2017 Annual Competitiveness Analysis and Impact of Exchange Rates on Foreign Direct Investment Inflows to ASEAN Economies

Khee Giap Tan, Trieu Duong Luu Nguyen;Hui Yin Chuah

• Éditeur: WSPC
• Année: 2018
• ISBN:
  9789813273078
• Sujet: Economics
• Sous-sujet: Development Economics

This book titled 2017 Annual Competitiveness Analysis and Impact of Exchange Rates on Foreign Direct Investment Inflows to ASEAN Economies recount the development experience of ASEAN over the past 50 years, describe the long-term mega-trends which will shape ASEAN's development trajectory, and propose a development vision with actionable policy recommendations for ASEAN to become the fourth-largest economy in the world by 2030.

Into its fifth edition, the book updates the annual economic competitive analysis for ASEAN-10 conducted by the Asia Competitiveness Institute (ACI). It also introduces an innovation to the institute's methodological framework which is the use of Shapley values to come up with objective weights for indicators, sub-environments and environments in the competitiveness index. This methodological innovation not only adds an element of objectivity in terms of the assignment of weights, but also validates the robustness of results obtained from the competitiveness studies over the past years.

Recognising the importance of foreign direct investment (FDI) to growth and development in the region, the book also presents an empirical investigation of the drivers of FDI inflows, with specific focus on the effects of exchange rate and its volatility. For a group of economies looking to leverage on FDI and trade to transform themselves into the fourth-largest economy in the world, it is important for ASEAN to achieve high external competitiveness, especially in terms of the member states' real effective exchange rates (REER). These research findings make important academic and policy contributions by teasing out the relationship between REER levels, volatility and FDI in the ASEAN context.

Finally, the book collates speeches by academics and policy-makers on issues of key interests to the future development of ASEAN. It contains the reflection on the ASEAN Charter by Professor Tommy Koh, Ambassador-at-Large at the Ministry of Foreign Affairs of Singapore. Moreover, the discussions on the One Belt One Road initiative and its implication for the region by Mr K Shanmugam, Minister for Home Affairs and Minister for Law of Singapore; and Professor Liew Mun Leong, Chairman of Surbana Jurong and Changi Airport Group as well as Provost Chair and Professor of NUS make this book a valuable compendium for policy-makers, thinkers, and anyone who has an interest in Southeast Asia and the Asia-Pacific.

Contents:

• Economic Development in ASEAN: Past, Present and Future
• The ASEAN Charter at 10: Prospects and Retrospect
• 2017 Update on Annual Competitiveness Analysis for ASEAN-10
• Impact of Real Effective Exchange Rates on Foreign Direct Investment Inflows to ASEAN Economies
• One Belt One Road Initiative: Global and Geo-economic Perspectives
• Concluding Remarks and Future Research Agenda

Readership: Researchers and advance graduates studying ASEAN developmental economics. Competitiveness;Economic Development;Public Policy;ASEAN;Southeast Asia;FDI;Exchange Rates;One Belt One Road (OBOR);ASEAN Charter0 Key Features:

• The book undertakes rigorous empirical research relating to the notion of competitiveness for each of the 10 ASEAN member states
• It introduces the novel methodology of "Shapley Values" that enables us to measure the marginal contribution of a particular indicator used in the analysis and is embedded in solid mathematical and theoretical foundations
• In addition to competitiveness, the book provides a comprehensive empirical analysis of the impact of exchange rates on foreign direct investment to the 10 economies of ASEAN

Chapter 1

Economic Development in ASEAN: Past, Present and Future

1.1Introduction

The Association of Southeast Asian Nations (ASEAN) is a regional organisation established in 1967 by five founding members, namely Indonesia, Malaysia, Philippines, Singapore, and Thailand. Despite its fundamental geographic contiguity, it was only after World War II that Southeast Asia was regarded as a single geopolitical region in the global context.¹ Located between the Asia-Pacific and the Indian subcontinent, Southeast Asia is a region of vibrancy with remarkable potentials for upgraded development and connectivity. Most ASEAN economies are blessed with rich natural resources including oil and gas, mineral deposits, wood, rubber and fertile land for agricultural development.

