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The role of ASEAN connectivity in reducing the development
gap
Citation of the final chapter: Feeny, Simon and McGillivray,
Mark 2013, The role of ASEAN connectivity in reducing the
development gap. In McGillivray, Mark and Carpenter, David (ed),
Narrowing the development gap in ASEAN: drivers and policy options,
Routledge, Abingdon, Eng., pp.84-133.
This is the accepted manuscript of a chapter published by
Routledge in Narrowing the development gap in ASEAN in 2013,
available at: https://doi.org/10.4324/9780203583715
© 2013, The Association of Southeast Asian Nations
Downloaded from DRO:
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https://doi.org/10.4324/9780203583715http://hdl.handle.net/10536/DRO/DU:30084571
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ChapterFour:TheRoleofASEANConnectivityinReducingtheDevelopmentGap
SimonFeeny
AlfredDeakinResearchInstituteDeakinUniversity,Melbourne
SchoolofEconomics,FinanceandMarketingRMITUniversity,Melbourne
MarkMcGillivray
AlfredDeakinResearchInstitute,DeakinUniversity,Melbourne
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4.1.Introduction
Connectivity refers to the extent and quality of links across a
number of different dimensions.Connectivity is a crucial component
of ASEAN integration. In order to promote and establish
theASEANCommunityby2015,aHighLevelTaskForcedevelopedaMasterPlanonASEANconnectivitywiththeassistanceofanumberofotherinternationalorganisationsworkingintheregion(ASEAN,2011).1
The Master Plan recommends improved connectivity through
enhanced regional and
nationallinkages.ItoutlinesanumberofbenefitsarisingfromgreaterconnectivityamongASEANmembers:“Enhancing
intra-regionalconnectivitypromoteseconomicgrowth,narrowsthedevelopmentgapsby
sharing the benefits of growth with poorer groups and communities,
enhances thecompetitivenessofASEAN,andconnects
itsMemberStateswithintheregionandwiththerestoftheworld”(ASEAN,2011,pp.5).TherecentGlobalEconomicCrisis(GEC)ledtoafallindemandforASEANexportsfromadvancedeconomiesandthisheightenstheimportanceofenhancingregionaldemand
through increased intra-regional trade (Bhattacharyay, 2009).
Improving ASEANconnectivityisrequiredtoassistwiththisobjective.
TheMasterPlanistobeenactedovertheperiod2011to2015andseekstoforgegreaterlinkagesamong
ASEAN Member States (AMS) through enhancing three types of
linkages: (i) physicalconnectivity; (ii) institutional
connectivity; and (iii) people-to-people connectivity.
Physicalconnectivity refers to the development of national and
regional infrastructure
development,specificallyinthetransport,InformationandCommunicationsTechnology(ICT)andenergysectors.Physicalconnectivityiscommonlyreferredtoas‘hardinfrastructure’andplaysaveryimportantrolein
connecting ASEAN’s massive lad area, diverse geography and numerous
islands. Institutionalconnectivity relates to the policy
environment of member countries and includes
effectivegovernanceandinstitutions.Itisoftenreferredtoas‘softinfrastructure’.2Finally,people-to-peopleconnectivityreferstoempoweringpeopleandincludesgreaterlinkagesamongASEANmembersintheareasofeducation,culture,tourism(ASEAN,2011).
There are great differences in the level of development across
ASEAN countries, as discussed atlength inChapter two, aswell as
significantdifferences in culture and language.According to
theWorldBankclassification,ASEANmembersincludehighincomecountries(Brunei,Singapore)aswellassomeoftheworld’sleastdevelopedcountries(Cambodia,LaosandMyanmar).Thereisalsogreatdiversity
in the geography of ASEAN members. The needs and infrastructure
solutions are
verydifferentforthesmallcitystateofSingaporecomparedtolandlockedLaos,mountainousMyanmaror
the thousands of islands of Indonesia and the Philippines. ASEAN’s
traditional focus on exportorientation has led to coastal bias in
infrastructure development but connecting inland, remoteareas as
well as ASEAN numerous islands to major ports and economic centres
can yield greatbenefits(Bhattacharyay,2009).
Therearealso large
infrastructuregapsbetweenASEANcountrieswithCambodia,Laos,Myanmarand
Indonesia having less access to different types of physical
infrastructure than other ASEANmembers. Reducing these physical
infrastructure gapswill be vital to narrowing the developmentgap.
The quality of infrastructure also varies greatly, being much
higher in Singapore, Brunei,
1TheseorganisationsincludedtheAsianDevelopmentBank(ADB),theEconomicResearchInstituteforASEANandEastAsia(ERIA),UnitedNationsEconomicandSocialCommissionforAsianandthePacific(UNESCAP)andtheWorldBank.2
The ASEAN Master Plan includes the following as institutional
connectivity: (i) trade liberalisation andfacilitation; (ii)
investment and services; (iii) liberalisation and facilitation;
(iv) mutual
recognitionagreements/arrangements;(v)regionaltransportagreements;(vi)cross-borderprocedures;and(vii)capacitybuildingprogrammes(ASEAN,2011,pp.2).
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MalaysiaandThailandrelativetotheotherASEANmembers.Greaterpeople-to-peopleconnectivityalso
holds great potential in narrowing the development gap among ASEAN
countries,
greatlybenefitingbothsendingcountries(largelythroughremittances)andhostcountries(byfillinglabourshortagesandskillsgaps).
Whilethereareclear,tangiblebenefitsofgreaterconnectivity,ASEANcountriesalsofaceanumberof
challenges in realising the objectives of theMaster Plan. Huge
investmentswill be required tobuild both the hard and soft
infrastructure necessary to narrow the development gap.
ASEANcountriesneedtofundinfrastructureinvestmentsaveragingUS$60billionperyearto2015aswellas
successfully integrating infrastructureprograms
thatarebeingundertakenat thenational, sub-regional and regional
levels. Moreover, the environmental and social impacts of large
scaleinfrastructure projects and the greater mobility of ASEAN’s
people will need to be addressed.Political commitment to addressing
brain drain and social impacts of migration will also
requireattention.
ThischapterexaminesindetailhoweachofthethreedimensionsofconnectivitycanassistASEANinnarrowing
the development gap among its members. Section 4.2 defines physical
infrastructurebeforehighlightingtheverystrongpositiveassociationbetweenindicatorsofphysicalinfrastructureanddevelopment.
Italsoexaminesthecurrentstateofphysical
infrastructureinAMSandoutlinesthe ways in which it can contribute
to narrowing the development gap. The empirical evidenceregarding
physical infrastructure and development is also assessed. Section
4.3 examinesinstitutionalconnectivity, includinghow it isdefinedand
its relationshipwithdevelopment. Italsoexamines how AMS perform
across different indicators of institutional connectivity. Section
4.4examines people-to-people connectivity and focuses on the role
that greater labourmobility andmigrationcanplay
innarrowingthedevelopmentgap.Section4.5summarisesthechallengesthatASEANcountriesfaceinimprovingconnectivityinalloftheseareasandSection4.6concludes.
4.2.PhysicalConnectivityandNarrowingtheDevelopmentGap
4.2.1Whatisphysicalinfrastructure?
Physicalorhard infrastructure is
rarelypreciselydefinedbutusuallyrefers tothefacilitiesusedtodeliver
energy, transport, water and sanitation and telecommunications
(Estache, 2006; Straub,2008). Physical infrastructure includes: (i)
transport infrastructure such as roads, bridges, tunnels,railways,
waterways, sea ports and airports, (ii) power utilities or energy
infrastructure
includingelectricitygridsandgasandoilpipelines(aswellasrenewableenergyprojects);(iii)InformationandCommunicationTechnology(ICT)
infrastructure includingfixed
linetelephones,mobiletelephones,undersea cables, satellite
connections and access to the internet; and (iv) water and
sanitationinfrastructureincludingwatersupplyandseweragesystems,dams,irrigationandfloodmanagementsystems.
Broader definitions of infrastructuremight include hospitals,
schools and other physicalbuildings.
In addition to national physical infrastructure, there is
Regional and Cross Border Infrastructure(R&CBI). Stafford
(2005) identifies regional infrastructure as infrastructure
projects implementedthrough a Regional Economic Community (REC) and
cross border infrastructure as
infrastructureprojectsimplementedthroughbilateralagreements,thattypicallyconnecttwocountriesonly.SinceR&CBI
involvesmore thanonecountry, suchprojects requirepolitical
commitmentandaswell
ascoordinatedpolicyandprocedureactions(softinfrastructure)(Bhattacharyay,2010).Agreementonthe
costs of R&CBI between countries can be very challenging given
that there is often
anasymmetricdistributionofbenefits(ADB/ADBI,2009).
4.2.2Therelationshipbetweenphysicalinfrastructureanddevelopment
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Physicalinfrastructureprovidesavitalinputintoproductionandisoftenassertedtobeessentialforsustained
economic growth and poverty reduction. Figures 4.1 to 4.6 below
lend support to thisnotion. They provide very strong associations
between differentmeasures of infrastructure (roaddensity, mobile
phone subscriptions and electricity power consumption) and the
HumanDevelopmentIndex(HDI).ThedevelopmentgapamongASEANmembersaccordingtotheHDIwasafocusofChapter2.ThefiguresprovidetherelationshipsforallcountriesaswellasjustforAMS.Therelationship
between physical infrastructure and human development among ASEAN
countriesappears to be particularly strong. There are similar
associations between the measures
ofinfrastructureandGNIpercapita(PPP),asprovidedbyFiguresA4.1toA4.6inAppendixX.Thisdoesnot
necessarily imply that higher levels of physical infrastructure
lead to better developmentoutcomes since it could be a two way
relationship or causality may run the other way. It
does,however,indicatethatphysicalinfrastructureanddevelopmentindicatorsarehighlycorrelatedandthatphysicalconnectivitycanplayanimportantroleinnarrowingthedevelopmentgap.
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Figure4.1:RoaddensityandtheHumanDevelopmentIndex
Note:DatasourcedfromWorldBank(2012)andtheUNDP(2011).DatafortheHDIarefor2010.Dataforroaddensityarethelatestavailablebetween2003and2010.
Figure4.2:RoaddensityandtheHumanDevelopmentIndex(ASEANcountries)
Note:DatasourcedfromWorldBank(2012)andtheUNDP(2011).DatafortheHDIarefor2010.Dataforroaddensityarethelatestavailablebetween2003and2010.
02
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8
Roa
d de
nsity
(km
of r
oad
per 1
00 s
q.km
per
of l
and
area
)(log
ged)
.2 .3 .4 .5 .6 .7HDI score (logged)
Brunei Darussalam
IndonesiaCambodia
Lao PDR
Myanmar
Malaysia
Philippines
Singapore
Thailand
Vietnam
12
34
56
Roa
d de
nsity
(km
of r
oad
per 1
00 s
q.km
per
of l
and
area
)(log
ged)
.4 .45 .5 .55 .6 .65HDI score (logged)
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Figure4.3:MobilephonesubscriptionsandtheHumanDevelopmentIndex(2010)
Note:DatasourcedfromWorldBank(2012).
