The Comprehensive Asia Development Plan 2.0 (CADP 2.0) Infrastructure for Connectivity and Innovation November 2015 Economic Research Institute for ASEAN and East Asia The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views and policies of the Economic Research Institute for ASEAN and East Asia, its Governing Board, Academic Advisory Council, or the institutions and governments they represent. All rights reserved. Material in this publication may be freely quoted or reprinted with proper acknowledgement. Cover Art by Artmosphere ERIA Research Project Report 2014, No.4 National Library of Indonesia Cataloguing in Publication Data ISBN: 978-602-8660-88-4 Contents Acknowledgement iv List of Tables vi List of Figures and Graphics viii Executive Summary x Chapter 1 Development Strategies and CADP 2.0 1 Chapter 2 Infrastructure for Connectivity and Innovation: The 7 Conceptual Framework Chapter 3 The Quality of Infrastructure and Infrastructure 31 Projects Chapter 4 The Assessment of Industrialisation and Urbanisation 41 Chapter 5 Assessment of Soft and Hard Infrastructure 67 Development Chapter 6 Three Tiers of Soft and Hard Infrastructure 83 Development Chapter 7 Quantitative Assessment on Hard/Soft Infrastructure 117 Development: The Geographical Simulation Analysis for CADP 2.0 Appendix 1 List of Prospective Projects 151 Appendix 2 Non-Tariff Barriers in IDE/ERIA-GSM 183 References 185 iii Acknowledgements The original version of the Comprehensive Asia Development Plan (CADP) presents a grand spatial design of economic infrastructure and industrial placement in ASEAN and East Asia. Since the submission of such first version of the CADP to the East Asia Summit in 2010, ASEAN and East Asia have made significant achievements in developing hard infrastructure, enhancing connectivity, and participating in international production networks. However, continuous efforts for infrastructure development and narrowing development gaps are still needed not only for Tier 2 regions to participate in international production networks and for Tier 3 regions to be connected with distant urban centres, but also for Tier 1 regions to upgrade production networks and stimulate innovation by taking advantage of industrial agglomeration and urbanisation. These economic environments and policy challenges motivated the Economic Research Institute for ASEAN and East Asia (ERIA) to upgrade the original version of the CADP to the second version, titled The Comprehensive Asia Development Plan 2.0 (CADP 2.0): Infrastructure for Connectivity and Innovation. The revision of the CADP was also noted in the Chairmans statement of the 9th East Asia Summit on 13 November 2014 held in Nay Pyi Taw, Myanmar. CADP 2.0 was drafted by Fukunari Kimura, Chief Economist, and Yasushi Ueki, Economist, with substantial contributions by ERIAs CADP research team members (Takashi Aoki, Toru Ishihara, Norihiro Kawasaki, Nobuyuki Mori, Takashi Okada, and Tadashi Takatsuka) and energy economists (Venkatachalam Anbumozhi, Shigeru Kimura, Yanfei Li, and Han Phoumin); intellectual inputs from Ponciano S. Intal, Jr.; insightful suggestions from Anita Prakash; and editorial support from Maria Priscila del Rosario, Fadriani Trianingsih, and Chrestella Budyanto. CADP 2.0 has come into fruition in collaboration with the Geographical Simulation Model team of the Institute of Developing Economies (Toshitaka Gokan, Kazunobu Hayakawa, Ikumo Isono, Satoru Kumagai, Keola Souknilanh, Kenmei Tsubota); inputs from the Asian Development Bank, Japan International Cooperation Agency, and iv Japan External Trade Organization; and academic contributions by many scholars outside of ERIA: Mitsuyo Ando, Ruth Banomyong, Nguyen Binh Giang, Daisuke Hiratsuka, Patarapong Intarakumnerd, Masami Ishida, Tomohiro Machikita, Aung Min, Vanthana Nolintha, Ayako Obashi, Sau Sisovanna, and Apichat Sopadang. The methodology of the CADP 2.0 leaves much to be improved. But we hope that CADP 2.0 will be a useful reference for international donor agencies and funding institutions to take coordinated and effective actions for developing quality infrastructure for connectivity and innovation. Prof Hidetoshi Nishimura President, Economic Research Institute for ASEAN and East Asia November 2015 v List of Tables Table 1.1 GDP per capita in ASEAN Member States 3 Table 2.1 Four Layers of Transactions in Production Networks 13 Table 2.2 Determinants of the Transaction Layer Choice 13 Table 2.3 Infrastructure for Connectivity and Innovation 28 Table 4.4.1 Forecasted Population Size of Urban Agglomeration in ASEAN 57 Table 4.5.1 Function-Specific City Ranking 62 Table 4.5.2 Actor-Specific City Ranking 2014 63 Table 5.2.1 Legal Instruments Not In Force 78 Table 5.2.2 Bilateral Agreement between