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  • Author: Kaliappa Kalirajan, Huong Thi Thu Tran, Yochang Liu
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This study aims to analyse the possibility and challenges of encouraging private sector investment in low-carbon energy systems in Asia, particularly across the Regional Comprehensive Economic Partnership (RCEP) member countries, and to suggest an effective policy framework that governments could apply to improve the development and dissemination of low-carbon energy goods and technologies. The research questions examined in this study are: What type of policy measures affect trade in low-carbon energy systems transition, particularly the renewable energy transition? How can investment signals and incentives be reframed to scale up private finance in renewable energy through regional cooperation? The objective is to investigate and provide several market-based feasible trade policy and investment policy tools for both national and regional markets that governments could adopt to accelerate the speed of private financing of the low-carbon energy industry, particularly the renewable energy industry.
  • Topic: Energy Policy, Markets, Trade, Renewable Energy
  • Political Geography: South Asia, East Asia, Asia, Southeast Asia
  • Author: Vo Tri Tranh
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This paper examines the policies for industrial cluster development in Viet Nam. The first export processing zone was established in 1991. Since 1994, Viet Nam has focused more on developing domestic productive capacity and thus various types of industrial estates were established. The key actors in industrial cluster policy are the government, Prime Minister, ministries, provincial people’s committees, and management boards of industrial and economic zones. The choice of industrial estate is often determined by factors such as geographic location, land, labour, infrastructure, industry, business environment, and incentives. Viet Nam has provided various incentives to industrial estates of various types, but the scope and extent of preferential policy support for firms in general and those operating in industrial and economic zones are rather modest. The industrial estates have contributed significantly to attracting foreign direct investment, to exports, to productivity improvement, etc. Looking forward, Viet Nam needs further efforts on industrial cluster development, including development of statistics, analysis of cluster policy impacts, and provision of FTA-consistent incentives.
  • Topic: Development, Industrial Policy, Governance, Leadership, Management
  • Political Geography: Asia, Vietnam
  • Author: Peter Petri, Meenal Banga
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: The unprecedented rise in global interdependence since World War II, especially since the 1970s, has been very productive. World gross domestic product (GDP) growth increased from around 2% per year in the 1970s to 4% per year before the global financial crisis. Globalisation helped to lift a billion people from extreme poverty and improved the lives of billions more. The United States also gained an estimated 11%–19% of its annual GDP. Yet many Americans are concerned about the fairness of these gains. We review evidence of increasing wage inequality and stubborn unemployment effects, even though, on balance, technological change has had a much greater impact on these outcomes than globalisation. Barriers against globalisation do not offer solutions to inequality – they reduce the size of the economic pie without necessarily improving its distribution. Policies should focus on redistributing gains from growth, increasing the productivity of all workers, and helping affected communities adapt socially and economically to rapid change.
  • Topic: Globalization, Financial Crisis, Inequality, Economic growth
  • Political Geography: United States, North America
  • Author: Takashi Hongo, Venkatachalam Anbumozhi
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: The construction of green infrastructure, using advanced technology and retiring inefficient technology, is essential for the low-carbon transition. Various green infrastructure programs are being implemented, and banks play an important role in facilitating these programs. Many lessons have been learned in improving finance for green infrastructure: (i) measurement, reporting, and verification is a useful tool for identifying green infrastructure investment; but just reduction is not enough for Green Infrastructure and three requirements – carbon dioxide emission reductions, improving energy access, and contributions to sustainable economic growth – connected with the Sustainable Development Goals are necessary; (ii) banks can contribute to realising a positive cycle of cost reduction and diffusion of advanced technology for reducing costs by scaling up markets; and (iii) carbon pricing is essential for removing carbon externalities and making green infrastructure commercially viable. Banks are recommended to have long-term strategies, improve their capacity for scenario analysis, have more dialogue with industry, and develop innovative finance such as carbon markets. Governments are recommended to adopt carbon pricing to encourage finance for green infrastructure.