Figure4.4:MobilephonesubscriptionsandtheHumanDevelopmentIndex(2010)(ASEANcountries)
Note:DatasourcedfromWorldBank(2012).
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34
5
Mob
ile c
ellu
lar s
ubsc
riptio
ns (p
er 1
00 p
eopl
e)
(logg
ed)
.2 .3 .4 .5 .6 .7HDI score (logged)
Brunei DarussalamIndonesia
CambodiaLao PDR
Myanmar
Malaysia
Philippines
Singapore
Thailand
Vietnam
12
34
5
Mob
ile c
ellu
lar s
ubsc
riptio
ns (p
er 1
00 p
eopl
e)
(logg
ed)
.4 .45 .5 .55 .6 .65HDI score (logged)
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Figure4.5:ElectricitypowerconsumptionandtheHumanDevelopmentIndex(2009)
Note:DatasourcedfromWorldBank(2012).
Figure4.6:ElectricitypowerconsumptionandtheHumanDevelopmentIndex(2009)(ASEANcountries)
Note:DatasourcedfromWorldBank(2012).
46
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12
Elec
tric
pow
er c
onsu
mpt
ion
(kW
h pe
r cap
ita) (
logg
ed)
.2 .4 .6 .8HDI score (logged)
Brunei Darussalam
Indonesia
Cambodia
Myanmar
Malaysia
Philippines
Singapore
Thailand
Vietnam
56
78
9
Ele
ctr
ic p
ow
er
co
nsum
ption (
kW
h p
er
cap
ita)
(log
ged
)
.4 .45 .5 .55 .6 .65
HDI score (logged)
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4.2.3PhysicalInfrastructureinASEANcountries
AccesstophysicalinfrastructurevariesconsiderablyacrossAMS.Table4.1belowprovidesindicatorsof
access to infrastructure for ASEAN members. There is a particularly
large gap in access
toelectricity,with100percentofthepopulationhavingaccessinSingaporecomparedtojust13percentinMyanmarand24percentinCambodia.WhiletheASEAN6generallyhashighratesofaccessto
electricity, theexception is Indonesiawith less than two-thirdsof
its populationhaving access,while access is almost universal in
Vietnam. In fact, Vietnamhas better access to allmeasures
ofinfrastructurethanIndonesiawiththeexceptionofraillinesandthepercentageofpavedroads.
Vietnam also has the highest rate of mobile subscriptions among
all ASEAN countries. However,there is clearly a digital divide
between the ASEAN6 and Cambodia, Laos andMyanmarwith thelatter
three countries having far lower internet users and mobile phone
subscriptions (per 100people). There is virtually no uptake of
these types of technology inMyanmar. However, growthrates inaccess
to technology (since2000)havebeenhigher in theASEAN4 than for
theASEAN6suggesting some degree of catch up. Road density varies
greatly across ASEAN members, withSingapore not surprisingly having
by far the greatest density. Road density is particularly low
inMyanmar, LaoandCambodiabut relativelyhigh inVietnam.While
thePhilippineshasa relativelyhigh road density, less than 10 per
cent of the country’s roads are paved, comparable
withCambodia,LaosandMyanmar.
Access to an improvedwater source is relatively low in Cambodia
and Laos. Access to improvedsanitation is just 31 per cent in
Cambodia and is also low in Laoswith Indonesia. Access to
bothimprovedwaterandsanitationisuniversalorclosetouniversalinMalaysia,SingaporeandThailandandreassuringly,growthinaccesstoimprovedwaterandsanitationsince2000hasbeenhigherinthe
ASEAN 4 than in the ASEAN 6. The table clearly indicates that
infrastructure investmentswillneedtobebiased in
favourofCambodia,LaosandMyanmar foranarrowingof
thedevelopmentgaptoberealised.
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Table4.1:AccesstoinfrastructureinASEANmembers
Accesstoelectricity(%of
population)(2009)
Internetusers(per
100people)(2010)
Mobilesubscriptions(per100
people)(2010)
Raillines(totalroute-km)(latest
available)
Roaddensity(kmofroadper100sq.km)(latestavailable)
Roads,paved(%oftotal
roads)(latestavailable)
Improvedwatersource(%of
populationwithaccess)(2010)
Improvedsanitation
facilities(%ofpopulationwithaccess)(2010)
ASEAN6 BruneiDarussalam 99.7 50.0 109 51 81 Indonesia 64.5 9.9
92 3,370 25 57 82 54Malaysia 99.4 56.3 119 1,665 30 81 100
96Philippines 89.7 25.0 86 479 67 10 92 74Singapore 100 71.1 145
473 100 100 100Thailand 99.3 21.2 104 4,429 35 99 96 96ASEAN4
Cambodia 24 1.3 58 650 21 6 64 31LaoPDR 55 7.0 65 17 14 67
63Myanmar 13 0.2 1 3,336 4 12 83 76Vietnam 97.6 27.9 175 2,347 48
48 95 76Source:WorldBank(2012)
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An examination of current infrastructure in ASEAN countries must
include a discussion of thenumerous examples of R&CBI. These
include sub-regional initiatives such as the
GreaterMekongSubregion(GMS)(aprogramtohelpimplementprioritytransport,energyandtelecommunicationsprojectsacrossCambodia,Laos,Myanmar,Thailand,VietnamandaprovinceinChina).TheGMSisavery
successful example of CBI, coordinatingmore than $12 billion in
investments, particularly
inestablishingallweatherroadsbetweenSouthernAsiaandChina(ADB,2012).OtherexamplesofCBIincludetheMekongRiverCommission(MRC)(aforumforCambodia,Laos,ThailandandVietnamtomanagetheirwaterresourcesandthesustainabledevelopmentof
theMekongRiver), theBrunei-Indonesia-Malaysia-Philippine East
AsiaGrowthArea (BIMP-EAGA) (an initiative to increase trade,tourism
and investment through infrastructure development), the
Indonesia-Malaysia-ThailandGrowth Triangle (IMT-GT) (which aims to
encourage trade, investment and private sector growththrough
infrastructure development), the Asian Highway (AH) and the
Trans-Asian Railway
(TAR)networkwhichplantolinkEuropewithAsia.ExamplesofenergysectorprojectsincludetheASEANPowerGridandtheTrans-ASEANGasPipelinewhichaimtosecureacross-borderenergynetworkandbenefitmembersthroughenergytrading(Bhattacharyay,2009).
CBI relating specifically to the transport sector includes the
flagship projects of the ASEANConnectivity Master Plan. The first
is the ASEAN Highway Network (AHN) which includes TransitTransport
Routes (TTRs) which are considered critical for facilitating goods
in transit. The
otherflagshipprojectistheSingaporeKunmingRailLink(SKRL)whichisduetobecompletedin2015.Inconsists
of several routes fromSingapore throughMalaysia, Thailand, Cambodia
andVietNam toKunming in China. Currently there are 4,069 km
ofmissing links or links that need rehabilitation(ASEAN,2011).
4.2.4Howcanphysicalinfrastructurecontributetonarrowingdevelopmentgaps?
Physicalinfrastructurehasgreatpotentialtoincreaseproductionandincomeandimproveaccesstobasicservicessuchashealtheducation,safewaterandimprovedsanitation.However,theimpactofinfrastructureonnarrowingthedevelopmentgapinASEANcountrieswill,toalargeextent,dependon
its type, quality and location. For infrastructure to narrow the
development gap,
spurringeconomicgrowthisnotenough.Economicgrowthmustoccurinlaggingregionsandinfrastructuremust
link the poor to basic services and income earning opportunities.
In fact, the impacts andproductivityof infrastructurewill
oftenbehighest in lagging regions. Laos, inparticular, stands
togainmuchfromimprovedinfrastructureandconnectionstoportssincetransportcostsareoftenfarhigherinlandlockedcountries.AcrossASEANmembers,thewell-developedinfrastructureincoastalareasmustbecomplementedwithinvestmentsinremoteandinlandlocations.
Thischapteridentifiesthreemainchannelsthroughwhichphysicalinfrastructurecancontributetonarrowing
thedevelopmentgap.Firstly, it can increase theeconomicgrowth
ratesof thepoorestcountriesandregions.Secondly,
infrastructurecanchangethesectoraldistributionofgrowththusmakinggrowthmorepro-poor.Thirdlyinfrastructurecanimpactonpovertyandmeasuresofhumanwell-beingdirectly.Eachchannelisdiscussedinturn.
(i)Infrastructureincreasingeconomicgrowthinlaggingregions
Infrastructure can spur the rate of economic growth in a number
of different ways includingimprovingaccesstothekey
factorsofproduction, linkingmarkets,allowingfor
theexploitationofeconomiesofscale,expandingproductivecapacity,reducingthecostsofproductionandthecostsofdoing
business, and increasing productivity and competitiveness. It can
increase efficiency
bypromotingtheagglomerationofbusinesses,leadingtoknowledgespillovers,ensuringproducerscanrespondquicklytochangesindemandandfacilitatingthemovementofpeopletothemostsuitable
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jobs. Infrastructurecanalso facilitate intraandextra regional
tradebyprovidinggreateraccess todifferent markets and good
infrastructure will also attract both domestic and Foreign
DirectInvestment (FDI),which are important drivers of growth.
Access to safewater and sanitation
areneededforahealthyworkforceandincreasesinlabourproductivity.Reliablesuppliesofelectricityallowbusinessestooperatewithoutdisruptionwhilegoodtelecommunicationsenablesbusinessestomake
informed decisions based on the latest available relevant
information (see for
example,DfID,2002,Bhattacharyay,2009,Brooksetal.,2010andWEF,2011).
Further, Serven and Calderon (2004) highlight the importance of
improved infrastructure as aprecursor for trade liberalisation and
integration to achieve the desired impacts on growth
anddevelopment. Inordertonarrowdevelopmentgaps,however, it
isnecessaryfor
infrastructuretopromotegrowthinlaggingregionsoratleastprovidethoselivinginsuchregionsgreateraccesstoincome
earning opportunities thus allowing them to participatemore fully
in the growth process(OECD,2007).
(ii)Infrastructurechangingthesectoralpatternofgrowth
Physicalinfrastructurecanalsopromotepro-poorgrowthandreducedevelopmentgapsbychangingthesectoraldistributionofeconomicgrowth.Forexample,manyofthepoorinAMSarelocatedinrural
areas and are reliant on agriculture for a living. Infrastructure
projects which are
biasedtowardsproductioninthissectorwillthereforehavethegreatestimpactonpovertyandgapswithinand
acrossASEANmemberswill be reduced. Rural roads, improved storage
facilities, irrigation aswell as telecommunications assisting
farmers in accessing informationon the latestmarket pricescanassist
in increasingproductivityandoutput in theagricultural sector
(DfID,2006). In changingthe sectoral pattern of growth,
infrastructure can increase the poverty elasticity of growth,
witheachpercentage increase inGDPper capita leading to greater
reduction in thepercentageof
thepopulationlivinginincomepoverty.