ASEAN Member States in the 81 Greater Mekong Subregion Table 6.1.1 Summary of 120 Representative Hard Infrastructure Development 84 Projects for Connectivity and Innovation Table 6.1.2 Representative Prospective Projects for Tier-wise Development 85 Strategies: Hard Infrastructure for Connectivity Table 6.1.3 Representative Prospective Projects for Tier-wise Development 88 Strategies: Hard Infrastructure for Innovation Table 6.1.4 Summary of the Representative Prospective Projects Listed in 89 Appendix 1, by subregion and by country Table 6.2.1 Proper Road Grades 97 Table 6.2.2 Proper Railway Grades 98 Table 6.2.3 Standard Values of Main Dimensions of Berths for Container 102 Ships Table 6.3.1 Generation Cost by Boiler Type and Coal Price 110 Table 6.3.2 Possible Interconnection and Cumulative Costs and Benefits 112 (2025–2035) Table 7.1 Comparison of IDE/ERIA-GSM for CADP (2010) and CADP 2.0 119 (2015) Table 7.2 Grand Table: Economic Impact in 10 Years Cumulation 121 (2021–2030) Table 7.3 Top 10 Gainers of Mekong–India Economic Corridor 125 (Cumulative Impact during 2021–2030) Table 7.4 Top 10 Gainers of East–West Economic Corridor 126 (Cumulative Impact during 2021–2030) Table 7.5 Top 10 Gainers of North–South Economic Corridor 128 (Cumulative Impact during 2021–2030) Table 7.6 Top 10 Gainers of Indonesia–Malaysia–Thailand Growth 130 Triangle(Cumulative Impact during 2021–2030) Table 7.7 Top 10 Gainers of IMT+ (Cumulative Impact during 2021–2030) 132 Table 7.8 Top 10 Gainers of BIMP-EAGA (Cumulative Impact during 134 2021–2030) Table 7.9 Top 10 Gainers of BIMP-EAGA+ (Cumulative Impact during 136 2021–2030) Table 7.10 Top 10 Gainers of BIMSTEC (Cumulative Impact during 138 2021–2030) Table 7.11 Top 10 Gainers of All Infrastructure Development (Cumulative 141 Impact during 2021–2030) vi Table 7.12 Top 10 Gainers of NTB Reduction (Cumulative Impact during 142 2021–2030) Table 7.13 Top 10 Gainers of SEZ in CLMV (Cumulative Impact during 144 2021–2030) Table 7.14 Top 10 Gainers of NTB Reduction (Cumulative Impact during 146 2021–2030) vii List of Figures and Graphics Figure 1.1 New Development Strategies for ASEAN and East Asia and 4 Quality of Infrastructure Figure 2.1 The Fragmentation Theory 8 Figure 2.2 The Evolution of Production Networks: Illustrations 12 Figure 2.3 New Economic Geography: Agglomeration Forces and Dispersion 15 Forces Figure 2.4 Mekong–India Economic Corridor 16 Figure 2.5 Scenario for the Development of Phnom Penh 17 Figure 2.6 Scenario for the Development of Dawei 18 Figure 2.7 Economics of Coordinated Investments 19 Figure 2.8 The Theory of Leapfrogging 19 Figure 2.9 Three Channels to Get Access to Technology 20 Figure 2.10 Technology Acquisition and Product Innovation 22 Figure 2.11 SMEs and Industrial Agglomeration 23 Figure 2.12 Labour Movements from the Informal to the Formal Sector 27 Figure 3.1 The Life Cycle Cost Structure 32 Figure 3.2 Competitive Bidding 35 Figure 3.3 Ample Room for Public–Private Partnership 37 Figure 4.1.1 Shares of Machinery in the Total Exports/Imports to/from the 42 World: 1970–2010 Figure 4.1.2 Machinery Exports and Imports by Region (US$ million) 42 Figure 4.1.3 The Logistics Performance Index and GDP Per Capita 43 Figure 4.1.4 Monthly Workers Wages and Yearly GDP Per Capita 44 Figure 4.2.1 Shares of Machinery in the Total Exports/Imports of 45 Manufactured Goods to/from the World (2007) Figure 4.2.2 Number of Destination Countries in Export of Machinery Parts 47 and Components to the World, by HS 6-digit product Figure 4.2.3 Number of Destination Countries in Intra-East Asian Export of 49 Machinery Parts and Components, by HS 6-digit product Figure 4.3.1 City Size with Night-time Light from Satellite 52 Figure 4.4.1 ASEAN Urban Agglomerations with 500,000 Inhabitants or More 58 in 2030 Figure 4.5.1 Share of High-skilled Employment 64 Figure 4.5.2 University–Business R&D Collaboration 65 Figure 4.5.3 Cluster Development and Skilled Employment 65 Figure 5.1.1 Status of CADP Project Implementation 68 Figure 5.1.2 Status of CADP Project Implementation, by tier 71 Figure 5.1.3 Status of CADP Project Implementation, by subregion 72 Figure 5.1.4 Representative Operation Stage Projects of CADP 75 Figure 5.2.1 Implementation of National Single Window 79 Figure 6.1.1 Selected Representative Infrastructure Projects in the Mekong 90 Subregion Figure 6.1.2 Selected Representative Infrastructure Projects in MIEC and East 90 India Figure 6.1.3 Selected Representative Infrastructure Projects in the IMT+ 91 Subregion viii Figure 6.1.4 Selected Representative Infrastructure Projects in the 91 BIMP-EAGA+ Subregion Graphic 6.2.1 Image of Road Grades 97 Graphic 6.2.2 Image of Railway Grades 99 Graphic 6.2.3 Image of Airport Grades 101 Graphic 6.2.4 Image of