1 Introduction
The purpose of this book is to provide a comprehensive picture of trade facilitation in landlocked Asian countries. Globally there are 32 landlocked developing countries, but we will only consider the 12 landlocked countries in Asia, namely Afghanistan, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Bhutan, the Lao Peopleās Democratic Republic (Lao PDR), Mongolia and Nepal. Since these countries have no access to the sea, issues such as trade facilitation, foreign direct investment (FDI), logistics, resource dependence and foreign aid present challenges to policymakers as they seek to achieve economic development. Moreover, there is an obvious lack of attention in literature to bottlenecks that must be eliminated by having these countries diversify their sources and destinations for regional and global trade, build and better manage transport and transit arrangements, and also share their experience and knowledge; in response to the acknowledged urgency of knowledge sharing an āInternational Think Tank for Land-Locked Developing Countriesā (ITT for LLDCs) was formed in Ulaanbaatar in July 2009 in association with a United Nations Development Program (UNDP).
Central Asian countries such as Kazakhstan, Turkmenistan and Uzbekistan suffer from bad governance, so they depend on exporting resources while being subjected to symptoms of the resource curse. Turkmenistan is among the top 15 gas producers worldwide, while Azerbaijan and Kazakhstan export oil; Mongolia is gifted with abundant natural resources such as copper, gold and coal, which attracted more foreign investors during the resource boom during the late 2000s. Lao PDR has natural resources such as tin, gold, gemstones and gypsum, but it is still one of the least developed countries in Asia. Economic diversification is one option for overcoming the resource curse problem, but for this to be successful, better trade facilitation measures (TFMs) and foreign investments are needed. South Asian landlocked countries such as Afghanistan, Bhutan and Nepal are the least developed and also suffer from backwardness in transport and transit arrangements, which is why better trade facilitation measures, economic reforms and foreign aid are necessary conditions for their growth.
Given this background and the complex nature of landlocked countries in Asia, the studies presented in Part 1 form a thematic epistemological contribution of those issues, while the new evidence we present covers a wide range of possibilities; Part 2 focuses on the country studies that originate from the issues discussed in Part 1.
2 Part 1: Economic Diversification
Economic diversification is a necessary condition and a sufficient condition to reduce volatility in resource-cursed Asian LLDCs. While there is a consensus on adopting economic diversification, there is no consensus on how to achieve economic diversification. Part 1 of this book sheds some light on this issue by analysing the impact of the Dutch disease in a developing economy context (Chap. 2), exploring non-resource firm heterogeneity (Chap. 3), trade facilitation in South Asia (Chap. 4) and foreign direct investment in Central Asia (Chap. 5).
In Chap. 2, Charles Harvie explores the impact of resource production in a developing economy, the transmission mechanism of the Dutch disease and policy options to alleviate its potentially adverse effects. The Dutch disease and the resources curse concepts are not the same, although the former is seen often as being one explanation of the latter. The Dutch disease refers to a resource windfall that contributes to an appreciation of a countryās real exchange rate, which then exerts competitiveness pressure on the countryās lagging non-resource tradables sector. Policymakers may view the potential demise of non-resource tradables due to this, traditionally regarded as being the manufacturing sector, and associated de-industrialisation as being of concern, arising from the importance of certain characteristics and externalities derivable from this sector that are of benefit to long-run growth and development. Thus, one could argue for a protectionist approach by government, ranging from piecemeal to strategic, of key existing and new manufacturing industries. Empirical evidence on the existence of the resource curse remains sketchy and subject to empirical methodological weaknesses. Policymakers need to be aware that each resource-abundant country faces different economic circumstance requiring tailored policy packages and approaches best designed to meet their individual economic, institutional and social circumstances.
In Chap. 3, Kankesu Jayanthakumaran, Mohammad Tariful Bari and Nelson Perera combine the resource curse and firm heterogeneity literature to estimate how a resource boom will affect firmsā non-resource intensive productivity. The cost of production for the non-resource sector is high during a resource boom due to expensive domestic currency, volatile commodity prices and rent-seeking activities stemming from economic and political mismanagement. Thus the literature generally suggests that economic diversification leads to long-term growth by generating spillover effects and increasing returns of scale, but effective economic diversification demands a greater understanding of how a group of firms behave during a resource boom. It could be argued that while low-productivity firms can improve their productivity with low cost options, highly productive firms actually experience a decline in productivity due to the high cost of shifting to other opportunities, so the net effect is a stagnation of aggregate productivity in the non-mining sector that is consistent with the resource curse hypothesis.