(iii)Thedirectimpactofphysicalinfrastructureonpovertyandhumanwell-being
There are several direct channels through which physical
infrastructure can impact on povertyreduction and improvements in
humanwell-being. Firstly, physical infrastructure investments
candirectly create employmentopportunities for thepoor through its
construction andmaintenance.Secondly, infrastructure can provide
better access to employment opportunities, by reducing
thetraveltimetootherareasandbylinkingdifferentmarkets.Thirdly,thepoorcanbenefitfurtherbythe
improved access to markets and basic services that infrastructure
provides. For example,infrastructure will enable poor communities
to sell their produce at local markets as well aspurchasing
goodsatpotentially cheaperprices. Theywill alsobebetter able to
accesshealth andeducation services, either through reduced travel
time or by being able to travel to schools andhealth clinics that
were previously out of reach (DfID, 2002, Bhattacharyay, 2009). By
having agreater impact on the poor, infrastructure can reduce
inequality within and across countries(Estache, 2003; World Bank,
2003). Infrastructure can also have a direct impact on poverty
byreducingthepricesthatthepoorpayfortheirutilitiesandthereforeraisingtheirrealincome(ADB,2012).
In fact, improvements inphysical infrastructure arewidely
viewedas crucial for progress towardsthe United NationsMillennium
Development Goals (MDGs). TheMDGs are a set of
internationaldevelopment goals towhich all UnitedNationsmember
countries are committed to achieving by2015.TheMDGtargetof reducing
theproportionof thepopulationwithout sustainableaccess
tosafedrinkingwaterandbasic sanitation relatesdirectly to
theprovisionofphysical infrastructure.Improving access towaterwill
also have a number of other benefitswhich can assist in
reducingdevelopment gaps. For example, access to water is
particularly important for health but is alsoimportant to
agriculture with irrigation leading to higher agricultural
productivity which can help
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improvefoodsecurityandreducethevulnerabilityof ruralhouseholds
(DfID,2006).
InfrastructurecanthereforecontributetoprogresstowardsallMDGs.Asnotedabove,transportinfrastructureinparticular,willassistinreducingincomepovertybyprovidingpeoplewithgreateraccesstoincomeearningopportunities,aswellasreducingthecostsand
improvingaccesstoschools,healthclinicsandhospitals,allofwhichdirectly
impactonschoolattendance, childandmaternalmortalityandotherMDGs
(seeWilloughby, 2004a). Energy infrastructure is also crucial.
TheWorldBank (2011)argues thataccess tomodernsourcesofenergy
isvital inprovidinghouseholdsaccess
tomoderncookingsolutions,whichcan
improvehealthandreduceratesofprematuremortalityparticularlyforwomenandchildren.
Gender gaps and inequities can also be reduced through improved
infrastructure. A lack ofinfrastructureinruralareas
implieswomenspenda
lotoftimeaccessingwaterandbasicservices,travellingtomarketsandcollectingfirewoodforcookingandheating.Rural
infrastructureprojects(includingimprovedaccesstoelectricity)canbenefitwomenthroughemployment,
improvingtheiraccesstoservices,improvingtheirhealth,reducingtheirburdenofworkinthehomeandfreeingupmoretimeforotherproductiveworkandeducation(ILO,2010;OECD,2011).
Infrastructurecanalsocontributetoenvironmentalsustainability.Itcandosobyprovidingaccesstocleanwaterandsanitation,cleanersourcesofenergy,thesafemanagementanddisposalofwaste,andthemanagementoftrafficinurbanareas(WorldBank,1994).Bycontributingtoenvironmentalsustainability,
infrastructure can assist in ensuring that a narrowing of the
development gap
willprevailinthefuture.Goodsystemsofinfrastructurecanalsoassistcountriesinadjustingtoclimatechangeandcopingwithnaturaldisasters(ADB,2012).
Despitethenumerouspotentialbenefitsarisingfromphysicalinfrastructure,positiveimpactsshouldnot
be taken for granted. There are often environmental (and social)
costs of large scaleinfrastructure projects. Importantly, by
facilitating economic activity in some regions relative
toothers,infrastructurecanpotentiallyincreaseinequalityandwidenthedevelopmentgapwithinandacrosscountries.Eveninruralor
laggingregions,theincreasedcompetitioninducedmyimprovingaccesstomarketsmightactuallyharmsomeproducersandaffectlocalproductionintheshortterm(Stafford,2005).
Environmental impacts from infrastructure projects include
carbon emissions, water and airpollution, flooding and
deforestation; these impacts are often disproportionately felt by
the poor(World Bank, 2007). This is in addition to the social
impacts arising from the displacement
ofcommunities.Itisalsotruethatinfrastructurealonewilloftenbeinsufficienttoreducepovertyanddevelopment
gaps. Complementary interventions are required such as raising the
level of humancapital of the poor to allow them to make use of the
increased employment opportunities
thatinfrastructurebrings.TheADB(2012a)documentsempiricalevidencethatshowsthatinfrastructureis
more successful at reducing poverty when accompanied by strong
programs in health andeducation.Moreover, improving the investment
environmentwill also be important for
improvedinfrastructuretoattractdomesticandforeignfirmsandimproveemploymentopportunitiesforthepoor.
Governmentsmust also play the important role of providing basic
services for the poor toaccess(Stafford,2005).
Since,physical
infrastructuredevelopmentspotentiallyhavebothpositiveandnegativeimpactsondevelopmentandpoverty,
its
influenceondevelopmentandnarrowingthedevelopmentgapisanempiricalissue.Wethereforenowturntotheempiricalevidenceoftheimpactsofinfrastructure.
4.2.5.Empiricalevidenceoftheimpactofinfrastructureondevelopment
Duringthepasttwodecadesavastnumberofstudieshavebeenundertakentoevaluatetheimpactof
infrastructureon indicatorsofdevelopment
includingoutput,growth,productivity,povertyand
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inequality. Studiesdiffer through theirmeasureof infrastructure,
their empirical techniques, theirtime periods, their sample of
countries and their model specifications.3 Extensive reviews of
theliteratureareprovidedbyGramlich(1994),CalderonandServen(2004),Estache(2006),Rompandde
Haan (2007) and Straub (2008). This chapter identifies four
stylised facts from this extensiveliterature.
(i).Macroeconomic studies confirmapositiveassociationbetween
infrastructureanddevelopmentbuttheprecisemagnitudeoftheeffectisdisputed
Results from studies examining the impact of infrastructure on
output, economic growth
andproductivitygenerallyconcludethatinfrastructureisimportant(forthoroughreviewsseeCalderonand
Serven, 2004; Romp and de Haan, 2005; UN-HABITAT, 2011). However,
the finding is by nomeans universal and obtaining precise estimates
of the magnitude of the impact has not
beenpossible.Somestudiesfindinfrastructurehasanimplausiblyhighrateofreturnwhileothersfindithasanegligibleimpact.Forexample,Straub(2008)reviewsthefindingsfrom140specificationsfrom64
papers published between 1989 and 2007 and finds that 63 per cent
of specifications find
apositiveandsignificantassociationbetweeninfrastructureandadevelopmentoutcome,31percentfindnosignificantassociationandsixpercentfindanegativeandsignificantrelationship.
EmpiricalstudiesstemfromtheworkofAschauer(1989).Inthisseminalstudy,hefoundthataonepercentincreaseinthelevelofUSpublicinfrastructureisassociatedwitha0.39percentchangeinoutput.
A finding of similar magnitude for the US is reported by Munnell
(1990) although thearguably unrealistic magnitude of the impact led
to a number of re-examinations of
theinfrastructureoutputrelationshipwithotherstudiesdisputingthesizeoftheeffect
(seeGramlich,1994;Holtz-Eakin,1994).
Whileearlierstudiesexaminedtheimpactof
infrastructureusingtime-seriesdatafortheUS,
laterstudiesusecross-countrydata.Canning(1999)confirmsapositiveassociationbetweeninvestmentandoutputusingalargesampleofcountries.Further,usingdataforover100countriesspanningtheperiod1960to2000,CalderonandServen(2004)findthatboththestockof
infrastructureand itsquality have large impacts on per capita
economic growth aswell as reducing income inequality.Other studies
confirming a positive relationship between measures of
infrastructure and
growthincludeEsfahaniandRamires(2003)andSanchez-Robles(1998).
Other studieshaveexamined the impactof specific typesofphysical
infrastructure, again,usuallywith encouraging findings. These
studies are often focused on the US or OECD countries.
Forexample,Croninetal.(1991)confirmthatspendingontelecommunicationshasledtohigheroutputin
the US and Röller and Waverman (2001) find large output effects of
telecommunicationsinfrastructure in OECD countries.More recently,
Czernich et al. (2011) find that a 10 percentagepoint increase in
broadband penetration raised annual per capita growth by 0.9 - 1.5
percentagepointsinOECDcountriesduringtheperiod1996to2007.EasterlyandRebelo(1993)findthatpublicspending
on transport and communications is positively associated with
economic growth whileFernald (1999) finds large productivity
effects of changes in road infrastructure in theUS.UNIDO(2009a)
find evidence that energy infrastructure is important for economic
growth.Moreover,
inreviewingstudiesoftheimpactsofspecifictypesofphysicalcapital,Estache(2006)findseconomicreturnsoninvestmentprojectsaveraging30to40percentfortelecommunications,inexcessof40
3Theapproachofthemacroeconomicempiricalstudiesisoftentoestimatesomekindofproductionfunction,oftenforacountryorregionswithinacountrybutsometimesusingcross-countrydata.Unfortunately,therearevery
fewstudies specific toASEANcountriesand the focusof this review is
therefore
thecross-countryliterature.Modelsareestimatedusingaregressionframeworkoragrowthaccountingapproach.Thestockofinfrastructure
per capita is usually used as the measure of infrastructure often
just capturing
publicinfrastructure,althoughspecifictypesorcategoriesofphysicalinfrastructurearesometimesexamined.
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14
percentforelectricitygenerationandasmuchas200percentforroads(Estache,2006,pp.8).Thisindicatesthattheprovisionofroadsislikelytotakepriorityforsomecountries,particularlyinruralareas.
However, not all studies establish a positive association
between infrastructure and growth. Oneexception is Devarajan et al.
(1996) who find a negative association between the share
ofinfrastructure spending in total spending and economic growth in
developing countries. Theirexplanation for this finding is that
high levels of infrastructure spending can actually
becomeunproductive, with overprovision of infrastructure in some
countries driving this result.
