvement in competitiveness

• Promotion of innovation and R&D

• Budgetary allocation for R&D has to be increased
• Singapore: 2.0%; Malaysia: 1.3% on R&D as compared
to an average of 2.3% in high-income countries and
3.34% in Japan (2012 estimates).

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 Future Planning
Improvement in competitiveness
• Financial stability (measures)
1. Since 1997 AFC, measure have been taken to develop
and expand financial markets:
• capital market - under the ASEAN Capital Market
Forum (ACMF)
• bond market - established and encouraged by the
ASEAN Bond Market Initiative (ABMI) under the
ASEAN+3 (Japan, China, and Korea) framework
(Nukaya, 2015; The ASEAN Secretariat, 2015e).
• The banking sector has been strengthened by the
ASEAN Banking Integration Framework (ABIF).

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 Future Planning
Improvement in competitiveness
• Financial stability
2. liquidity support mechanism:
• The Chiang Mai Initiative Multilateralization (CMIM) - An
effective tool within the ASEAN+3 framework for
maintaining liquidity by making up the shortage of foreign
currency.
• The ASEAN+3 Macroeconomic Research Office (AMRO) was
established in order to monitor and assess the regional
macroeconomic and financial situation.
• Further Measures Needed
• capacity building for supervision and risk management an
increase in market transparency,
• the enhancement of financial markets in terms of quality
and quantity, and
• the promotion of regional financial integration and
cooperation.
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 Future Planning: Improvement in competitiveness

• Support for SME and entrepreneurs

• Small and medium enterprises (SMEs) make up more
than 90 per cent of all enterprises and generate over half
the employment in the region
• Assistance to SMEs is needed to
• enhance competitiveness, absorbing the increasing
labor potential, and reducing unemployment.
• Assistance to entrepreneurs is needed to
• fill labor supply/demand gaps and reduce the brain
drain of promising youth.
• encouraging entrepreneurs through funding and
subsidies, as well as easing relevant regulations for
start-up businesses.

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 Future Planning
Improvement in competitiveness

• Facilitation of ASEAN integration

Will be discussed in detail separately

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 Future Planning: Managing Risks
• Demand management
• To cope with the expansion of population and the
increase in economic standards, food production has to
expand
• Improvement in agricultural productivity
• Food safety and security
• Increase in energy supply to meet higher future
demand
• control of energy demand is also important in maintaining
social sustainability
• Development of alternative energy sources (renewable
energy) and save-energy technology and awareness of a need
for a reduction in energy consumption
• revision of subsidy and price management could be a good
incentive to reducing energy consumption
• Infrastructure development also contributes to reducing
unnecessary energy consumption.
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 Future Planning: Managing Risks
• Mitigation of domestic disparity
• To mitigate the acute concentration of people in large cities
and to slow down rapid urbanization, the activation of rural
society by supporting rural residence and creating new
business opportunities in rural areas is important.
• The introduction of a microcredit mechanism with a
guarantee system would encourage rural residents
(Cambodia, Laos and Myanmar)

• Preparation for aging/aged society

• Disaster preparedness
• COVID-19 experience
asean is better compared to other countries

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 References
• Kobayashi, Kiyoshi, Khairuddin Abdul Rashid, Masahiko
Furuichi and William P. Anderson (2018). Economic
Integration and Regional Development: The ASEAN
Economic Community, edited by Kobayashi, et al.
Routledge Studies in the Modern World Economy,
Routledge (Chapter 2)
• Ariff, M. and Ahmed. M. Khalid (2005). Liberalization
and Growth in Asia: 21st Century Challenges, Edward
Elgar Publishing Company, U.K. 399 p. (Chapter 1)

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