In Chap. 4, Ramesh Chandra Paudel analyses the export performance of landlocked South Asian countries such as Afghanistan, Bhutan and Nepal by focusing on the scenario of South Asian intra-regional trade. Ramesh revolves around research questions such as, why are South Asian exports so poor, and what regional priorities are needed to improve the trade performance in these regions; why do Afghanistan, Bhutan and Nepal disadvantaged; and why is the intra-regional trade in South Asia so poor? To answer these questions, Ramesh uses an econometric estimation based on the gravity modelling technique where transport costs dominate and reduce the volume of trade. The results suggest that being landlocked, these countries have about a two and half percent trade disadvantage, but they could trade about 10% more than other countries if they had a better interaction with the trade facilitation index (TFI) and they could also reduce trade costs by improving the TFM. These major TFMs are the quality of governance, transparency, documentation processing time, infrastructure, transit facilities and information and communication technology; this estimation suggests that improving the TFM would help to reduce the trade costs and increase the volume of trade.
In Chap. 5, Nomintsetseg Ulzii-Ochir analyses foreign direct investment (FDI) in landlocked Central Asian countries such as Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan, all of which have large mining resources. While FDI has helped boost economies around the world, it has not eliminated the main barriers and challenges faced by these landlocked countries in Central Asia, so the pioneering purpose of her study is to empirically investigate the determinants of FDI inflows such as market size, corporate tax rate, import tariffs, trade openness, quality of infrastructure and political and socio-economic stability for the mineral rich Central Asian economies between 1996 and 2016. This study finds that a higher return on capital, openness and good quality of infrastructure promotes FDI in LLDCs in Central Asia, and, as expected, a decline in corruption had a positive impact on FDI, whereas the quality of regulations and the degree of business freedom had an insignificant impact on investment.
3 Part 2: Country Studies: Lao PDR, Nepal and Mongolia
Given the complicated dynamics involved, the chapters in this section focus mainly on the methods of economic diversification because economic diversification strategies vary from country to country. The inability to access seaports in Mongolia demands efficient trade logistics system. In Lao PDR, the statistics for registered enterprises show that small enterprises (1ā19 employees) comprise about 99% of all enterprises, so this demands an in-depth analysis of micro-, small- and medium-sized enterprises (MSMEs), and since Nepal relies heavily on foreign aid, this resulted in a dependency on developed nations and widening gaps in economic opportunities between rich and poor; this demanded an analysis of the sustainability of foreign aid in Nepal. Like other LLDCs, Mongolia has not eliminated the main barriers for inviting FDI, so this demands an analysis of the effectiveness of currently operational special economic zones (SEZs) such as Altanbulag, Zamyn UuD and Tsagaannuur. Thus part 2 shows the trade logistics operations in Mongolia (Chap. 6), the MSMEs as a strategy for Lao PDR (Chap. 7), foreign aid for trade in Nepal (Chap. 8) and SEZs in Mongolia as economic diversification strategies (Chap. 9).
In Chap. 6, Nagesh Shukla and Arjun Radhakrishnan use process-centric simulation models such as discrete-event simulation to understand and improve trade logistics operations. These authors argue that most of the research conducted in the area of trade logistics improvement relies on the development of simplified flow diagrams, on-site observations and brainstorming sessions that are complemented with historic trade operations data, but these approaches have limited success in comprehensively modelling important interactions and relationships in trade logistics. The authors present a systematic methodology for multi-method simulation modelling based on the Anylogic simulation platform. They use a simulated case of Mongolian road-based trade logistics to demonstrate how effective this proposed modelling approach is because this methodology involves (i) capturing trade operations/process details, (ii) utilising a range of quantitative datasets for timestamping the captured process details, (iii) encapsulating processes and datasets in the simulation modelling platform, (iv) validating the resulting simulation models and (v) visualising and processing issue identification for trade logistics.
In Chap. 7, Charles Harvie shows that MSMEs play a pivotal role in the growth and development of virtually all developing countries in terms of their contribution to business numbers, output, employment, exports, entrepreneurial activity, poverty alleviation and economic empowerment. This is no less so than for resource-abundant and landlocked countries in the Asian region such as that of Lao PDR. By its very nature, the resource sector tends to be relatively capital intensive and dominated by large state-owned or foreign-owned multinational enterprises that generate relatively few jobs. In this context, MSMEs have a critical role to play in generating jobs, diversifying the economic base and spreading the economic benefits of resource production in resource abundant economies. To achieve this requires a new MSMEs growth and business strategy focusing on capacity building through knowledge and skills acquisition, technology upgrading, improved product quality and competitiveness, innovation and entrepreneurial activity. This will not be easy in a country such as Lao PDR, where MSMEs are predominantly micro enterprises operating in the informal sector and subject to severe resource constraints. They also face challenges arising from the landlocked nature of the country and a...