Further,Straubetal.(2008)failtofindanylinkbetweeninfrastructure,productivityandgrowthinEastAsiaandsuggestthatthemainroleof
infrastructurewastorelieveexistingconstraintsandbottlenecksratherthandirectlyencouraginggrowth.Thesestudiespointtothepossibleexistenceofanoptimallevelofinfrastructure.
Hulten(1996)providesevidencethattheefficiencyof infrastructure,
inadditionto its level
isveryimportantinexplainingdifferencesingrowthratesacrosscountries.4Thestudyfindsthatoverone-quarterofthedifference
inthegrowthratebetweenAfricaandEastAsiacanbeattributedtothedifference
in theeffectiveuseof infrastructure resources. This studyhighlights
the importanceofsoftinfrastructureexaminedinSection4.3.
(ii). Positive impacts aremore likely to be found
inmacroeconomic studies examining developingcountries
Itisunlikelythattheimpactofinfrastructureisthesameacrossallcountries,anassumptionmadeby
much of the cross-country literature. In their review of
macroeconomic studies, Briceno-Garmendia et al. (2004) Calderon and
Servon (2004) and Estache (2006) find that
infrastructuremattersmoreinlow-incomecountriesandregionsthaninricherones.Further,Straub(2008)findsthat
results are slightly more positive when studies are restricted to
those using data for justdeveloping countries, confirming the
notion that returns to infrastructure can be higher in
suchcountries. Hulten and Isaksson (2007) explicitly test whether
the impacts of infrastructure
varyaccordingtothelevelofdevelopment,measuredbyacountries’WorldBankincomeclassification.Their
results confirm that the impact of infrastructure on productivity
is higher for lower
incomecountries.UNIDO(2009b)alsofindthatthereturnstopublicinvestmentare,largely,diminishingasincomeincreases.
DelaFuenteandEstache(2004)review12studieswhichhaveexaminedtheimpactofinfrastructureandgrowthinindividualdevelopingcountriesandfindthatallofthemreportpositiveassociations.Theevidenceindicatesthatinfrastructurecanplayanimportantroleinnarrowingthedevelopmentgap
between rich and poor countries, with returns to infrastructure
investment probably
beinghighestintheearlystagesofdevelopmentwherebasicinfrastructureisabsent.
(iii).Whilethereisevidencethatinfrastructurebenefitsthepoor,suchimpactsshouldnotbetakenforgranted
Thereisnoshortageofevidenceofinfrastructureleadingtoreductionsintheincidenceofpoverty,the
level of inequality and improvements in human well-being. Numerous
examples and casestudies are provided by OECD (2007) and UN-HABITAT
(2011). However, the benefits ofinfrastructure to thepoor
shouldbynomeansbe taken for granted.While infrastructurehas
thepotentialtoassistthepoorbyconnectingthemtoeconomicopportunitiesandreducingproductionand
transportation costs, its impact depends upon the poor gaining
access to appropriate
4Infrastructureefficiencyisestimatedusinganindexincorporatinginformationonthefaultytelephonelines,electricitygenerationlosses,pavedroadsanddiesellocomotiveavailability.
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15
infrastructure as well as it being affordable to the poor.
Poverty reduction depends upon
manydifferentinterventionsandfactorsofwhichinfrastructureisjustone.
Forexample,
intheirstudyofchildhealthoutcomes,Leipzigeretal.(2003)findthatinadditiontotraditionalvariablessuchasincome,assets,educationanddirecthealthintervention,accesstobasicinfrastructure
services is also very important. According to the study, a large
proportion of thedifference in healthoutcomesbetween the rich
andpoor canbe explainedby access to services.They conclude that the
best progress towards the MDGs will be made through
combiningcomplementary interventionsgiven thatmanyof thegoalsare
inter-related.Clearly infrastructurecancomplementotherdirect
interventions inthehealthandeducationsectorsto
improvehumandevelopment. Brenneman and Kerf (2002) also review the
literature to uncover important
linksbetweeninfrastructureandimprovedhealthandeducationoutcomes.Specificallytheydiscussthelinksbetweenaccesstotransport,electricityandwaterandimprovementsinhealthandeducationandhowtheyare
inter-related.5Further,usingcross-countrydata,Lopez
(2003)andCalderonandServen(2008)findthatinfrastructure(measuredusingtelephonedensity)isassociatedwithreducedincomeinequality.
TheWorldBank(1994;2008)findshowever,thatpublicinfrastructurebenefitsthenon-poormorethanthepoorandwarnsagainstthenegative
impactsthat
infrastructureprojectscanhaveonthepoorthroughdisplacementandenvironmentaldegradationdiscussedabove.
(iv).Theempiricalliteratureislimitedinitspolicyrelevance
Whileusefulindemonstratingthepositiveimpactsofphysicalinfrastructure,theempiricalliteraturecanonlyprovidevery
limited insights
intoanumberofusefulquestionsfromapolicyperspective.Straub (2008)
notes that important questions remain over the relevance of
infrastructure tocountries at different stages of development and
its role in creating or closing the gap
betweenregionswithinandacrosscountriesandamongruralandurbanareas.Differentlevelsandpatternsofinfrastructurespendingshouldbeundertakenatdifferentstagesofdevelopment.
While it is true thatmost empirical studies find a positive
associationbetween infrastructure anddevelopment, this literature
has limited information for policy makers of what forms
ofinfrastructure have the greatest returns and should take priority
and where projects should
beundertaken.ExceptionsincludeEstache(2006)andtheempiricalstudiesofFanetal.,(1999;2002)whichshowedthatspendingonroadshasthebiggest
impactonpovertyrelativetoothertypesofinfrastructurespendinginthecontextofIndiaandChina.
Further, the literature is not always clear on how
infrastructure has led to growthwhen
positiveassociationsareobtained.Differentcountrieswithdifferentcharacteristicsrequiredifferenttypesof
5 There is very little literature which examines the link
between infrastructure and poverty specifically inASEAN countries.
However,Willoughby (2004b) documents the important role that
infrastructure played inreducingpoverty inVietnamduring
the1990s.Thegovernment investedgreatly in
transport,power,water,irrigationandtelecommunications,successfully,attractingFDIleadingtoprivatesectorjobcreation.StudiesbyGlewweetal.
(2002)andBalisicanetal. (2003)emphasise the importanceof roadsand
improvedaccess toservicesgreatlyassisted in reducingpoverty
inVietnam.BalisacanandPernia (2003) findthat investment
inroadsinthePhilippinesreducespovertyinareaswithhigherlevelsofschooling.GibsonandOlivia(201)findthat
access to and the quality of infrastructure (roads and electricity)
is important for rural households inIndonesia.
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16
infrastructureandatdifferenttimes.Therearealsoquestionsoversequencingthatcountriesmustconsiderintheirinfrastructurepolicies.
4.3.InstitutionalConnectivityandNarrowingtheDevelopmentGap
4.3.1WhatisInstitutionalInfrastructure?
Institutionalconnectivityrelatesto‘softinfrastructure’ortherulesandinstitutionsthatfacilitateorsupport
the development and operation of hard infrastructure (ADB, 2009,
2012; Bhattacharyay,2009). Soft infrastructure therefore includes
aspects of governance (including the policy,institutional, legal
and judicial environments), the protection of property rights,
financial andaccounting systems, the labour force and can also
include ‘social infrastructure’ (such as health,education, law and
order, community development) (Casey, 2005; Bhattacharyay, 2009).
Softinfrastructure therefore plays an important role in increasing
economic growth and
productivity,reducingpovertyandnarrowingthedevelopmentgapamongASEANmembers.Withoutadequatesoftinfrastructure,theimpactofhard/physicalinfrastructurewillbeverylimited.
ASEAN(2011)includesthefollowinginstitutionalbarrierstoASEANintegration:tariffandnon-tariffbarriers;
differing standards; and burdensome processes and procedures for
the movement
ofgoods,servicesandpeople.Further,Brooks(2008)arguesthat“highfreightcosts,delaysincustomsclearance,
unofficial payment solicitations, slow port loading or landing and
handling, and poorgovernance create barriers to trade.
Institutional bottleneck (administrative, legal,
financial,regulatory, and other logistics infrastructure),
information asymmetries, and discretionary
powersthatgiverisetorentseekingactivitiesbygovernmentofficialsatvariousstepsoftradetransactionsalso
impose costs” (Brooks, 2008, pp.4). Improvements in these forms of
soft infrastructure
areneededtoreducethetransactioncostsofdoingbusinessandtocomplementimprovementsinthehardorphysicalinfrastructureinfosteringeconomicgrowth.
The ADB (2012a) summarises the empirical evidence that shows
that customs,
immigration,quarantineandsecuritypoliciescanallimpedetradeandgrowthandthatimprovingthesepolicieswillbeimportantfornarrowingthedevelopmentgap.Thestudyemphasisestheimportanceofsoftinfrastructureincomplementinghardinfrastructure.Forexample,roadswon’tbeusedeffectivelyifborder
crossing are too onerous, tourists won’t travel with uncertain
immigration rules
andprocesses,andcargowon’tbemovediftariffsaretoohigh.
4.3.2Therelationshipbetweeninstitutionalinfrastructureanddevelopment
SimilartotherelationshipbetweenphysicalinfrastructureanddevelopmentprovidedinSection4.2,therearestrongassociationsbetweendevelopmentindicatorsandmeasuresofsoftinfrastructure.Figures
4.7 to 4.12 provide the relationship between the HDI and three
measures of
softinfrastructure:governance;theeaseofdoingbusinessandalogisticsperformanceindex.
Governance is defined as a composite index comprised of the
following six equally
weightedindicatorsfromtheWorldBank:(i)controlofcorruption;(ii)governmenteffectiveness;(iii)politicalstability
and absence of violence; (iv) regulatory quality; (v) rule of law;
and (vi) voice andaccountability. TheWorld Bank’s Ease of Doing
Business rankings are based on a country’s
scoreacross10equallyweightedcomponents.6Thelogisticsperformanceindexscorescountriesaccordingtotheeasewithwhichgoodscanbetransportedandtraded.Scoresareaveragedoverthefollowingsixdimensions:(i)theefficiencyoftheclearanceprocessbybordercontrolagencies;(ii)thequalityof
trade and transport related infrastructure; (iii) the ease of
arranging competitively priced6 These components include: (i)
starting a business; (ii) dealing with construction permits; (iii)
gettingelectricity;(iv)registeringproperty;(v)gettingcredit;(vi)protectinginvestors;(vii)payingtaxes;(viii)tradingacrossborders;(ix)enforcingcontracts;and(x)resolvinginsolvency.
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17
shipments; (iv) the competence and quality of logistics
services; (v) the ability to track and
traceconsignments;and(vi)thetimelinessofshipments
inreachingdestinationwithinthescheduledorexpected delivery time.