  • Topic: Climate Change, Energy Policy, Environment, Infrastructure, Green Technology, Renewable Energy, Banking
  • Political Geography: Global Focus
  • Author: Venkatachalam Anbumozhi
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: Under the Paris Agreement in 2015, the opportunities for the ASEAN Member States (AMS) to maximise low-carbon energy sources to achieve the Nationally Determined Contributions (NDC) target in reducing carbon emission levels have expanded. In order to move towards a low-carbon energy transition, private sector actors must work together with governments to implement strategies to invest in the low-carbon economy. However, major barriers such as insufficient enabling policy environment, availability of technologies and access to funding somehow impede the implementation. It is believed that unlocking the potentials of private sector would accelerate the transition of low-carbon energy. This paper, based on a market survey, which aimed to identify barriers and risks that private sectors face in accelerating the low-carbon investments. The survey respondents are divided into two categories, Lenders and Borrowers. Analysing 110 total respondents helped to identify the perceived and actual barriers as well as risks underlying to the access to financing and generated potential solution for policymakers to overcome these barriers. The survey results indicate that the main obstacles faced by private sectors are incoherent policies that created a high-risk environment for investment, a lack of access to de-risking mechanisms, and insufficient capacity to communicate the opportunities amongst financial institutions and project developers. To bare these risks, this paper suggests four interdependent solutions – establishment of a low-carbon transition fund, government warranty programme, broadening of de-risking mechanisms, and capacity building programme to accelerate the low-carbon energy transition across ASEAN.
  • Topic: Energy Policy, Finance, Renewable Energy, Private Sector
  • Political Geography: Asia, Southeast Asia
  • Author: Chin Hee Hahn, Ju Hyun Pyun
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This study examines the effects of domestic output import tariff reduction on domestic plant export dynamics and clarifies the underlying mechanism, using rich plant–product data from the Republic of Korea for 1991–2002. We find that home import liberalisation increases domestic plants’ export market participation (extensive margins), particularly for industry where markup growth is more negative during tariff reductions. However, we do not find evidence that cutting import tariffs significantly affects incumbent home exporters’ export volume (intensive margins). This study unveils a new mechanism – ‘escape competition’ to foreign markets – by showing that reducing import tariffs leads domestic firms under heightened industry competition to look for an opportunity in foreign markets via export inauguration.
  • Topic: Markets, Tariffs, Imports
  • Political Geography: Asia, South Korea
  • Author: Juthatip Jongwanich, Archanun Kohpaiboon
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This paper examines the role of industrial policy on firms’ productivity, using 3 years of panel data on Thai manufacturing as a case study. A range of industrial policy tools is defined – tariff measures, subsidies, and investment incentives through the Board of Investment (BOI) – which are the main tools used in Thailand. The effect on firm productivity of partial trade liberalisation undertaken through free trade agreements (FTAs) signed between Thailand and its trading partners is also examined. The key finding is that trade openness and research and development (R&D) are more crucial in fostering firms’ productivity than industrial policies. This is especially true for the narrow definition of industrial policy focusing on trade policy protection, measured by the effective rate of protection. In addition, the FTA-led trade liberalisation effect fails to add substantial competitive pressure and make firms improve productivity. Our results show that sectors benefiting from subsidies show noticeably lower productivity than others. Our study found weak support for investment promotion policy through the BOI, even when the domestic competitive environment is considered in our analysis.
  • Topic: Industrial Policy, Manufacturing, Productivity
  • Political Geography: Asia, Thailand
  • Author: Samuel Nursamsu, Dionisius Narjoko, Titik Anas
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: Can firms reallocate their imported inputs to domestic sources when faced with import tariffs? To answer this question, we analyse the input allocation behaviour of Indonesian medium and large-sized manufacturing firms in responding to the movement of import tariffs from 2000 to 2013 by utilising plant-level input data of Indonesian manufacturing. We find that an increase in tariffs only creates a weak substitution effect. Our findings indicate that firms reallocate their inputs towards domestic sources, although this is accompanied by a decrease in the firms’ value added. This implies that domestic inputs are worse substitutes for imported inputs and that firms’ capacity to switch over to domestic products is limited, suggesting that firms will immediately switch back to importing when the tariff is removed. We find no evidence that firms make any adjustment towards more domestic-oriented input composition over time; and heterogeneity exists within the result, as industries with a strong basis in the domestic market are more capable of adjusting.
