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ADBI‐OECD Roundtable on Asia’s Policy Framework for
Investing in a Stronger, Cleaner, and Fairer Asian Economy
(Tokyo, Japan on April 6‐8, 2010)
A Number of Reasons
Why We Need to Invest Further in Asia
Fukunari Kimura
Professor, Faculty of Economics, Keio University and Chief Economist, Economic Research Institute for ASEAN and East Asia (ERIA)
The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. 2010.04.06‐08
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1. Why do we need to invest further
in Asia?
• Asia as a major economic growth center in the world.
• High domestic savings/investments together with aggressive acceptance of foreign direct investment have been the key.
• Providing a large degree of freedom for multinationals has opened a new paradigm of economic development.
• How to pursue deeper economic integration and narrowing development gaps? Investment!
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2. The macro level
• China
– Large investment with large current account surplus
– Investment efficiency to be pursued
• ASEAN and India
– Current account: balanced or slight surplus
– Investment enhancement makes sense to sustain/accelerate growth
• Common elements
– More circulation of own financial resources within Asia is needed (Shirai (2009))
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Incremental capital‐output ratios (ICORs) in ASEAN member countries
Calculate from national accounts real‐price series using the cumulative method.
Brunei: 2001‐2007; Cambodia: 1994‐2006; Indonesia: 1994‐; Vietnam: ‐2007.
Data source: Statistical Agencies in each country.
2009.03.17.
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3. The semi‐macro/industry level
•
International production networks as an engine of growth
– Fragmentation of production and industrial agglomeration (Kimura and Ando (2005), Ando and Kimura (2009a))
– Possibly retaining employment in investing countries (Ando and Kimura (2009b))
– Resiliency in crisis (Obashi (2009), ERIA (forthcoming))
– Pursuing both deepening economic integration and narrowing development gaps
•
Three tiers of development strategies (ERIA (forthcoming))
– Tier 1: make industrial agglomeration innovative in order to step up from middle income to fully developed countries/regions
– Tier 2: participate in production networks by reducing service link costs
– Tier 3: use logistics infrastructure as a trigger for new perspectives of industrial development
•
Logistics/economic infrastructure as bottlenecks
– Efficient usage of public investment and public‐private partnership (PPP)
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The fragmentation theory: Production blocks and service links
Before fragmentation
Large integrated factory
After fragmentation
PB
SL
SL
PB
SL
PB
PB
SL
SL
PB
PB: production blocks
SL: service links
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Production networks: The US-Mexico nexus versus East Asia
Japan
The United States
Consumers
Consumers
Korea
The United States
Mexico
Taiwan
Consumers
Vietnam
The Philippines
Headquarters or affliates
Unrelated firms with same firm nationality
Malaysia
Internet
auction
Unrelated firms with different firm nationality
Agglomeration
Agglomeration
Source: Ando, Mitsuyo and Fukunari Kimura (2009). Fragmentation in East Asia: Further Evidence, ERIA Discussion paper
Series No.2009-20 (http://www.eria.org).
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Two-dimensional fragmentation: An illustration
Disintegration
Internet
auction
Competitive
spot bidding
Domestic arm's length
fragmentation
EMS
Cross-border arm’s length
fragmentation
OEM contracts
Subcontracting
Outsourcing
(Boundary of firm)
Domestic intra-firm
fragmentation
Origin
Cross-border intra-firm
fragmentation
(National border)
Distance
Source: Kimura, Fukunari and Mitsuyo Ando (2005). “Two-dimensional Fragmentation in East Asia: Conceptual Framework
and Empirics”, International Review of Economics and Finance 14, pp.317-348.
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Machinery goods and parts & components:
Shares in total exports and imports in 2005 (%)
Data Source: Authors’ calculation, based on UN COMTRADE.
Source: Ando, Mitsuyo and Fukunari Kimura (2009). Fragmentation in East Asia: Further Evidence, ERIA Discussion paper
Series No.2009-20 (http://www.eria.org).
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Comparative advantage in manufacturing sector (2005)
Source: ERIA / IDE-JETRO GSM Team.
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Nominal GRDP per-capita (2005)
Source: ERIA / IDE-JETRO GSM Team.