High scores for governance and logistics indicate a better
performancewhilelowercountryranksarepreferredfortheeaseofdoingbusiness.
Thefiguresprovideclearpositiveassociationsbetweenimprovedsoftinfrastructureandthelevelofhumandevelopment.Astrongerrelationshipbetweentheeaseofdoingbusinessappearsstrongerincountrieswithmediumlevelsofhumandevelopmentandonceagainalloftherelationshipsareparticularly
pronounced forASEAN countries. Similar relationships between
themeasures of softinfrastructure andGNI per capita (PPP) are
provided in Figures A4.7 to A4.12 in the appendix.
Insummary,thereisstrongevidencethatindicatorsofsoftinfrastructureanddevelopmentarehighlycorrelated.
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18
Figure4.7:GovernanceandtheHumanDevelopmentIndex(2010)
Note:DatasourcedfromWorldBank(2012).
Figure4.8:GovernanceandtheHumanDevelopmentIndex(2010)(ASEANcountries)
Note:DatasourcedfromWorldBank(2012).
12
34
Gov
erna
nce
Inde
x (lo
gged
)
.2 .3 .4 .5 .6 .7HDI score (logged)
Brunei Darussalam
Indonesia
CambodiaLao PDR
Myanmar
Malaysia
Philippines
Singapore
ThailandVietnam
1.5
22.
53
3.5
Gov
erna
nce
Inde
x (lo
gged
)
.4 .45 .5 .55 .6 .65HDI score (logged)
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19
Figure4.9:EaseofDoingBusinessandtheHumanDevelopmentIndex(2010)
Note:DatasourcedfromWorldBank(2012).
Figure4.10:EaseofDoingBusinessandtheHumanDevelopmentIndex(2010)(ASEANcountries)
Note:DatasourcedfromWorldBank(2012).
12
34
5
Ease
of D
oing
Bus
ines
s (lo
gged
)
.2 .3 .4 .5 .6 .7HDI score (logged)
Brunei Darussalam
IndonesiaCambodiaLao PDR
Malaysia
Philippines
Singapore
Thailand
Vietnam
12
34
5
Ease
of D
oing
Bus
ines
s (lo
gged
)
.4 .45 .5 .55 .6 .65HDI score (logged)
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20
Figure4.11:LogisticsPerformanceIndexandtheHumanDevelopmentIndex(2010)
Note:DatasourcedfromWorldBank(2012).
Figure4.12:LogisticsPerformanceIndexandtheHumanDevelopmentIndex(2010)(ASEANcountries)
Note:DatasourcedfromWorldBank(2012).
.81
1.2
1.4
1.6
Logi
stic
s In
dex
(logg
ed)
.2 .3 .4 .5 .6 .7HDI score (logged)
Indonesia
Cambodia
Lao PDR
Myanmar
Malaysia
Philippines
Singapore
Thailand
Vietnam
1.2
1.3
1.4
1.5
1.6
Logi
stic
s In
dex
(logg
ed)
.4 .45 .5 .55 .6 .65HDI score (logged)
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21
4.3.3InstitutionalInfrastructureinASEANcountries
This section examines further indicators of soft infrastructure
and the competitiveness of ASEANcountries. It compares scores and
ranks for ASEANmembers across the following four groups
ofindicators: the quality of infrastructure; the ease of doing
business; governance; and the logisticsperformance index. In
demonstrates that the quality of infrastructure varies considerable
acrossASEAN countries presenting a challenge for integration in
general and for regional
infrastructuredevelopmentmorespecifically.
Wong et al. (2011) provide the first ASEAN Competitiveness
Report and find that while
ASEANcompetitivenessisabovetheworldaverageandimprovedduringthefirsthalfofthe2000s,ithasstagnatedoverthepastfiveyears.Inparticular,ASEANisfoundtobeleastcompetitiveinsocalledadministrative
infrastructure relating to the time and procedures to start up a
business and
theefficiencyofcustomsprocedures.ImprovinghumandevelopmentandtheruleoflawarealsofoundtorequiremoreeffortamongsomeAMS.
Table 4.2 provides indicators of the quality of infrastructure
for ASEANmembers from theWorldEconomicForum’sGlobalCompetitiveness
Index (GCI).7Thescoreandrank for
thequalityofeachASEANmember’soverallinfrastructurefor2011-12and2008-09areprovidedinthefirstcolumnsofthe
table. The final rowof the table provides the average score and
rank for ASEANmembers. Itshowsthat
in2011-12ASEANwouldrank64outof142countries.
Thisrankinghasfallenfrom58over the last three years although only
134 countrieswere included in 2009-09. This provides
anindicationthatASEANhasexperiencedverylimitedimprovementsinthequalityofitsinfrastructure,constraininggreatintegrationamongitsmembers.
In2011-12,thetablealsoshowsthatindividualcountryrankingsvarygreatlywithSingaporeranked2ndoutof142countriesandBrunei,MalaysiaandThailandalsorankingrelativelywell.However,in2011-12Vietnamranked123rd.
TherearelargegapsinthescoresandranksforthespecificinfrastructurequalitymeasuresamongASEANmemberswithSingaporeandMalaysiascoringandrankingveryhighlybutfar
lowerscoresandranksarerecordedforthePhilippinesandVietnam.BruneiandThailandrankrelativelywellanddataarenotavailableforLaosandMyanmar.Interestingly,thereisnotaclearqualitygapbetweentheASEAN6andASEAN4
forwhichdataareavailablewithCambodiaoftenhavingbetter
scoresthanIndonesiaandthePhilippinesacrossthedifferentmeasuresofinfrastructurequality.
With theexceptionofSingaporeandThailand,allASEANmembershave
improved theirqualityoftheir overall infrastructure scores although
rankings have fallen for some countries due to theinclusion ofmore
countries in the later period and other countries improving the
quality of theirinfrastructure at a faster rate. Indonesia and
Cambodia have been particularly successful atimproving the quality
of their infrastructure in recent years although Cambodia’s poor
quality
ofelectricitysupplylowersitsoverallrank.Intermsoftheoverallqualityofinfrastructure,Bruneiranksrelativelywelldespiterankingrelativelypoorlyforitsqualityofrailroadinfrastructure.Indonesiahasimproveditsscoreandrankconsiderably,butstillrankspoorlyonthequalityofitsportfacilitiesandthecountry’selectricitysupplyisdeemedunreliableaswellasscarce(WEF,2011).
7TheGCI isanannual
indexdevisedbytheWorldEconomicForum.Itaggregatesdataon110variables
intoscores for twelve pillars capturing themost important
determinants of global competitiveness. The
twelvepillarsinclude:(i)institutions;(ii)infrastructure;(iii)themacroeconomicenvironment;(iv)healthandprimaryeducation;
(v)highereducationandtraining; (vi)goodsmarketefficiency; (vii)
labourmarketefficiency; (viii)financialmarket development; (ix)
technological readiness; (x)market size; (xi) business
sophistication; and(xii)
innovation.Theindexrecognisesthatdeterminantsofproductivitydiffercountriesatdifferentstagesofdevelopmentandthereforegroupscountriesaccordingtowhethertheyareat(i)afactordrivenstage(Stage1);
(ii) a transition stage (fromStage 1 to 2); (iii) an efficiency
driven stage (Stage 2); (iv) a transition
stage(fromStage2to3);and(v)aninnovationdrivenstage(Stage3).
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22
WhileVietnamhas improved its overall quality of infrastructure
score, it ranks particularly
poorlywithrespecttothequalityofitsroadsandportinfrastructure.ThePhilippineshasalsoimproveditsscorebutfromalowbaseandstilldoesn’tfeatureinthetop100foranyofthequalityrankings.
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23
Table4.2:SoftinfrastructureinASEANmembers
QualityofOverallInfrastructureScore
2011-12
QualityofOverallInfrastructureScore
2008-2009 QualityofRoadsQualityofRailroadInfrastructure
QualityofPortInfrastructure
QualityofAirTransportInfrastructure
Qualityofelectricitysupply
ScoreRank
(outof142) ScoreRank
(outof134) Score Rank Score Rank Score Rank Score Rank Score
Rank
ASEAN6
Brunei 5 44 4.7 39 5.2 33 2.2 85 4.4 60 4.9 62 5.4 53
Indonesia 3.9 82 2.8 96 3.5 83 3.1 52 3.6 103 4.4 80 3.7 98
Malaysia 5.7 23 5.6 19 5.7 18 5 18 5.7 15 6 20 5.9 38
Philippines 3.4 113 2.9 94 3.1 100 1.7 101 3 123 3.6 115 3.4
104
Singapore 6.6 2 6.7 2 6.5 2 5.7 7 6.8 1 6.9 1 6.8 4
Thailand 4.7 47 4.8 35 5 37 2.6 63 4.7 47 5.7 32 5.5 50
ASEAN4
Cambodia 4.1 76 3.1 82 4 66 1.8 96 4 76 4.3 84 3.5 103
LaoPDR na na Na na Na na na na na na na na na Na
Myanmar na na na na Na na na na na na na na na Na
VietNam 3.1 123 2.7 97 2.6 123 2.5 71 3.4 111 4.1 95 3.3 109
ASEANunweightedaverage
4.6 64 4.2 58 4.5 58 3.1 62 4.5 67 5.0 61 4.7 70
Source:WEF(2008;2011)
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24
Table4.3providestheeaseofdoingbusinessindicatorsforASEANcountries.Dataareavailablefor2010and2011fromtheWorldBank(2012).ThelastrowofthetableindicatesthatifASEANwasacountryitwouldberanked87outof183countries.Thisisslightlydownonthe2010rankingof86,highlighting
theneed forASEANmembers tomakeprogress in this respect. In
comparison to
theaverageforOECDcountries,ASEANmembersfacealowercosttoexport(US$742versusUS$908percontainer)butexportingtakesconsiderablylonger(19versus10days)(seeADB,2012).
ThetablealsoindicatesthattheeaseofdoingbusinessishighestinSingaporethananyoftheother183
countries included in the rankings. Thailand and Malaysia also
ranks well at 17th and 18threspectively. Lao PDR ranks the lowest
among ASEAN members, at 165 out of 183 countriesalthoughMyanmar is
not included in the data. It is not the case that all ASEAN 6
countries
rankhigherthantheASEAN4.VietnamrankshigherthanIndonesiaandthePhilippineswhichhaveverysimilarrankstoCambodia.
ExaminingtheindividualcomponentsoftheindexrevealsthatthecostofexportingandimportinginLaosissignificantlyhigher(aboutfourtimes)thanitisinSingaporeandMalaysia.Thetimeittakesto
importandexportforLaoisalsosubstantiallyhigher.
Interestingly,Bruneiscores
lowestamongASEANmemberswhenitcomestothenumberofprocedurestoenforceacontractandjointlowestwith
the Philippines when considering the number of procedures to start
a business.
