ASEAN, PRC, and INDIA the GREAT TRANSFORMATION
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A JOINT STUDY OF THE ASIAN DEVELOPMENT BANK AND THE ASIAN DEVELOPMENT BANK INSTITUTE ASEAN, PRC, and INDIA THE GREAT TRANSFORMATION 7811/ /2-.7-.1RfcE_c_rRp_lqdmpk_rgmlěݘ].0,glbb Asian Development Bank / Asian Development Bank Institute ACI_all.indd 1 14/09/02 10:11 © 2014 Asian Development Bank Institute All rights reserved. Published 2014. Printed in Japan. Printed using vegetable oil-based inks on recycled paper; manufactured through a totally chlorine-free process. ISBN 978-4-89974-041-4 (Print) ISBN 978-4-89974-042-1 (PDF) The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), the Asian Development Bank Institute (ADBI), or their Board of Governors or the governments they represent. ADB and ADBI do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use. 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Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5, Kasumigaseki, Chiyoda-ku Tokyo 100-6008 Japan www.adbi.org ACI_all.indd 2 14/09/02 10:11 Contents List of Boxes, Figures, and Tables vi Foreword xi Preface xiii Acknowledgments xvii About the Study xix Abbreviations xxiii Executive Summary xxvii 1 The Great Transformation 1 1.1 High Stakes 1 1.2 Powerful Headwinds 3 1.3 Dimensions of Transformation 5 1.4 The Challenge of Action 18 2 Prospects and Challenges of Growth 23 2.1 Introduction 23 2.2 Analyzing the Great Transformation 24 2.3 Threats to the Transformation 49 2.4 Conclusions 66 3 Inclusive Growth and the Quality of Life 71 3.1 Introduction 71 3.2 ACI’S Development Progress and Remaining Gaps 75 3.3 How ACI Is Promoting Inclusive Growth 85 3.4 A Conceptual Framework for Inclusive Growth 90 3.5 An ACI Policy Agenda 92 3.6 Conclusions 101 iii ACI_all.indd 3 14/09/02 10:11 Contents 4 Engines of Productivity and Growth 103 4.1 Introduction 103 4.2 Upgrading Technology: A Key to Economic Growth 105 4.3 Taking Regional Production Networks to the Next Level 111 4.4 Services as New ACI Growth Engines 119 4.5 Re-energizing Agriculture 128 4.6 Liberalizing Trade and Foreign Investment 132 4.7 Infrastructure as a Growth Driver 139 4.8 A Pro-Productivity Agenda for ACI 146 5 Managing Energy, Water, and the Environment 151 5.1 Introduction 151 5.2 Sustainable and Secured Energy in ACI 153 5.3 The Looming Water Crisis 162 5.4 Mounting Ecological Challenges 167 5.5 Managing ACI’s Emissions 173 5.6 Toward a Sustainable Future 187 6 Financing Future Transformation 191 6.1 Introduction 191 6.2 An Agenda for ACI Financial Development 192 6.3 Current Status of ACI Financial Markets 194 6.4 Measuring ACI’s Financial Progress 196 6.5 Promoting Financial Deepening and Opening in ACI 203 6.6 Financial Inclusion 207 6.7 ACI Financial Stability 210 6.8 Fostering Regional Integration and Cooperation 218 6.9 Promoting Regional Cooperation 226 6.10 Conclusions and Policy Recommendations 230 7 Regional and Global Cooperation 233 7.1 Introduction 233 7.2 Market-Driven Integration in ACI since 1970 239 7.3 Institutions for ACI Integration 241 7.4 The Emerging Architecture of “New Regionalism” 253 7.5 Toward an Integrated ACI 263 iv ACI_all.indd 4 14/09/02 10:11 Contents 8 Conclusions and Recommendations 267 8.1 Introduction 267 8.2 Key Findings 268 8.3 Major Development Challenges 271 8.4 Addressing ACI’s Major Challenges 273 8.5 National and Regional Policy Priorities 275 8.6 Role of Regional and Global Cooperation 282 8.7 Navigating the Great Transformation 285 Appendix 287 References 289 v ACI_all.indd 5 14/09/02 10:11 Boxes, Figures, and Tables Boxes 1.1 Understanding and Avoiding the Middle-Income Trap 10 1.2 Learning from Development Experience 19 2.1 Gross Domestic Product Growth Projections 27 2.2 General Equilibrium Projections of Sectoral Detail 33 2.3 Infrastructure as a Driver of Growth 44 3.1 Measuring the Quality of Life 72 4.1 Migration and Productivity 138 4.2 The Yangtze River Economic Corridor 142 4.3 The Delhi–Mumbai Industrial Corridor — Taking the Road to Growth 143 4.4 Pan Asian and Subregional Connectivity 144 4.5 Role of Technological Capabilities in Asian Electronics Production Networks 147 5.1 Bilateral/Extra-Regional Energy Cooperation Involving the ACI Economies 161 7.1 Streamlining and Consolidating ASEAN Free Trade Agreements: The Regional Comprehensive Economic Partnership 244 8.1 Key Findings: ACI 2030 269 8.2 Key Regional Institutions 283 Figures 1.1 ACI Will Lead the Expansion of the Global