Winners & Losers in International Economic Integration: Some Thoughts Vo Tri Thanh (CIEM) Presentation at the Conference “Growth that Matters: ASEAN Integration and Inclusive Growth“ 40 th APS Annivesary Lecture Forum Manila, 12 November 2014

Outline of presentation  The impacts of economic integration: Do we really understand?  Some ideas for narrowing dev’t gap in ASEAN  Lessons learnt from experience of poverty reduction in VN

The impacts of integration: Do we really understand? Common understanding  Trade liberalization  not a “zero-sum-game” but “win – win game” (welfare improved in all trading partners)  Globalizers seem to be winners (in most studies!)  Impact of integration on poverty: Trade liberalization  Better exploitation of comparative advantages and more efficient resource allocation  Higher growth and lower poverty incidence

But the issue is more complex and complicated  Meaning of “winners & losers”? Between countries and within an individual/a specific country Absolute gains and relative gains (the “gaps”) Political problem of the loss of a small social group  How to measure the degree of integration (for assessing the impacts of integration)? In most studies: trade barriers & trade policy (even then: NTMs?) But integration now means freer flows of goods, services, investment, capital and people as well as connectivity and cooperation (FTAs in East Asia tend to be ECPs)  Interaction between integration and country’s domestic reforms Unless integration does go with domestic reforms, most benefits would be on the side of trading partners (e.g. study on VN’s WTO accession by Roland-Holst et al 2002) Welfare impacts could be positive/negative depending on several channels: relative prices; flexibility of production factor markers; budget stance (Winters 2003)

 Short term vs. long term impacts Integration could have a net positive impact on an economy but imposing risk for her to fall into “low cost labor trap” / ” trade liberalization trap ” in long run Capital flows, business cycles and possible financial crisis Future uncertainty about the impacts of the rise and restructuring of China and India (flows of goods, services, and capital; power and income redistribution?) creating both opportunities and challenges Implications  More theoretical studies are needed  Case studies are necessary (cross-section comparison; individual economy; at micro level)  It is important to develop scorecards for monitoring the integration progress (eg. ASEAN & AEC?)

Some ideas for narrowing dev’t gap in ASEAN  ASEAN Vision 2020: Transforming ASEAN into a stable, prosperous, and highly competitive region with equitable economic development  AEC by 2015: Common market and prod base (Free flows of goods, services, investment, and skill labour and freer flows of capital)  Key pillars: Trade, investment, and services liberalization (Creation of opportunities) Trade and investment facilitation (Reduction of transaction costs associated with production networks and value chains) Connectivity (MPAC) (Easier access to new opportunities and reduction of transaction costs) Cooperation (e.g. IAI and other programs) (Improvement of capacity for exploiting efficiently new opportunities)

Lessons learnt from VN Vietnam’s Reform and Performance GDP Growth and Inflation ( )

 Since Doi moi launched in 1986, achievements have been quite impressive, but not outstanding Some doubt about sustainability of high growth (even VN’s potential is huge) and there is a possibility of falling into “Low cost labour trap” in long run (Still) substantial poverty in isolated regions + “new poor” (multi-dimensional poverty) Widening income (and asset) gap

Major factors affecting poverty & Policy Implications  Growth has been closely associated with the pace of poverty reduction (Impact depends both on the rate of growth and the composition of growth as well as structure of the economy) Enhancement of comparative advantages (L-intensive industries) thanks to trade liberalization (VN-US BTA; WTO; ASEAN & ASEAN + FTAs; …) Private sector development (Private ownership and easier entry to markets) Incentives for farmers (household-based farming)  Macroeconomic instability and financial shocks/shocks can have devastating effects on the poor Essential of macroeconomic stabilization Policies (direct income transfers; selective subsidies; “cheaper” credits to SMEs and agricultural subsectors) for supporting low income/vulnerable people during difficult time/crisis

 Infrastructure development has been crucial to growth and poverty reduction Importance of both highways and secondary networks Priorities (due to financial constraints)  The specific (targeted) programs have played very essential role in reducing poverty, especially the “hard-core” poverty (Small scale infrastructure programs; employment programs; poverty reduction programs) The key: right targetings and sustainability of the programs (?)

Reasons behind the income and asset gaps  Mismanagement of process of reallocating SOE assets and land (Transition means the reallocation/redistribution of SOE assets and land – the key assets owned by the State)  Lack of access to new opportunities (Institutional reforms and infrastructure development did not keep the pace with the enlargement of economic and business opportunities)  Lack of capability to exploit benefits from the newer opportunities

Thank you!