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Figure 4 Population by income groups: China
(US dollars; 2005 PPP adjusted; annual total income of a family with four members)
> $12,000
$6,000 –
12,000
$3,000 –
6,000
$1,800 –
3,000
< $1,800
Total population: 1,204,850,000
Total population: 1,304,500,000
62.82 million (5%)
> $12,000
290.90 million (22%)
$6,000 –
12,000
451.08 million (35%)
$3,000 –
6,000
248.46 million (21%)
Middle class
235.76 million (20%)
651.54 million (54%)
256.68 million (20%)
Below
poverty line
2009.12.04
98.16 million (8%)
1995
207.68 million (16%)
2005
$1,800 –
3,000
< $1,800
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Figure 5 Population by income groups: ASEAN (excl. Singapore, Brunei, and Myanmar)
(US dollars; 2005 PPP adjusted; annual total income of a family with four members)
Total population: 429,140,000
> $12,000
22.24 million (5%)
$6,000 –
12,000
43.25 million (10%)
$3,000 –
6,000
96.80 million (23%)
$1,800 –
3,000
< $1,800
2009.12.04
Total population: 501,110,000
35.15 million (7%)
> $12,000
79.97 million (16%)
$6,000 –
12,000
Middle class
167.83 million (34%)
$3,000 –
6,000
124.47 million (25%)
$1,800 –
3,000
113.32 million (26%)
153.53 million (36%)
1994‐1996
Below
Poverty line
93.68 million (19%)
2004‐2006
< $1,800
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Figure 6 Population by income groups: India
(US dollars; 2005 PPP adjusted; annual total income of a family with four members)
> $12,000
Total population: 888,320,000
Total population: 1,079,700,000 > $12,000
$6,000 –
21.93 nillion (2%)
$6,000 –
41.10 million (4%)
12,000
12,000
$3,000 –
143.94 million (16%)
Middle class
6,000
220.30 million (20%)
$3,000 –
6,000
$1,800 –
3,000
284.82 million (32%)
358.68 million (33%)
< $1,800
2009.12.04
444.28 million (49%)
1993
Below
Poverty line
449.63 million (42%)
2004
$1,800 –
3,000
< $1,800
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4. The micro level
• Investment liberalization/facilitation is the key for participating in production networks.
– Cf. Latin America, Africa, …
– Still room for improvement (Urata and Ando (2009))
• Establish links between multinationals and local firms/entrepreneurs/engineers
– Technology “transfer” in industrial agglomerations (Machikita and Ueki (2010a, 2010b))
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5. Conclusion
• Asia is presenting a new development strategy in which active foreign direct investment is aggressively utilized in an open setting.
• Logistics/economic infrastructure development is essential to clearing bottlenecks of further economic development.
• Asia will pursue both deepening economic integration (in an open setting) and narrowing development gaps (by utilizing private incentives).
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References
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Ando, Mitsuyo and Fukunari Kimura (2009a). Fragmentation in East Asia: Further Evidence, ERIA Discussion paper Series No.2009‐20 (http://www.eria.org). Ando, Mitsuyo and Fukunari Kimura (2009b) “International Production/Distribution Networks in East Asia and Domestic Operations: Evidences from Japanese Firms.” In November 2009 (with Mitsuyo Ando). Forthcoming in Robert M. Stern, ed., Quantitative Analysis of Newly Evolving Patterns of International Trade: Fragmentation; Offshoring of Activities; and Vertical Intra‐Industry Trade, World Scientific Studies in International Economics. The former version was in RIETI Discussion Paper Series 07‐E‐063 (http://www.rieti.go.jp/jp/publications/act_dp.html).
ERIA. (forthcoming) Comprehensive Asia Development Plan. Will be posted at http://www.eria.org.
Kimura, Fukunari and Mitsuyo Ando (2005). “Two‐dimensional Fragmentation in East Asia: Conceptual Framework and Empirics”, International Review of Economics and Finance 14, pp.317‐
348.
Machikita, Tomohiro and Ueki, Yasushi. (2010a) “Innovation in Linked and Non‐linked Firms: Effects of Variety of Linkages in East Asia.” ERIA Discussion Paper No. 2010‐03 (http://www.eria.org).
Machikita, Tomohiro and Ueki, Yasushi. (2010b) “The Impacts of Face‐to‐face and Frequent Interactions on Innovation: Upstream‐downstream Relations.” ERIA Discussion Paper No. 2010‐04 (http://www.eria.org).
Obashi, Ayako. (2009) “Resiliency of Production Networks in Asia: Evidence from the Asian Crisis.”
ERIA Discussion Paper No. 2009‐21 (http://www.eria.org).
Shirai, Sayuri. (2009) “The Impact of the US Subprime Mortgage Crisis in the World and East Asia: Analyses of Cross‐border Capital Movements.” ERIA Discussion Paper No. 2009‐10 (http://www.eria.org).
Urata, Shujiro and Ando, Matsuyo. (2009) “Investment Climate Study on ASEAN Member Countries.” In Corbett, Jenny and Umezaki, So, eds., ERIA Research Project Report 2008 No. 1 Deepening East Asian Economic Integration, ERIA. Posted at http://www.eria.org.
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