Session by Mario Pezzini, Director of OECD Development Centre and Director a.i., OECD Development Co-operation Directorate. The growth of global value chains (GVCs) has increased the interconnectedness of economies. We understand that emerging economies in Southeast Asia play a pivotal role in the global economy. This session will provide you with the latest OECD analysis on the regional economy and on the key challenges it faces in light of regional integration. International trade, which used to be a leading driver of economic growth, is now lagging behind, as world trade growth slowed down to around 2% in 2015. Two decades prior to the 2008 crisis, world trade growth annually registered at 7%. Many factors are at play – both cyclical and structural – but their effects are posing risks to the emerging and developing economies in Asia, where trade growth is currently relatively robust. Regional free trade agreements, notably the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, will also influence trade in Asia, and will certainly have implications for the global value chains of specific industries, including in those countries not belonging to the new regional agreements. Strengthening regional ties by 2025 is one of Asia’s most important agendas. This can be made more effective by building on important and positive achievements through ASEAN, ASEAN+3 and ASEAN+6 and making greater efforts to improve co-ordination between regional and sub-regional initiatives and national agendas, reduce disparities in the region, move towards a “Global ASEAN” and strengthen monitoring capacity. Additionally, addressing issues of green growth, renewable energy and private sector development will be particularly important to Asia’s success in regional integration.

1. EMERGING ASIA:
REGIONAL ECONOMIC
CHALLENGES
Mario Pezzini
Director, OECD Development Centre &
Director a.i. OECD Development
Co-operation Directorate
OECD Global Parliamentary Network
Meeting, 12-13 April 2016, Tokyo

2. I. Growth prospects
II. Growth risks
III. Regional integration: challenges
IV. Regional integration: policy
solutions
2
Outline

3. I. Growth prospects
3

4. Shifting Wealth is reshaping the world economy
Source: Perspectives on Global Development 2010: Shifting Wealth, author’s calculations based on World Bank Data 2009
Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.
The “Three Speed World” in the 1990s

5. Source: Perspectives on Global Development 2010: Shifting Wealth, author’s calculations based on World Bank Data 2009
Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.
The “Three Speed World” in the 2000s

6. La contribución de la región al proceso de reequilibrio de la riqueza es
relativamente modesta
Contribution to global GDP growth (1990-2012)
(as percentage)
Source: Authors’ calculations based on data and regional aggregates from IMF, World Economic Outlook.
Contributions to Global Growth:
Regional Views
50%
19%
8%
4%
1%
18%
1990-1995
32%
41%
9%
6%
3%
9%
2005-2012
46%
27%
7%
7%
3% 10%
2000-2005
59%20%
8%
5%
2%
6%
1995-2000
6
Advanced economies
Emerging Asia
Latin America
Middle East and North Africa
Sub-Saharan Africa
Rest of the world

7. 7
Real GDP growth
of ASEAN, China and India
Real GDP growth of ASEAN, China and India
(Annual percentage change)
Country 2016-20 (average) 2011-13 (average)
ASEAN-5
Indonesia 5.5 6.2
Malaysia 5.0 5.2
Philippines 5.7 5.9
Thailand 3.6 3.2
Viet Nam 6.0 5.6
Brunei Darussalam and
Singapore
Brunei Darussalam 1.8 0.9
Singapore 2.6 4.1
CLM countries
Cambodia 7.3 7.3
Lao PDR 7.3 8.1
Myanmar 8.3 6.9
China and India
China 6.0 8.2
India 7.3 5.5
Average of ASEAN 10 countries 5.2 5.4
Average of Emerging Asia 6.2 7.0

8. 8
Approx. 20-40 years MORE required to
reach high-income level
Note: Based on World Bank’s criterion for classifying economies, high income countries are
defined as having GNI per capita above USD 12 800 in 2014. Growth prospects in this simulation are
in line with MPF-2016. Population projections are based on UN data.
Source: OECD Development Centre.
Updated best-scenario simulation of estimated time required to become high income countries
for selected Asian middle income countries (years) from 2015
0 20 40 60
India
Viet Nam
Philippines
Indonesia
Thailand
China
Malaysia
(years)

9. II. Growth risks
9

10. 10
Risk 1:Effects of China’s slowdown
Exports to China by major product
Items by selected ASEAN countries
Percentage of GDP
Source: CEIC
0
5
10
15
20
Others
Machinery and Electrical Equipment
Base Metals and Articles
Textiles and Textile Articles
Plastic, Rubber and other Articles
0
2000
4000
6000
8000
10000
12000
14000
2009 2010 2011 2012 2013
China FDI flows to ASEAN countries
Million USD