  • Topic: Industrial Policy, International Trade and Finance, Tariffs, Manufacturing
  • Political Geography: Indonesia, Asia
  • Author: Toshiyuki Matsuura, Hisamitsu Saito
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This study examines the impact of inward foreign direct investment on the wages and employment of skilled and unskilled workers in Indonesian manufacturing plants. Entry of multinational enterprises affects local labour markets through spillovers as well as labour and product market competition. Our results show that spillovers increase the labour demand of local plants for unskilled workers, but increased wages due to severe labour market competition reduce the demand for skilled workers. We also find that product market competition causes resource reallocation from low- to high-productivity plants. Thus, attracting inward foreign direct investment effectively enhances aggregate productivity growth, but may retard the transition to skill-intensive production in Indonesian manufacturing.
  • Topic: Development, Foreign Direct Investment, Manufacturing, Labor Market
  • Political Geography: Indonesia, Asia
  • Author: Chin Hee Hahn, Yong-Seok Choi
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This paper aims to investigate whether empirical evidence supports the learning-to-export hypothesis, which has received little attention in the previous literature. By taking full advantage of plant–product level data from the Republic of Korea during 1990–1998, we find some evidence for the learning-to-export effect, especially for innovated product varieties with delayed exporters: their productivity, together with research and development and investment activity, was superior to their matched sample. On the other hand, this learning-to-export effect was not significantly pronounced for the industries protected by import tariffs. Thus, our empirical findings suggest that it would be desirable to implement some policy tools to promote the learning-to-export effect, while tariff protection cannot be justifiable for that purpose.
  • Topic: Industrial Policy, International Trade and Finance, Tariffs, Manufacturing, Productivity
  • Political Geography: Asia, South Korea
  • Author: Lurong Chen
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: Global cross-border e-commerce has become increasingly important in the international economy. The next Asian miracle of growth could be born out of the region's digital transformation. Digital connectivity is the cornerstone that will make change feasible and smoothen the transformation. Digital connectivity consists of not only physical connectivity that facilitates the movement of raw materials, intermediate goods, and goods, but also cyber connectivity to support free flows of data, information, and services. This paper proposes a policy framework of promoting digital connectivity to support the development of e-commerce. Policy efforts to improve data connectivity, logistics, and online payment can help the Association of Southeast Asian Nations narrow the development gaps in information and communications technology infrastructure, both cross-border and within countries. Improving institutional connectivity and service development play a significant role. Digital connectivity is essential for the digital-friendly ecosystem that will facilitate digital transformation, which will affect not only e-commerce but also countries’ overall economic performance.
  • Topic: International Trade and Finance, Science and Technology, Digital Economy, Connectivity
  • Political Geography: ASEAN
  • Author: Fukunari Kimura
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: In this paper, we explore the possible policy responses to the pandemic shock as well as the related economic (financial crisis) shocks on trade and global value chains (GVCs) in East Asia. We find that regional policy coordination is critical to mitigate and isolate the pandemic shock. It is important to identify the pandemic events early to flatten the pandemic curve at the national and regional level. This supports a recent study by the World Bank (2020) which highlights the importance of early mitigation policies during the pandemic shock. The cost of the pandemic and economic shocks increases significantly when several countries in the region experience the systemic pandemic shock concurrently. In this case, flattening the regional pandemic curve becomes important. The results also indicate the need for greater coordination in East Asia to mitigate the pending economic shock in terms of unemployment, corporate bankruptcy, and financial market fragility. The paper also highlights that the stability of the GVC network is critical during the pandemic in terms of hedging the risk of disruptions to the procurement of critical medical and health products as well as the stability of the services linkages to manufacturing, such as the logistics sector. Regional policy coordination and the stability of GVCs are valuable in the post-pandemic recovery of the region.
