The ASEAN Economic Community: Potential Benefits for Myanmar

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Michael G. Plummer,
Eni Professor of International Economics,
The Johns Hopkins University, SAIS-Bologna, and
Senior Fellow, East-West Center

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The ASEAN Economic Community: Potential Benefits for Myanmar

  1. 1. The ASEAN Economic Community: Potential Benefits for Myanmar Michael G. Plummer, Eni Professor of International Economics, The Johns Hopkins University, SAIS-Bologna, and Senior Fellow, East-West Center
  2. 2. Main Conclusions • With the new international economic environment, including regional economic integration initiatives, the prospects for Myanmar’s integration with the global economy have never been better. • ASEAN has already contributed to the economic reform program in Myanmar—directly, via AFTA and indirectly via example—but the ASEAN Economic Community (AEC) program is more ambitious than any previous initiatives, particularly with respect to behind-the-border measures. • We estimate that the AEC should lead to a 5.3 percent increase in regional welfare due to elimination of NTBs, lower trade costs, and anticipated increases in FDI. Myanmar is one of the greatest beneficiaries, with welfare expected to rise by 4.4 percent and exports by 66%. • Additional likely benefits (e.g., free movements of skilled labor, standardization and harmonization, best practices, and greater macro stability) will significantly increase the potential gains. • All stakeholders will gain, but adjustment costs need to be anticipated and addressed
  3. 3. Myanmar in the ASEAN Context • Myanmar has been part of ASEAN and its intraregional accords since 1997. • It has emerged as a key, outward-oriented Member State that has, particularly over the past year, embarked on wide-spread economic reforms consistent with the development stategies of its peers. • Given its size, location (e.g., as a link between South and Southeast Asia), and potential, it will be an increasingly important player in ASEAN. • However, many challenges remain:
  4. 4. Myanmar: GDP Growth has been strong, but from a relatively low base (source: ADB) % 20 15 10 5 0 -5 -10 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 1950 -15
  5. 5. Economic Indicators, Selected ASEAN, 2011 (ASEAN Secretariat, UNCTAD) IDN Malay Philip Thai Cambo Laos Myanm VN 237.7 29.0 95.8 67.6 14.5 6.4 60.4 87.8 1860.4 330.3 300.0 513.1 181.0 236.8 676.6 331.1 846.8 287.9 224.3 345.8 12.8 8.2 52.8 123.3 GDP per capita US$ 3563 9941 2341 5116 879 1279 875 1403 GDP per capita, ppp-adjusted 4736 15955 4289 8907 2287 2825 1393 3440 Merchandise trade, US$billion 380.9 415.7 111.8 458.9 12.8 4.0 14.9 199.6 45.0 144.4 49.8 132.7 100.0 48.8 28.2 161.9 173.1 114.6 27.6 139.7 6.9 2.5 9.1 72.8 20.5 41.1 12.3 40.4 53.4 32.2 16..9 60.3 Population, million Land area, thousand sq km GDP, US$billion Trade/GDP ratio (%) Inward FDI stock, US$billion Inward FDI stock/GDP ratio (%)
  6. 6. In particular, gross domestic investment has been relatively low albeit rising in recent years (source: ADB) % 50 45 40 35 30 25 20 15 10 5 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cambodia Indonesia Malaysia Myanmar Philippines Singapore Thailand Viet Nam
  7. 7. Opportunities and Challenges of Reform • The external environment in which Myanmar will be able to pursue its outward-oriented development strategy has never been better. • However, extensive economic reforms are necessary in order for Myanmar to achieve its true potential. • We argue that the AEC and other ASEAN-related initiatives present an excellent framework within which the government can craft these reforms.
  8. 8. Background: ASEAN Economic Integration • I am certain that other speakers will be addressing the status quo of ASEAN integration, so let me confine myself to a few contextual points. • Prior to the ASEAN Free-trade Area (AFTA), formal economic cooperation was minimal, with politics being far more important. • In the 1990s, biggest moves forward were in terms of Enlargement, rather than deep cooperation. • ASEAN is a group of outward-oriented developing countries with no real political reason to use preferential trading arrangements to boost intra-regional trade and investment. • The push for a unified market was spurred by a number of factors after the Asian Crisis:
  9. 9. These included: a.The Asian Crisis itself b.Regionalism in key markets (“defensive” regionalism”) c.Emergence of China (and, to some degree, India) as key competitor d.Rising import of FDI and production networks e.Disappointment with progress at WTO f.Other potential benefits of integration (e.g.,