11. • The tightening has
been widely anticipated
and is unlikely to
significantly surprise
markets.
• The GDP of ASEAN-5
as a whole may be
lowered by as much as
0.56% - 0.68% of GDP.
11
Risk 2: Impact of US monetary normalisation
Impact of US monetary normalization on GDP growth in
ASEAN-5 for 2015-2017
Percentage (annual average)
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0.0
Scenario 1 Scenario 2
Source: OECD Development Centre estimate,
Note: impacts are estimated by DSGE approach

12. 12
Risk 3: Slowing potential growth and
productivity
Figure a) Potential GDP in ASEAN,
China and India
(Log annual growth)
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
Before crisis Full sample
Source: OECD Development Centre's estimation.
Figure b) Relative labour productivity
(Log annual growth)
-0.1 0.0 0.1
India
China
Singapore
Viet Nam
Thailand
Philippines
Malaysia
Indonesia
Finance, real estate, and
business activities
-0.4 -0.2 0.0 0.2
India
China
Singapore
Viet Nam
Thailand
Philippines
Malaysia
Indonesia
Construction

13. III. Regional integration: challenges
Economic challenges
Social challenges
13

14. Development gaps
have narrowed, but remain
Narrowing Development Gap Indicators (NDGIs):
Disparities between CLMV and ASEAN-6, 2012
3.3
3.8
3.1
3.1
1.6
4.2
0
1
2
3
4
5
6
7
8
9
10
Infrastructure Gap Sub-
Index
Human Resource
Development Gap Sub-
Index
ICT Gap Sub-Index
Trade and Investment
Gap Sub-Index
Tourism Gap Sub-Index
Poverty Gap Sub-Index
Note: Each sub-index of the NDGI, whose value ranges from 0 to 10 base points – where 0 denotes no gap and 10 the widest gap –
is built from multiple variables within six key policy areas shown above.
Source: OECD Development Centre, Economic Outlook for Southeast Asia, China
and India 2014

15. ECONOMIC challenges to
regional integration
15

16. 16
0
5
10
15
20
25
30
35
40
45
50
1990 1995 2000 2005 2010 2014
%
ASEAN ASEAN+3 ASEAN+6
Intra-regional trade in ASEAN, ASEAN+3 and
ASEAN+6, by country group, 1990-2014
Total within-group trade as a share of groups’ total world
trade
Intra-regional trade has grown
Note: ASEAN+3 includes ASEAN 10 countries plus China, Japan and Korea. ASEAN+6 includes ASEAN+3 plus
Australia, India and New Zealand.
Source: OECD Development Centre's calculation based on data from IMF-DOTS
4.43
2.72
0.54
3.64
1.74
0.04
7.51
4.40
1.33
0
1
2
3
4
5
6
7
8
2000 2002 2004 2006 2008 2010 2012 2014
% ASEAN ASEAN-6 CLMV
Average CEPT rates in ASEAN countries,
2000-14

17. 17
Trade in services remains untapped
0
10
20
30
40
50
60
70
80
90
100
0 50 100 150 200 250 300
TradeinServices(%ofGDP)
Trade in Goods (% of GDP)
Singapore
Viet Nam
Malaysia
Cambodia
Thailand
Brunei Darussalam
Lao PDR
Philippines
Indonesia
Myanmar
Trade in services share of GDP versus trade in goods share
of GDP, 2014
Sources: UNCTAD (2015) UNCTADSTAT (database) http://unctadstat.unctad.org, UNSTATS (2014);
National Accounts
Main Aggregates Database, http://unstats.un.org/unsd/snaama/dnllist.asp.

18. 18
FDI regulation and business
environment need strengthening
FDI restrictiveness in selected economies
in Emerging Asia, 2014
Index, higher values indicate greater restrictions
Source: OECD (2015a), OECD FDI Regulatory
Restrictiveness Index (database),
http://stats.oecd.org/Index.
aspx?datasetcode=FDIINDEX#.
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
• ACIA- the progress of
liberalization varies
between countries and
sectors
• Providing a good
business environment
will be key.

19. 19
• Reforms are under way through the ASEAN
Banking Integration Framework.
• The Chiang Mai Initiative Multilateralisation
and Asian Bond Market Initiative, established
by the ASEAN+3 framework, are promoting
regional stability and financial integration.
Intra-regional banking needs
strengthening

20. 20
Status of the ASEAN Highway Network
Road transport connectivity is
improving, but pace is slow
Source: ESCAP (2015), “Status of the Asia Highway in Member Countries”,
www.unescap.org/resources/statusasian-
highway-member-countries.

21. 21
Tourism revenues in selected
ASEAN countries
Co-operation is progressing on
tourism but remains underexploited
Source: CEIC.
0
2
4
6
8
10
12
14
16
18
%ofGDP
2010 2011 2012 2013 2014
• Regional tourism
promotion and
agreements are helping
to upgrade the tourism
sector in ASEAN and
facilitate travel.
• Ecotourism is being
developed in the region
and remains promising.