Thesecomponentspulldownthecountry’soveralleaseofdoingbusinessrank.
With the exception of Singapore,Malaysia and Thailand there is
clearly greater scope for ASEANmembers to improve the ease of doing
business to encourage a flourishing private sector and
tofacilitategreaterintegration.
Table 4.4 examines the ASEAN country ranks for theWorld Bank’s
governance indicators. It
alsoexaminesthechangeintheserankingsfrom1996(justbeforetheAsianfinancialcrisis)to2010.ThefinaltworowsofthetableindicatethatifASEANwasacountryitwouldrankabouthalfwayformostgovernanceindicators.However,ASEANhasfalleninrankingsacrossallgovernanceindicatorssince1996(althoughmorecountriesarerankedinthelatterperiod).Inparticulartherearelargefalls
inthe rankings for “control of corruption’ and ‘political stability
and the absence of violence’. Ingeneral, Singapore and Brunei rank
highly across the governance indicators although all
ASEANcountriesrankpoorlyfor‘VoiceandAccountability’.
In2010,onlyBrunei,Malaysia,SingaporeandThailandhave ranks in the
top100acrossall governance indicators.
LaosandMyanmarareoftenrankedthelowestamongASEANmembersacrossthegovernanceindicators.ThegapbetweentheASEANmember
rankings can be huge. The difference in ranks between Singapore
andMyanmarexceeds200for‘ControlofCorruption’,‘GovernmentEffectiveness’and‘RegulatoryQuality’.WhilethereisgenerallyagapbetweentheASEAN6andtheASEAN4,VietnamranksaboveIndonesiaandthePhilippinesforsomegovernanceindicators.
Evenmorestartling is thechange
intherankingacrosstime.BruneiandSingapore
improvedtheirrankonjusttwogovernanceindicatorsfrom1996to2010whilerankingsacrossallindicatorsfellforLaoPDR,Myanmar,Philippines,ThailandandVietnam.Whilealargernumberofcountriesincludedinthesamplein2010canpartiallyexplainthisfinding,thereisstrongevidencetosuggestthattheperceivedlevelofgovernanceisfallinginASEANcountries.
ThelogisticalperformanceindexscoresforASEANcountriesareshowninTable4.5.OnceagainthetableshowsthatisASEANistreatedasacountry,itsrankingfortheoverallindexhasfallenfromin62
in 2007 (out of 150 countries) to 68 in 2010 (out of 155
countries). Singapore and Malaysiaperformverywell according to this
index. The tablealso indicates thatwhileCambodia,
LaosandMyanmaralwaysscorelessthantheASEAN6,VietnamhasahigheroverallscorethanIndonesiaduetoitshigherscoreacrossfiveofthesixcomponentsoftheindex.
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25
Narrowing the gap between the logistics performance index across
ASEAN members will bechallenging. It will take time for the poor
ASEAN countries to develop the capacity to reach theinternational
best practice of a country like Singapore. However, the ASEAN
Single Window forcustomsclearance schemewill greatlyassistwith
trade facilitationamongmember countries. TheASEAN Single Window
will integrate National Single Windows enabling a single submission
ofinformationanddataandgreatly speedup
thecustomsclearanceprocess.Currently
theASEAN6hasaSingleWindowsysteminplacewiththeASEAN4toestablishthesystemduring2012.
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26
Table4.3:EaseofDoingBusinessIndicatorsforASEANcountries(2011)
Easeofdoingbusinessindex2011(1=easiestto183=mostdifficult)
Easeofdoingbusinessindex2010(1=easiestto183=mostdifficult)
Trade:Costtoexport(US$per
container)
Trade:Costtoimport(US$per
container)
Trade:Timetoexport(day)
Trade:Timetoimport(days)
Trade:Documentsto
export(number)
Trade:Documentsto
import(number)
Proceduresrequiredto
startabusiness(number)
Proceduresrequiredtoenforceacontract(number)
ASEAN6
BruneiDarussalam 83 86 680 745 19 15 6 6 15 47
Indonesia 129 126 644 660 17 27 4 7 8 40
Malaysia 18 23 450 435 17 14 6 7 4 29
Singapore 1 1 456 439 5 4 4 4 3 21
Philippines 136 134 630 730 15 14 7 8 15 37
Thailand 17 16 625 750 14 13 5 5 5 36
ASEAN4
Cambodia 138 138 732 872 22 26 9 10 9 44
LaoPDR 165 163 1880 2035 44 46 9 10 7 42
Myanmar
Vietnam 98 90 580 670 22 21 6 8 9 34ASEANAverage(unweighted) 87
86 742 815 19 20 6 7 8 37Source:WorldBank(2012)
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27
Table4.4:WorldBankGovernanceIndicatorsforASEANcountries1996and2010
ControlofCorruption
GovernmentEffectiveness
PoliticalStabilityandAbsenceofViolence RegulatoryQuality
RuleofLaw
VoiceandAccountability
Rank(1996)
Rank(2010)
Rank(1996)
Rank(2010) Rank(1996) Rank(2010)
Rank(1996)
Rank(2010)
Rank(1996)
Rank(2010)
Rank(1996)
Rank(2010)
ASEAN6
BruneiDarussalam 53 46 34 48 20 16 13 38 55 57 136 150
Indonesia 125 153 109 110 161 173 77 127 102 146 152 110
Malaysia 54 82 45 38 66 103 57 61 54 74 92 146
Philippines 90 163 93 102 125 199 71 118 86 139 83 113
Singapore 8 4 1 1 23 23 1 4 24 15 79 133
Thailand 92 112 69 88 73 186 75 92 56 107 75 148
ASEAN4
Cambodia 150 194 146 163 160 158 93 136 155 185 151 160
LaoPDR 120 181 129 175 76 136 164 173 142 167 156 200
Myanmar 178 209 172 205 171 189 177 208 169 205 196 210
Vietnam 109 141 117 118 72 104 133 145 108 130 167
194ASEANunweightedaverage
98 129 92 105 95 129 86 110 95 123 129 156
Rankedoutof 184 210 184 210 189 213 185 210 185 212 199
212Source:WorldBank(2012)
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28
Table4.5:LogisticsPerformanceIndexvaluesforASEANmembers2010
Logisticsperformanceindex:Overall(1=lowto5=high)
Rank2010(outof155)
Rank2007(outof150)
Logisticsperformanceindex:Abilitytotrackandtraceconsignments(1=lowto5=high)
Logisticsperformanceindex:Competence
andqualityoflogisticsservices(1=lowto
5=high)
Logisticsperformanceindex:Easeofarrangingcompetitivelypricedshipments(1=lowto
5=high)
Logisticsperformanceindex:Efficiencyofcustomsclearanceprocess(1=lowto
5=high)
Logisticsperformance
index:Frequencywithwhich
shipmentsreachconsigneewithinscheduledorexpectedtime
(1=lowto5=high)
Logisticsperformanceindex:Qualityoftradeandtransport-relatedinfrastructure
(1=lowto5=high)
ASEAN6
BruneiDarussalam Na na na na na na na na na
Indonesia 2.76 74 42 2.77 2.47 2.82 2.43 3.46 2.54
Malaysia 3.44 29 26 3.32 3.34 3.5 3.11 3.86 3.5
Philippines 3.14 43 64 3.29 2.95 3.4 2.67 3.83 2.57
Singapore 4.09 2 1 4.15 4.12 3.86 4.02 4.23 4.22
Thailand 3.29 34 30 3.41 3.16 3.27 3.02 3.73 3.16
ASEAN4
Cambodia 2.37 128 81 2.5 2.29 2.19 2.28 2.84 2.12
LaoPDR 2.46 118 118 2.45 2.14 2.7 2.17 3.23 1.95
Myanmar 2.33 131 146 2.36 2.01 2.37 1.94 3.29 1.92
Vietnam 2.96 52 52 3.1 2.89 3.04 2.68 3.44
2.56ASEANunweightedaverage
2.98 68 62 3.04 2.82 3.02 2.70 3.55 2.73
Source:WorldBank(2012)
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29
4.4People-to-PeopleConnectivityandNarrowingtheDevelopmentGap
4.4.1Culturalandeducationalexchangesandtourism
The objective of people-to-people connectivity in the Master
Plan on ASEAN Connectivity is “Todevelop initiatives that promote
and invest in education and life-long learning , support
humanresource development, encourage innovation and
entrepreneurship, promote ASEAN
culturalexchanges,andpromotetourismandthedevelopmentofrelatedindustries”(ASEAN,2011,pp.7).
The Master Plan includes a number of activities to achieve these
objective including
outreachprograms,studentexchanges,reducingvisaandtravelrequirementsandeducationprogramsaimedatfosteringagreaterrecognitionandunderstandingofotherASEANcultures.ASEANhasanumberof
established entities to assist in fulfilling these objectives
including the ASEAN Socio-CulturalCommunity (ASCC), the ASEAN
University Network (AUN), established in 1995 to
promotecollaboration among ASEAN Scholars and scientists, the ASEAN
Committee for Culture
andInformationandtheASEANTourismStrategicPlan2011-15topromotetourismandincreasetouristarrivalstoASEAN.
Whiletheseareasofpeople-to-peopleconnectivitywillbeimportanttonarrowingthedevelopmentgap,particularly
inthelongterm,thissectionfocusesonthemorecontentiousissueofpeople-to-peopleconnectivity;thatoflabourmobilityandmigration.
4.4.2IntraASEANLabourmobilityandmigration
The free flow of labour is often viewed as a contentious issue
of ASEAN integration and only anincrementalapproach
isbeingunderbyASEANmembers.LabourmovementsaregovernedbytheGeneralAgreementonTradeandServicesandtheASEANFrameworkAgreementonServices(AFAS).TheFrameworkrequirescountriestolistthesectorstheywouldliketoliberaliseandtherehasbeenvery
limited commitment to liberalise further due to pressure from lobby
groups (Manning andBhatnagar, 2005). Efforts are currently focused
on improving skilled labour mobility. There isincreasing movement
of skilled workers within ASEAN, and this is associated with
greater intra-regional FDI and trade. However, unlike unskilled
workers, an estimated 80 per cent of skilledworkers come
fromoutsideofASEAN (Manning andBhatnagar, 2005).Menon (2012) argues
thatfailuretodealwiththe issueof labourmobility
isthebiggestdisappointmentoftheAECBlueprintandtherearecurrentlyinadequatepolicyframeworksfordealingwithlabourmobility.
Tofacilitategreatermobilityofskilledlabouramongitsmembers,ASEANhassofarestablishedeightMutualRecognitionArrangements(MRAs).TheseMRAsarewhereASEANcountriesrecogniseeachother’s
conformity assessments therefore reducing time and costs in
employment. They
currentlyextendtothefollowingeightprofessionalgroups:
(i)engineering; (ii)nursing; (iii)architecture; (iv)surveying; (v)
tourism; (vi) medical practitioners; (vii) dental practitioners;
and (viii) accountants(ASEAN,2011).