  10. 10. “Open regionalism”, however, continues to be extremely important:
  11. 11. FDI is also an essential component of success, but performances vary and Myanmar in particular has faced challenges (though looking up 2012+!) Brunei 1995 582.76 2000 549.16 (US$ million) 2005 289.00 Cambodia 150.70 148.50 381.00 815.18 539.11 782.57 Indonesia Lao PDR Malaysia Myanmar 4,346.00 88.40 5,815.00 317.60 -4,549.98 34.00 3,787.63 208.00 8,336.00 28.00 3,965.00 236.00 9,318.12 227.76 7,248.39 975.56 4,876.77 318.62 1,381.00 963.30 13,304.31 332.59 9,155.88 450.20 Philippines 1,577.00 1,345.00 1,854.00 1,544.00 1,963.01 1,713.00 Singapore Thailand Vietnam 11,502.67 2,070.04 1,780.40 17,217.80 3,350.25 1,289.00 13,929.00 8,048.00 2,021.00 8,588.90 8,539.47 9,579.00 15,279.00 4,975.57 7,600.00 35,520.20 6,319.71 8,000.00 ASEAN TOTAL 28,230.57 23,379.36 39,087.00 47,075.58 38,266.04 76,207.95 40,715.00 72,406.00 108,312.00 95,000.00 105,735.00 2008 239.20 2009 369.66 2010 629.49 Other Asia China 37,521.00
  12. 12. The AEC and Its Potential Benefits • The AEC will improve the propects for sustainable growth and development in ASEAN and Myanmar by: – Reducing costly border barriers, such as remaining tariff and non-tariff barriers – Harmonizing and improving rules and regulations, trade facilitation (including customs), and other behind-the-border areas – Liberalizing services, particularly key for production networks – Liberalizing and facilitating FDI via ACIA – Benefits of free flow of skilled labor – Contribute to development of financial markets, cross-border issuances of securities, etc. • In a recent ASEAN Secretariat study (ISEAS Nov. 2009), we quantified these potential economic benefits (and costs):
  13. 13. • I. Summary CGE Model • We used the GEMAT CGE model based on the most up-to-date data (GTAP Version 7, Nov. 2008). • Model includes modern features—including heterogeneous firms—but, of course, has the usual limitations of CGE modeling. • We include tariffs, tariff-equivalent NTBs, services, and changes in FDI (that we estimate separately). • We include four main scenarios: – Completion of AFTA by removing all remaining tariffs – AEC Scenario (AFTA, NTBs, trade cost reduction of 5%, FDI) – ASEAN ―hub and spoke‖ scenarios (ASEAN as hub of an ASEAN+6 agreement; ASEAN as hub of an FTA with EU and US)
  14. 14. Results
  15. 15. Results Summary: Aggregate • 5.3 percent increase in national income above baseline (very large for such a model: EU Single market much less, for example). • All Member States gain. • Gains in welfare to Myanmar come to 4.4% of GDP. • In large part, this is because Myanmar has higher initial tariff and non-tariff barriers. • Myanmar exports rise by 2/3 relative to baseline, more than any ASEAN-6 economy. • Extending the AEC to include regional and US/EU partners leads to doubling of gains for ASEAN overall and more than that for Myanmar (9.3%). • This testifies to the logic of keeping the region open, something that is emphasized in the AEC Blueprint.
  16. 16. Additional effects not included in Model • • • • Trade-productivity spillovers excluded MRAs, other standardization excluded Trade costs drop (5% ) conservative; could be much larger Best practices: the project estimates that the competition-policy related factors alone could raise raise per capita GDP by 28-38 percent over 10 years (using EBA approach). • Excluded reduction in cost of capital due to enhanced financial development and cross issuances • Greater efficiency in services should have significant spillovers into other areas (FDI, production networks, trade facilitation) • Effects of free movement of skilled labor difficult to estimate but no doubt significant
  17. 17. Additional considerations 1. AEC should stimulate attraction of production network chains *This should enhance SME development and be particularly advantageous to least-development economies like Myanmar (and consistent with AEC’s ―equitable econ region‖ goal). 2. ASEAN One Voice, or «ASEAN Centrality», could hold significant benefits. 3. Important to stress that ASEAN Members States need to mitigate effects of structural adjustment on the most vulnerable. 5. CLMV countries will in many ways be affected the most and will need help during implementation, including training and other forms of capacity building, infrastructure, other IAI.
  18. 18. Thank You!

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