Southeast Asia has come a long way in terms of building and strengthening its regional integration. There were two predecessors to ASEAN, namely the Association of Southeast Asia and MAPHILINDO, which were founded in 1961 and 1963, respectively.² The first comprised the former Federation of Malaya, Philippines and Thailand, while the latter included Malaysia, Philippines and Indonesia. Both fell short of becoming a viable regional grouping due to the territorial disputes and conflicts among the member states. Subsequently, driven by a common goal of peace and stability, ASEAN was established on 8 August 1967. Since its creation, the membership of the association has expanded to include five other Southeast Asian countries namely Brunei (in 1984), Vietnam (in 1995), Laos (in 1997), Myanmar (in 1997) and Cambodia (in 1999).³

Following the momentous milestone in establishing the ASEAN Economic Community (AEC) in 2015, the year 2017 marks another achievement for ASEAN as it celebrates its golden jubilee anniversary. Currently made up of 10 members with nominal Gross Domestic Product (GDP) reaching 2.6 trillion US dollars,⁴ ASEAN has evolved into an emerging growth centre in Asia. Given its current growth rate, which outpaces many developed nations including Japan and the United States (US), ASEAN is projected to rise as the fourth largest economy by 2030, after the US, the European Union (EU) and China.⁵ Moreover, as Section 1.2 will discuss in greater detail, economic growth has translated to rapid poverty reduction, rising income and improving living standards for ASEAN residents.

Over time, ASEAN has been instrumental in bolstering regional economic integration through the establishment of free trade agreements (FTAs) and multilateral initiatives. ASEAN’s institutional structure has been augmented with the adoption of the ASEAN Charter in 2007. Nonetheless, stark development divides still persist within ASEAN. This is a cause for concern as inclusivity is one of the foundations for a resilient and prosperous ASEAN community as envisaged in the ASEAN Community Vision 2025.⁶ Moreover, potential disruptive mega-trends including fundamental demographic transition and rapid technological advancements associated with the Fourth Industrial Revolution stand to create both challenges and opportunities for continued economic development in ASEAN.

In the tradition of the Asia Competitiveness Institute (ACI) at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore (NUS), our research publications make a distinctive contribution to the literature by focusing on pertinent regional and national economic issues of ASEAN as one of our flagship projects.⁷ The subsequent chapters of this book will cover the development of ASEAN institutional framework and prevailing global economic trends on top of the annual competitiveness update as well as the corresponding policy implications for the ASEAN economies. This first chapter will provide a brief summary of the progress achieved by ASEAN over the past 50 years, describe the long-term issues which will affect all ASEAN members and outline ACI’s development vision for ASEAN in the years to come.

1.2Regional Integration and Economic Development in ASEAN since 1967

The establishment and continued relevance of ASEAN 50 years since its founding is considered an unlikely success, even a “miracle”, by its observers.⁸ ASEAN was created during a time of great regional turmoil. It was during the height of the Cold War between the US, the Soviet Union and their respective allies which manifested in intensifying communist insurgencies and civil wars in Cambodia, Laos and Vietnam. Meanwhile, Malaysia and Philippines were engaged in territorial disputes over eastern Sabah (also known as North Borneo prior the formation of Malaysia). Indonesia, under President Sukarno, was pursuing the Konfrontasi policy against the newly created Malaysia throughout 1963–1966.⁹ The regional geopolitics was further muddled by the separation of Malaysia and Singapore in 1965 after a series of race riots.

In addition to this tumultuous backdrop, diversity within Southeast Asia added another layer of complex challenges to regional integration. Dubbed the “Balkans of Asia”, Southeast Asian countries are very diverse in terms of cultures, languages, religions and political systems. The region is home to sizeable populations of Muslims, Christians, Buddhists, Hindus and followers of other folk religions. At the same time, political systems range from constitutional monarchies to democracies with local characteristics and single-party states. These fundamental differences have persisted until this day.

Nevertheless, the collective thirst for regional security among ASEAN’s prospective member states provided the case for a cohesive regional organisation. Regime change in Indonesia in 1965 and 1966 and the resultant end of Konfrontasi under the new government headed by President Suharto paved the way for regional reconciliation and restoration of relations. This created the impetus for the formation of ASEAN with the Bangkok Declaration. At the time of its founding, ASEAN did not aspire towards a deeply integrated regional structure via complex institutional arrangements à la the EU model. Instead, the organisation set for itself, in the Bangkok Declaration, seven modest objectives which centred on the promotion and preservation of regional harmony amid a highly uncertain geopolitical landscape.¹⁰