  • Topic: World Bank, Pandemic, Global Value Chains, COVID-19
  • Political Geography: East Asia, Asia
  • Author: Kazunobu Hayakawa, Tadashi Ito, Shujiro Urata
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: The impacts of imports on the domestic labour market have been hotly debated recently. The purpose of this paper is to empirically examine the effects of not only imports from China but also those under regional trade agreements (RTAs) on employment in Japan. As in previous studies in the literature, we found that the rise in import penetration from China significantly decreases employment in Japan. However, import penetration under RTA regimes is found to have insignificant effects on employment. The finding suggests that the increase in imports under RTA regimes might not be harmful to the domestic labour market. In addition, we did not find significant effects of import penetration via input–output linkages. This insignificant result may be because imports by Japanese manufacturing firms are mostly conducted in the form of intra-firm trade, enabling them to avoid negative impacts on employment.
  • Topic: International Trade and Finance, Regional Cooperation, Labor Issues, Employment, Manufacturing
  • Political Geography: Japan, China, Asia
  • Author: Đoàn Thi Thanh Ha, Hông Quỳnh Nguyen
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: It is well-documented that agglomeration contributes to productivity growth. However, concentrations of workers could also lead to increasing regional income disparities. Therefore, understanding the evolution of agglomeration is relevant for the formulation of industrial policy and inclusive growth. This study documents the extent, pattern, and determinants of agglomeration in Vietnamese manufacturing during 2002–2016, a period when substantial economic reform took place. Our major findings are three-fold. First, agglomeration, as measured by the Ellison–Glaeser index, has declined since the mid-2000s. Second, there exists significant sectoral heterogeneity in the level and trend of agglomeration. Third, we do not find a significant impact of trade and foreign direct investment on agglomeration per se. However, foreign direct investment in port districts does contribute to disagglomeration.
  • Topic: International Trade and Finance, Reform, Manufacturing, Productivity
  • Political Geography: Asia, Vietnam
  • Author: Upalat Korwatanasakul, Youngmin Baek
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This study assesses the links between global value chain (GVC) participation and the labour market to examine the relatively unexplored employment-related distribution effects of GVC integration. Based on the Mincer wage model, we examine the relationship between GVC participation and worker productivity and wages at the individual level. Our main estimation method is a simple ordinary least squares estimation using pooled cross-sectional data from the Thai Labour Force Survey for the period 1995–2011. We also separately examine the effects of forward and backward GVC participation on wages and wage distributions. Our results show that GVC participation induces higher monthly wages for individuals and increases productivity in the labour market through either the forward linkage or backward linkage. We even find that GVC participation can help mitigate inequality. Our findings show that GVC participation promotes inclusive job creation and provides more job opportunities for rural, female, and low-skilled workers. Policies to support leveraging the existing strong industries through upgrading, smoothing labour movements while improving agricultural productivity, and preparing to move towards a services economy can help prepare Thailand, and other developing countries in general, to upgrade to higher value chains. Although GVC participation may be a catalyst for higher wages, greater labour productivity, and more inclusive job creation, its employment effects are complicated. An unbalanced policy framework might contribute to uneven income distributions and exclusive job creation as participating in GVCs through different linkages can benefit different stakeholders in varying ways. Therefore, a policy framework that balances the benefits among stakeholders in terms of wage distributions and job inclusion is ideal.
  • Topic: Labor Issues, Work Culture, Global Value Chains, Labor Market
  • Political Geography: Asia, Thailand
  • Author: Ayako Obashi, Fukunari Kimura
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: We conducted a standard gravity exercise using worldwide disaggregated trade data to shed light on the influence of the spread of digital technologies on network trade. We found that growing investment in industrial robots in relatively lagging countries, together with imported digitally deliverable services, is enhancing bilateral network trade flows in East Asia, but not necessarily in other parts of the world. This suggests that exploring complementarities between machines and human resources in production blocks supported by better service-link connectivity may allow newly developed economies to retain and expand the international division of labour.