SomeASEANcountrieshaveexperiencedarapidexpansionofforeignworkerstoveryhighlevels.InMalaysiaforeignworkersincreasedfrom250,000in1990tomorethantwomillionin2007andtheyaccounted
for 16 per cent of the countries labour force in 2010.More than
two-third of
foreignlabourisfromASEANcountries,inparticular,workersfromIndonesiaandthevastmajorityiseitherskilledorsemi-skilled(Pasadilla,2011).
Thailandhasahugenumberofforeignworkers,manyofwhichareundocumentedandexperienceexploitation.Thereareanestimated
threemillion foreignworkers inThailandmostof them fromMyanmar and
smaller numbers from Laos and Cambodia yet they do not show up in
the official
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30
statistics.TheThaigovernmenthasembarkedonaschemetoregisterforeignworkersinorderforthem
towork legally and to access services.However,Myanmarnationals are
reluctant to returnhome, even temporarily, in order to get
registered and therefore face possible arrest anddeportation
(Economist, 2010). While the Philippines has a large proportion of
its populationworking overseas, the most common worker destinations
are outside of ASEAN such as the
US,Canada,Australia,JapanandtheMiddlesEast.
Table 4.6 provides official data on intra-ASEANmigration stocks
from theWorld Bank’s bilateralmigration database. It provides data
for 1990 and 2010 although data are not available
forIndonesia,MyanmarandVietnamforthelatterperiod.Thetabledemonstratesafairlyhighlevelofmobility
among ASEAN members. It also indicates that the highest stocks of
migrants areIndonesiansinMalaysiaandMalaysiansinSingapore.
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31
Table4.6:IntraASEANmigrantstocks
1990 ToBrunei
Darussalam Cambodia Indonesia LaoPDR Malaysia Myanmar
Philippines Singapore Thailand VietnamFrom BruneiDarussalam 0 3 55
0 5,211 19 137 322 515 20Cambodia 0 0 994 1,423 106 343 254 40
10,882 6Indonesia 3,340 58 0 57 407,154 4,121 6,546 37,770 1007
1,549LaoPDR 0 141 1,501 0 243 518 336 19 16,940 8Malaysia 40,846 93
3,471 17 0 1,197 1,042 343,171 1,153 821Myanmar 0 28 4,166 412
3,353 0 982 293 52,701 29Philippines 7,852 83 5,811 28 168,737
2,003 0 747 950 647Singapore 1,522 66 551 3 50,381 190 272 0 715
186Thailand 6,616 16,276 1,098 2,318 50,151 378 445 3,846 0
213Vietnam 6 19,802 6,995 14,099 6,313 2,412 1,709 2,936 4,857
0
2010 ToBrunei
Darussalam Cambodia Indonesia LaoPDR Malaysia Myanmar
Philippines Singapore Thailand VietnamFrom BruneiDarussalam 0 0 Na
0 7,905 na 1,003 0 0 naCambodia 0 0 Na 909 0 na 232 0 49,750
naIndonesia 6,727 505 na 0 1,397,684 na 5,865 102,332 1,459
naLaoPDR 0 1,235 na 0 0 na 0 0 77,443 naMalaysia 81,576 816 na 0 0
na 394 1,060,628 3,429 naMyanmar 0 247 na 143 17,034 na 415 0
288,487 naPhilippines 15,861 728 na 0 277,444 na 0 0 3,360
naSingapore 3,033 581 na 0 103,318 na 288 0 2,134 naThailand 13,381
142,767 na 916 79,604 na 150 0 0 naVietnam 0 173,694 na 8,167 0 na
748 0 22,156 naSource:WorldBank(2012)adaptedfromMenon(2012)
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32
Ingeneral,unskilledlabourisdominatedbyfemalesindomesticservices,maleconstructionworkersand
male agricultural workers. Skilled workers are concentrated in
manufacturing and
services(ManningandBhatnagar,2005).TheasymmetricallabourmobilitybetweenAMSisnotsurprising,asworkers
from poorer regions seek employment, higher wages and better
working conditionselsewhere. A freermovement of labour and people
among ASEAN countries therefore has
greatpotentialinnarrowingthedevelopmentgap.Greaterlabourmobilityalsoenablesmigrantstosendback(remit)moneytotheirhomecountries.Inareaswhichsufferfromlowemploymentratesandlimited
income earning opportunities the benefitswill be particularly
pronounced. Host countriesalso benefit from filling shortages and
skills gaps in their labour force and businesses can
benefitfromlowerwagerates.
Arapidlygrowing literature isemergingonthe impactofremittances
inreceivingcountries.Whilesome findings are disputed, empirical
studies find positive impacts with respect to growth(Catrinescu et
al.,2009; Jongwanich, 2007; Pradhan et al., 2008)), poverty
reduction (Adams andPage, 2005; Brown and Jiminez, 2005), and
raising levels of human capital (Hildebrandt
andMcKenzie,2005;Acostaetal.,2007). Table4.7belowdemonstratesthat
levelsofremittancesareparticularly high in the Philippines and
Vietnam accounting for about 11 and 8 per cent of thecountries’ GDP
respectively. This reflects the large number of national of these
countries livingabroad. The table also indicates that Brunei,
Malaysia and Singapore have higher
internationalmigrantstocks(asapercentageoftheirpopulation)reflectinglargeinflowsofmigrants,fromASEANandnon-ASEANmembers,inordertomeettheirdemandforlabour.
Despite its potential benefits the governments of both labour
importing and exporting
countriessometimesopposemovetowardsgreaterlabourmobility.Thegovernmentsofoftenpoorerlabourexporting
countries have concerns over an exodus of talent and their skilled
professionals. Theseimpacts are commonly referred to as a brain
drain. The loss of doctors and nurses to richercountries with
higher wages presents a particular concern. The governments of host
(net labourimporting)countriesoftenhaveconcernsoveraccepting
largenumbersofunskilledmigrantssincethiscanleadtohigherunemploymentandmoreresourcesrequiredforsocialprotection.Itcanalsoleadtosocialtensions,particularlyifnewmigrantsdisplacedomesticworkers.Fewerrestrictionsonthe
movement of people also makes people trafficking easier. However,
by restricting labourmobility to just skilled labour seriously
restrict the ability to narrow the development
gap.RestrictionsonitsmobilitywillaccentuateinequalityandmakesitharderforallASEANcountriestoadjusttochangingeconomicanddemographiccircumstances(Menon,2012).
It isthemigrationofunskilled labour (even ifonlyonatemporarybasis)
thanwillbeofmostbenefit
topoorcountriesandregionsandwhichwilleffectivelynarrowthedevelopmentgap.
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33
Table4.7:RemittancesandthestockofinternationalmigrantsinASEANcountries(2010)
Workers'remittancesandcompensationof
employees,received(%ofGDP)Internationalmigrantstock(%
ofpopulation)BruneiDarussalam - 37.1Cambodia 3.3 2.4Indonesia
1.0 0.1LaoPDR 0.6 0.3Malaysia 0.5 8.3Myanmar - 0.2Philippines 10.7
0.5Singapore - 38.7Thailand 0.6 1.7Vietnam 7.8
0.1Source:WorldBank(2012)
4.5.ChallengesforConnectivitytoNarrowtheDevelopmentGap
TheMasterPlanonASEANConnectivityeffectivelyguidesmembercountriesonhowtoextendandstrengthen
their links across a number of dimensions. However, countries face
a number ofchallengesinadoptingtheplanandreachingitsobjectives.
Global issues present one set of challenges for ASEANmembers.
The recent GEC highlighted
thedangersofanexportorientedgrowthstrategyandcontinuingweakgrowthinbothEuropeandtheUShas
constrained thedemand forASEANexportsand reducedpublic
sectorbudgets.Moreover,thePhilippines,MyanmarandVietnamarefoundtobeamongthetencountrieswiththegreatestexposuretonaturalhazards.Combinedwitha
limitedcapacity torespond, theseASEANmembersare particularly
vulnerable to great disruption to output and production, as well as
damage
toessentialinfrastructureintheeventofamajornaturaldisaster(Maplecroft,2012).
Anothermajorchallengerelatingtoconnectivityistoensurethattheoftenasymmetricbenefitsofgreaterconnectivityareskewedtowardsthepoorestcountriesandregionsandthatgrowthispro-poor.Unlessthisisthecase,greaterconnectivitycouldleadtoawideningratherthananarrowingof
the development gap. Specific challenges to improving physical,
institutional and
people-to-peopleconnectivityarediscussedinturn.
4.5.1Challengesinimprovingphysicalconnectivity
AnimportantchallengeforASEANistoaddressthetrade-offs
inprioritisingandthesequencingoftheir physical infrastructure
investments. The cost of delivering infrastructure in remote areas
isoften far higher than in urban areas. Often there will be a
trade-off between directinginfrastructure towards lagging or poorer
regions, possibly at the expense of growth, but for
thebenefitofthoselivingintheseareas(DfID,2006).Thiswillbenecessarytonarrowthedevelopmentgap.Thespatialclusteringofinfrastructureneedsconsiderationinordertomaximiseitsbenefits.
Inordertopreservethequalityofinfrastructure,ASEANmustalsostriketherightbalanceinfundingthemaintenanceofexisting
infrastructureversusthefundingofnewprojects.Straub(2008)notesthat
there is often a bias towards new infrastructure due to its greater
visibility to electorates.However, lower than optimal maintenance
expenditures are likely to lead to higher operationalcosts.