Middle Class 8 1.2 Trade Flows Will Shift South–South 15 vi ACI_all.indd 6 14/09/02 10:11 Boxes, Figures, and Tables 2.1 ACI Growth Rates Will Slow but Stay High 31 2.2 Growth Will Be Driven by Investment and Productivity 32 2.3 Income Gap between ACI and Developed Countries Will Continue to Close 35 2.4 Extreme Poverty Can Be Eradicated 36 2.5 Middle-Income Groups Will Become Dominant 36 2.6 Demand Will Shift toward Consumption 39 2.7 Production Will Shift toward Services 40 2.8 ACI’s Rising Share of Global Expenditures 42 2.9 ACI’s Rising Share of Commodities Demand 46 2.10 ACI’s Rising Share of World CO2 Emissions 47 2.11 World Trade Will Turn South 48 2.12 Effects of Shocks on ACI Incomes, 2030 51 2.13 Frequency of Combined Shocks 65 3.1 Poverty Headcount Rate, 2000s 76 3.2 Annualized Growth Rate of Gini Coefficients between Early or Mid–1990s and Late 2000s of ACI and Selected OECD and Latin American Countries 77 3.3 Vulnerable Employment, 2010 80 3.4 Life Expectancy at Birth, 2010 80 3.5 Infant Mortality, 2010 81 3.6 Average Years of Schooling, 2010 81 3.7 Access to Improved Water Sources, 2010 83 3.8 Access to Improved Sanitation Facilities, 2010 83 3.9 Access to Electricity, 2010 84 3.10 Proportion of Paved Roads, 2009 or latest available in the 2000s 84 3.11 Government Expenditure on Education, 2010 or latest year 96 3.12 Government Expenditure on Health, 2010 or latest year 96 3.13 Social Protection Index, 2010 98 4.1 Technology Achievement Index for ACI, 1999 and 2008 106 4.2 Intermediate Goods Exports from East Asian Economies to the Region as a Whole 113 4.3 Electronic Parts and Components Exports from East Asia as a Whole to East Asian Economies and Regions 113 4.4 Foreign Direct Investment Inflows to Asian Countries 115 4.5 Foreign Direct Investment Host Countries for Japanese Firms 116 vii ACI_all.indd 7 14/09/02 10:11 Boxes, Figures, and Tables 4.6 Breakdown of Gross Domestic Product by Activity Type, 2007 120 4.7 Per Capita Income in PPP Terms vs. Services, 2009 120 4.8 Average Annualized Growth Rate in Value Added per Worker by Sector of Selected ACI Economies, 2000–2007 122 4.9 Services Trade, 2000–2009 123 4.10 Trade Costs in the PRC, India, and Indonesia, 2000–2005 124 4.11 International Branch Campuses by Asian Economy as Host 126 5.1 ACI’s Total Energy Consumption by Type, 2008 155 5.2 Trends in Rate of Energy Self-Sufficiency in ACI, 2000–2008 157 5.3 Trans-ASEAN Gas Pipeline 161 5.4 Air Pollutant Concentrations in Major Asian Cities, 2000–2005 170 5.5 Change of ACI’s CO2 Emissions Relative to Gross Domestic Product 174 5.6 ASEAN CO2 Emissions by Sector, 2008 174 6.1 Chinn–Ito Indices for Major ACI Economies 200 6.2 Financial Inclusion—Millions of People Excluded 208 6.3 ASEAN4 Financial Account Flows 215 6.4 PRC Financial Account Flows 216 6.5 India Financial Account Flows 216 6.6 Share of Financial Services in Total Service Exports Chinn–Ito Index, 2009 224 Tables 2.1 Population and Output Projections of Gross Domestic Product Growth of ACI, 2030 (in 2010 constant prices) 28 2.2 Population and Output Projections of Gross Domestic Product Growth of ACI, 2030 (in 2005 PPP$) 29 2.3 Most ACI Citizens Will Live in Cities 38 2.4 Sectoral Shifts in ACI Output 45 2.5 Alternative Scenarios 50 2.6 Productivity Simulations 53 2.7 Structural Policy Simulations 57 2.8 Trade and Capital Flow Simulations 61 3.1 Measuring Inclusive Growth 73 3.2 ACI Labor Force Estimates/Projections 93 viii ACI_all.indd 8 14/09/02 10:11 Boxes, Figures, and Tables 3.3 Worldwide Governance Indicators by Region, 2010 100 4.1 Country-Specific Technology Projections, 2009–2030 107 4.2 Problems Faced by Surveyed Japanese Firms in Selected Asian Economies 118 4.3 Projected Changes in Real Household Consumption per Capita of Agricultural and Food Products 129 4.4 Self-Sufficiency Ratio in Agricultural Products 129 4.5 Trading across Borders—Trade Facilitation, 2012 133 4.6 Global Competitiveness and Infrastructure Quality Indexes 140 5.1 Past and Projected Total Primary Energy Consumption in ACI 154 5.2 Electricity Consumption in ACI 154 5.3 Energy Supply Mix in Asia 155 5.4 ACI’s Energy Security Forecast, 2030 158 5.5 Water Management Issues in Shared River Basins 164 5.6 CO2 Emissions by ACI Economies 168 5.7 Air Quality Satisfaction in ACI 169 5.8 Selected Land Statistics for Asia 172 5.9 CO2 Emissions Reduction Pledges by ACI , Japan, and the Republic of Korea 176 6.1 Development of ACI Financial Assets 194 6.2 Changes