  • Topic: Regional Cooperation, Science and Technology, Digital Economy, Productivity
  • Political Geography: East Asia, Asia
  • Author: Nguyen Quynh Huong
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: Special economic zones (SEZs) are considered as one of important regional industrial policies to attract foreign investment in developing countries such as Viet Nam. The review of SEZs development in Viet Nam including the comprehensive review of infrastructure and business environment in SEZs are presented in this paper for the first time. Moreover, the paper gives novel non-parametric evidence to indicate the positive causal linkage between the zoning policies and the attraction of foreign investment at district-level in the country during the period 2011–2015.
  • Topic: Industrial Policy, Regional Cooperation, Foreign Direct Investment, Industry
  • Political Geography: Asia, Vietnam
  • Author: Hiroaki Ishiwata, Hiroyuki Wada, Koji Suzuki, Naoto Tada
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This paper analyses the long-term impacts of large-scale disasters on the economic growth of developing countries in the Association of Southeast Asian Nations (ASEAN) Community, by the scale of disaster risk reduction (DRR) investments. As a means of quantitatively analysing the optimal level and economic efficiency of DRR investments, a case study was conducted on Indonesia by using a dynamic stochastic macroeconomic model. The results showed that in Indonesia, although greater economic growth is expected when additional DRR investments are made, an excessive DRR investment may contrarily lead to a slowdown in economic growth: an optimal level of DRR investment exists and maintaining its level is essential for sustainable economic growth. Furthermore, it was confirmed that there is a break-even point when the amount of accumulated disaster damage mitigation benefits exceeds the amount of accumulated DRR investment. This demonstrated that the funds invested in DRR could be recovered. Additionally, the results also showed that even if no disaster damage is caused over a long period of time, DRR investments are by no means redundant as the ‘ex-ante risk reduction effect’ will be generated when the optimal level of DRR investment is made. Lastly, it was determined that providing a continuous DRR investment is important in achieving the global target set forth in the Sendai Framework for Disaster Risk Reduction. In addition, it is considered desirable to maintain a higher level of DRR investment than that which is currently being implemented.
  • Topic: Economic growth, Investment, Risk, Disaster Management
  • Political Geography: Indonesia, Asia, Indo-Pacific
  • Author: Thu Thu Vu, Duc Anh Dang
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: Advanced machines and technology replace workers through automation. However, capital–labour substitution need not reduce aggregate labour demand, as it induces simultaneous contrasting effects within industries. To explore these effects, we examine the relationship between employment in Vietnamese manufacturing firms and imported capital goods in 2011–2017. To solve the problem of potential endogeneity and measurement errors, we used Association of Southeast Asian Nations (ASEAN) imported capital goods as an instrument variable for imported capital goods in Viet Nam. We found that imported capital goods do not displace employment and even increase employment and labour productivity. The impacts of imported advanced technology are more pronounced in large firms. More imported technology increases labour productivity in state-owned enterprises and the number of workers in large firms and firms in industrial zones. However, the increase in the level of employment is lower in industries and firms intensively using machines.
  • Topic: Development, Science and Technology, Employment, Imports
  • Political Geography: Asia, Vietnam
  • Author: Đoàn Thi Thanh Ha
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Economic Research Institute for ASEAN and East Asia (ERIA)
  • Abstract: This paper examines the impacts of advanced technology on a possible change in workers’ skills, wages, and employment due to such technological advancement. Three proxies of advanced technologies are used in the study: (i) information and communications technology, (ii) intensity of robot use, and (iii) value of e-commerce. Our study compares the effects of technological advancements on labour market outcomes with import penetration, delineating into raw materials, capital goods, and final products. Our results show that in Thailand, the impact of advanced technology in pushing workers out of the job market is limited. Instead, it tends to affect reallocation of workers between skilled and unskilled positions. The results vary amongst proxies of technology and sectors. It seems that workers in comparatively capital-intensive industries, including automotive, plastics and chemicals, and electronics and machinery, are the most affected by advanced technology. Dampened wage/income is found only in some proxies of technology and sectors. Our results show less concern of negative impacts induced by imports, particularly imports of capital goods and raw materials, on employment status and income than technological advancement.
  • Topic: Science and Technology, Labor Issues, Employment, Manufacturing, Job Creation, Labor Rights
  • Political Geography: Asia, Thailand