Drawing lessons from episodes of bilateral and regional tensions in the not-so-distant past, the founding fathers of ASEAN agreed that regional collaboration must be based on mutual respect for national sovereignty and regional diversity. Over time, the “ASEAN Way”, which emphasises consensus-based decision making, informality and consultation, as well as non-interference in domestic affairs, has emerged as the fundamental principle underpinning all ASEAN’s initiatives.¹¹ Therefore, unlike the EU, ASEAN maintains a minimalistic formal institutional structure. Such an approach to integration has allowed member states to focus on the more urgent task of nation-building and to act jointly while maintaining their autonomy in all regional efforts.¹² The organisation has achieved success beyond expectation in terms of managing relations among its members; establishing multilateral initiatives aimed at preserving regional peace and stability such as the 1997 Southeast Asia Nuclear Weapon Free Zone Treaty and the 2002 Declaration on the Conduct of Parties in the South China Sea, to mention a few; as well as encompassing almost all Southeast Asian states.¹³

While the raison d’être for ASEAN in 1967 was primarily political, economic cooperation has also been fundamental throughout the bloc’s history. The first ASEAN Summit in Bali in February 1976 saw the formalisation of regional economic initiatives with the signing of the ASEAN Preferential Trading Agreement (APTA), the ASEAN Industrial Projects, the ASEAN Industrial Complementation and the ASEAN Industrial Joint Ventures. The goal of APTA was to promote intra-ASEAN trade through the implementation of preferential tariffs and non-tariff measures (NTMs) on a product-by-product basis. The other three agreements were aimed at establishing inter-governmental industrial projects between members as well as facilitating resource pooling and specialisation of complementary products. These agreements were in line with the export-led industrialisation strategy pursued by the ASEAN-5 countries.

By the late 1980s and early 1990s, multilateral trade initiatives were gaining momentum across the globe, making deeper economic integration a top priority in ASEAN’s agenda. The need for closer economic cooperation was also motivated by China’s emergence as a key destination for foreign direct investment (FDI) to Asia which threatens ASEAN’s economic competitiveness. At the Singapore Summit in 1992, the ASEAN Free Trade Area (AFTA) was launched. The member states at the time — Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand — pledged to reduce the Common Effective Preferential Tariff (CEPT) rates on products in the Inclusion Lists to 20 percent by 1998–2000,¹⁴ and eventually 0–5 percent by 2008. Subsequently, AFTA was extended to the new members — Cambodia, Laos, Myanmar and Vietnam (CLMV) — with special dispensations for these less developed countries in terms of deadlines for implementation of the tariff commitments.

Besides trade in goods, ASEAN was among frontrunners in the developing world in formalising commitment to promote investment and intra-regional trade in services. Member states signed the ASEAN Framework Agreement on Services (AFAS) in 1995 which aimed to liberalise trade in services in Southeast Asia beyond the scope and depth of the World Trade Organisation (WTO)’s General Agreement on Trade in Services (GATS). This was followed by the launch of the ASEAN Investment Area (AIA) in 1998, which was then elevated into the ASEAN Comprehensive Investment Agreement (ACIA) in 2009.

In 1997, the Asian Financial Crisis (AFC) erupted, denting the prospects of growth for economies in the region. The more developed ASEAN-6 were hit harder than the CLMV countries as they suffered an average 8 percent contraction in national GDP.¹⁵ The crisis led to a collective rethink of regional economic cooperation. The ASEAN Vision 2020 was adopted in December 1997, in which ASEAN leaders reaffirmed their commitment to integration through the implementation of AFTA, AFAS and AIA. At the same time, the Vision expanded the integration agenda to include “closer consultations in macroeconomic and financial policies”.¹⁶

Furthermore, ASEAN sought to forge closer ties with economies outside Southeast Asia. ASEAN’s engag...

Table des matières

• Cover
• Halftitle
• About Asia Competitiveness Institute (ACI)
• Title
• Copyright
• Contents
• Foreword
• Preface
• Acknowledgements
• About the Authors
• List of Abbreviations
• List of Figures and Tables
• Chapter 1 Economic Development in ASEAN: Past, Present and Future
• Chapter 2 The ASEAN Charter at 10: Prospects and Retrospect
• Chapter 3 2017 Update on Annual Competitiveness Analysis for ASEAN-10
• Chapter 4 Impact of Real Effective Exchange Rates on Foreign Direct Investment Inflows to ASEAN Economies
• Chapter 5 One Belt One Road Initiative: Global and Geo-economic Perspectives
• Chapter 6 Concluding Remarks and Future Research Agenda
• Appendices