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34
The financing of ASEAN infrastructure requirements presents
another challenge. ASEAN countrieswill require infrastructure
investments amounting to an average investment of US$60 billion
peryearto2015.About66percentofthisamountisneededfornewprojectsand34percentforthemaintenanceof
existing infrastructure (Bhattacharyay, 2009). To assistwith
themassive
financingrequirementsforregionalinfrastructure,ASEANmemberswiththeADBhaveestablishedtheASEANInfrastructureFund(AIF).TheinitialequityoftheAIFwillbeUS$485million,whichwillbefundedbytheASEANcountries
(US$335million) and theADB (US$150million). TheAIFwill initially
fund
sixprojectsayearandhasatotallendingcommitmentofaboutUS$4billionto2020.Withco-financingfromtheADBandotherpartners,
it isanticipated that the fundwill leverage$13billion. It
isalsohopedthatthefundwillattractsomeofthecurrencyreservesheldbyAMSthatareinvestedoutsideof
ASEAN, currently estimated at US$700 billion (ADB, 2012b). To meet
ASEANs
infrastructurerequirementssourcesoffundingotherthantheAIFarerequired.Bhattacharyay(2009)arguesthatfundingshouldcomefromAMSsavingsandforeignexchangereservesaswellmobilisingresourcesfromotherAsiancountriessuchasthroughtheUS$10billionChina-ASEANInvestmentCooperationFund(CAICF)andthatthereisalsoaneedtodevelopanASEANInfrastructureBondFund
Largeinfrastructuredevelopments,particularlyregionalprojectscarrylargerisksandarethereforeoften
funded by the public sector (ABD/ADBI, 2009). Clearly meeting
ASEAN’s infrastructurerequirementswill be easierwith the assistance
of the private sector. Thiswas recognised by
the2009ASEANComprehensiveInvestmentAgreementaimedtofacilitateprivatesectorinvestmentbyimprovingtheinvestmentenvironmentacrossASEANmembers.Further,infrastructureprojectsareoftenverycostlyandcomplexandPublicPrivatePartnerships(PPPs)provideameanstosupplementpublic
sector resources and increase the efficiency of infrastructure
projects. The ADB
(2012a)outlinesthefollowingbenefitsofPPPs:(i)theeasingofpublicsectordebtandexpenditureburdens;(ii)
assisting in the development of domestic financial markets; (iii)
improved
administrativeefficiency;(iv)betterserviceprovision;and(v)stimulatingbroadereconomicactivity.However,thereportalsoidentifiesfactorscontributingtotheirfailureincludingunforeseeneconomicconditions,alackofcapacity,uncertain/unreliablelegalsystemsandalackofcontinuousdialoguebetweenthegovernmentandprivatesector.
Minimising theenvironmental and social impactsof large scale
infrastructureprojectswill alsobevital for greater physical
connectivity to effectively narrow the development gap. The
negativeimpacts of displacement, pollution and deforestation must
be planned for and minimised
inundertakingnewinfrastructureinvestment,particularlysincethepooroftendisproportionatelybearthebruntoftheseimpacts.
Successfully integrating infrastructure programs that are being
undertaken at the national, sub-regionalandregional
levelspresentsagreatchallengeforASEANmembers
(Bhattacharyay,2009).There are numerous projects being
simultaneously implemented and one over-arching
andcomprehensivestrategyneedstobeadoptedinordertoeffectivelycoordinateprojectsandensurethat
the projects which have the greatest potential in narrowing the
development gap areprioritised.
4.5.2Challengesinimprovinginstitutionalconnectivity
Globally, ASEAN countries on average do not rank very highly
according to their enablinginfrastructure or institutional
connectivity. Further,measures of such connectivity have
stagnatedoverthepastfiveorsoyearsandgreatereffortsareneedtoimprovethequalityofinfrastructureinordertonarrowthedevelopmentgap.
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35
Policiesandproceduresgoverning tradenotonlyneed
tobestrengthenedbutharmonisedacrosscountries. This is particularly
important for RCB infrastructure projects. Bhattacharyay
(2010)identifies, 40 major international, regional and subregional
institutions and programs that havesupported infrastructure
development across Asia, again, strongly pointing to a need
forharmonisation, coordination and integration. Some countries will
need greater assistance
inimprovingthequalityoftheinfrastructureandtheirinstitutionalconnectivity.
4.5.3Challengesinimprovingpeople-to-peopleconnectivity
Thereisn’talwaysthepoliticalwillforgreaterlabourmobilitydespiteitspotentialbenefitstobothsendingandreceivingcountries.Ingeneralloweringtherestrictionsonthemovementoflabourwilllead
tomovements of people from poor regions to richer ones in search of
employment, betterwages rates and working conditions. Given the
huge diversity in living standards across
ASEANcountries,verylargenumbersofpeoplefromCLMVcountrieswouldmovetoneighbouringThailand,aswellasMalaysia,SingaporeandBrunei.Firdausy(2005)notesthetensionsbetweengovernmentsarising
from the movement of workers from Indonesia to Malaysia and
Singapore and from
thePhilippinestoMalaysia.Moreover,giventhemillionsofBurmesealreadyinThailand,thereislikelytobepoliticalwillforonlyaverygradualeasingofrestrictionsonthemovementoflabour.ASEANneedstodeveloppoliciestomanagebothlargeoutflowsof
labourfromsomemembersaswellaslargeinflowsoflabourtoothers(Menon,2012).
Withthe increasingratesofmobilityamongASEANmembers, it
isnecessary toensureacceptableworking conditions prevail across
them. In 2007 ASEAN leaders signed the Declaration on theProtection
and Promotion of the Rights of Migrant Workers which seeks to
promote fair
andappropriateemploymentprotection,paymentofwages,andadequateaccesstodecentworkingandliving
conditions for migrant workers. The implementation of this
declaration should be closelymonitored. Moreover, ASEAN faces the
challenge of providing universal social
protection,particularlyforthoseintheinformalsector.8
ThebraindrainisaninevitableissueforthepoorerASEANcountries.Thechallengeistomanageitas
best as possible and minimise its impacts. Improving wage levels
and the living and
workingconditionsinpoorerASEANmemberswillassistinreducingtheincentiveforskilledprofessionalstomigrate.Apolicywherebyskilledprofessionalsfromdevelopingcountriesthatareworkinginrichercountries
are taxed and the money returned to their home country was
originally proposed
byBhagwati(1977)buthasrecentlyrenewedinterestandcouldbeconsideredbyASEAN.
4.6ConclusionandPolicyImplications
This chapter has provided strong evidence that physical,
institutional and people-to-peopleconnectivity canall playa crucial
role innarrowing thedevelopmentgap. There isno
shortageofempiricalevidencethatconfirmsthe importanceofphysical
infrastructure
forgrowthandpovertyreduction.Yettomaximisephysicalinfrastructure’sdevelopmentimpactasupportiveandenablingenvironmentmustalsoexist.Goodgovernance,stronginstitutions,andsupportivemacroeconomicpolicies
are vital if the potential gains from physical infrastructure are
to be realised.
GreaterconnectivityandfewerrestrictionsonthemovementofpeopleaswellasgoodswillhavetangibleimpactsonnarrowingthedevelopmentgapamongASEAN’smembers.
Empirical evidence suggests that physical infrastructure has its
greatest impact in developingcountries. ASEAN must therefore
prioritise infrastructure investments in CLMV given the lower8
Pasadilla (2011) examines the portability of social security for
cross-border workers in ASEAN.
Portabilityreferstoabilitytotransfersocialsecuritybenefitsacrosscountries.Shefindsdifferences
insocialprotectionschemes in terms of their coverage, their
exportability and the minimum qualifying periods for
eligibility,concludingthatgreaterportabilityisneededforthegrowingnumberofmigrantworkersinASEAN.
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36
development indicators that prevail in these countries. Projects
in more rural and remote areasshould be prioritised in other ASEAN
members. Potential projects must be assessed not
justaccordingtowhethertheywillspureconomicgrowthinASEANcountriesbutwhethergrowthwillbepro-poor.
Thiswill dependnotonlyon the locationof infrastructurebut
alsowhether it is biasedtowards the sectors inwhich thepoor
operate. Thepoor canbenefit from infrastructure
throughincomeearningopportunitiesandaccesstoservicesandtheacademic
literaturesuggests that
thepovertyreducingimpactofroadsappearstobeparticularlyhigh.
The Master Plan on ASEAN Connectivity provides a comprehensive
outline for achieving
greaterconnectivitywith19keystrategiesaswellas84keyactions.Inrelationtophysicalconnectivity,theevidence
provided by this chapter indicates that priority should be given to
the strategies of
(i)completingtheASEANhighwaynetworkwhichwillintegratebyroadlaggingpartsoftheregion;(ii)establishanefficientandintegratedinlandwaterwaysnetworkwhichismorerelevanttotheASEAN4;
and (iii) establish integrated and seamless multimodal transport
systems to make ASEAN thetransporthubofEastAsia (and inparticular
construct themissing linkof
theEastWesteconomiccorridorinMyanmar).
Atthesametime,thenegative impactsofphysical
infrastructureandgreaterconnectivityneedtoconsideredandaddressed.Largescaleinfrastructureinvestmentscanleadtoenvironmentalimpactssuchaswaterandairpollutionaswellassocialimpactsincludingthedisplacementofcommunitiesaswellconnectivitypossiblyleadingtomorecrime,illegalimmigrationandpeopletrafficking.
TheADB/ADBI(2009)andBhattacharyay(2010)arguesthataneffectiveinstitutionalframeworkforAsian
connectivity is needed to strengthen existing institutions and
provide a mechanism forensuringeffective cooperationand
coordination.APan-Asian Infrastructure Forum is proposed
tocoordinateandintegrateexistinginitiativeswiththeAsianInfrastructureFundtakingresponsibilityfor
financing infrastructure development projects. The forum could be
responsible for prioritisingand coordinating regional
infrastructure plans, harmonising standards and processes and
dealingwiththenegativeeconomicandsocialimpactsofinfrastructuredevelopments.
Concurrently,improvingthesoftinfrastructureorinstitutionalconnectivityofsomeASEANcountriesmustalsobeapriority.ASEANmembers,onaverage,don’tperformverywellaccordingtoindicatorsof
governance, theeaseofdoingbusinessand logistics.However, there is
greatdiversity in
thesemeasuresacrossASEANmembers.WhileSingapore,MalaysiaandThailandrankhighlyconsiderableimprovements
need to be achieved by all otherASEAN countries. There is also
evidence that thecompetitivenessofASEANcountrieshasactually
stagnatedover thepast fiveyears,highlightingafurtherneed to
improvepolicy and institutional environments. In this regard,
theprioritiesof theMasterPlan forASEANconnectivity forgreater
institutional connectivity shouldbe (i)acceleratingthedevelopment
of an efficient and competitive logistics sector; (ii)
substantially improving tradefacilitation intheregion;and(iii)
strengthening institutionalcapacity in laggingareas
intheregionandimproveregional-sub-regionalcoordinationofpolicies,programmesandprojects.
IfASEANmembersareseriousaboutnarrowingthedevelopmentgap,theymustalsoprioritiseandmovebeyondthestrategyofencouraginggreater
intra-ASEANpeoplemobility intheMasterPlan.Progress in this area has
been weak and limited to skilled labour mobility. However,
restrictingmobility to just skilled professions risks expanding
rather than narrowing the development
gapamongASEANmembers.Thepolicyallowstherichermemberstofillgapsintheirlabourforceandwhilepoornationsmightbenefit
from the receiptof remittances, theywill also
sufferbraindrainimpacts.Whileitisrecognisedthatgreaterimmigrationispoliticallydifficultmoreprogressneedstobemadeinthisarea.
Byitsverynature,narrowingthedevelopmentgapinvolvesasymmetriesinbothcostsandbenefits.The
ASEAN 4 stand to benefit more from greater physical, institutional
and people-to-people
-
37
connectivity relative to other member countries. Richer ASEAN
members must provide genuinefinancial and political commitments to
narrowing the development gap, recognising that a
moreequitableASEANisinallofitsmembers’longterminterests.
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38
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