22. SOCIAL challenges to
regional integration
22

23. 23
Average Food Price Index in Emerging
Asia
Food security remains a priority
Note: The Food Price Index is calculated as the ratio of food and
non-alcoholic beverage expenditure to actual
individual consumption relative to the United States purchasing
power parity terms.
Source: FAO (2015), Food Security Indicators,
http://bit.ly/14FRxGV.
0
1
2
3
4
5
6
7
8
9
10
2003-2005 2006-2008 2009-2011 2012-2014
• Regional frameworks for
co-operation on food
security, including the
ASEAN +3 Emergency
Rice Reserve, are helping
to reduce risks in periods
of crisis and improve
food supply.
• More could be done to
protect fisheries, forestry
and wildlife

24. 24
Quality of education needs to be
addressed
430
440
450
460
470
480
490
500
510
OECD average ASEAN average
Mathematics Reading Science
OECD PISA score in Southeast Asia and
OECD countries, by area, 2012
Note: ASEAN average includes Indonesia, Malaysia, Singapore, Thailand and Viet Nam. The PISA scale was
set
such that approximately two-thirds of students across OECD countries score between 400 and 600 points.
Source: OECD (2012a), PISA database, www.oecd.org/pisa/.
• Regional initiatives
are being pursued
to integrate and
harmonise
education systems
and promote
collaborative
research.
• “Quality of
education” needs
to be improved.

25. 25
4.9
9.3
34.1
42.8
100
100
100
100
0 20 40 60 80 100
India (2005-06)
Cambodia (2010)
Indonesia (2007)
Philippines (2008)
New Zealand (2013)
Korea (2012)
Japan (2011)
Australia (2013)
%
Health-care insurance coverage in selected
Asia-Pacific countries,
latest year available
Sources: OECD/WHO (2014) Health at a Glance:
Asia/Pacific 2014: Measuring Progress towards
Universal Health Coverage,
http://dx.doi.org/10.1787/health_glance_ap-2014-en.
• ASEAN+3 and +6 provide
additional platforms for
addressing regional
concerns in education
and poverty
management.
• Shared plans for
responding to public
health issues and natural
disasters have been
developed.
Social protection systems are
evolving, with more to do

26. IV. Regional integration: policy
solutions
26

27. 27
1. Improving co-ordination
Alignment of national and regional targets
in ASEAN (Number of policy areas)
• Little overlap
between AEC
targets and national
plans.
• The technical and
country-specific
expertise of
national officials
could be used to a
greater extent.
0
10
20
30
40
50
60
70
80
90
Strongly
aligned
Weakly aligned Non-aligned or
partially
inconsistent
Source: OECD Development Centre.

28. 28
2. Bettering monitoring
ASEAN Economic Community
Scorecard
• Uses self-reported results
• Not regularly updated (for public)
ASEAN Community Progress
Monitoring System (ACPMS)
• Detailed data not available
• Not updated
Examples of ASEAN regional integration indicators
• More detailed, transparent and regularly updated
monitoring indicators will be needed in the region
• Existing indicators are a start, but of limited use

29. 29
3. Tackling regional disparities
• The Initiative for ASEAN Integration (IAI) was
launched in 2000 to narrow the development gaps,
guided by IAI Work plan II (2009-15).
• Overall, the progress and level of implementation
is very low – issues of planning and finance.
• “Global ASEAN” - ASEAN+3 and ASEAN+6
framework

30. 30
4. Advancing green growth
Renewable electricity generation in ASEAN-6 countries (TWh) in 2013
For example, hydropower and geothermal resources are
relatively well exploited but other sources are almost untouched
in the region
Type of renewable Indonesia Malaysia Philippines Singapore Thailand Viet Nam
Hydropower 16.9 10.6 10.0 - 5.7 57.1
Geothermal 9.4 - 9.6 - 0.0 -
Solar 0.0 0.1 0.0 0.0 1.1 -
Wind 0.0 - 0.1 - 0.3 0.1
Biogas/biomass/waste 0.3 1.1 0.2 1.4 7.0 0.1
Total generation from
renewables
26.6 11.9 19.9 1.4 14.1 57.3
Source: IEA.

31. 31
5. Expanding private sector
opportunities regionally
• Firms are engaging with the rest of the region, though these activities will need to
be diversified beyond a limited range of countries and sectors
• Greater regionalisation and internationalisation will be needed to develop ASEAN
enterprises
Year
Home
country
Host
country
Industry Acquirer Target
1 2012 Thailand Singapore Food and beverage Thai Beverage PCL Fraser & Neave Ltd
2 2007 Singapore Malaysia Food and beverage Wilmar International Ltd PPB Oil Palms Bhd
3 2013 Singapore Indonesia
Automobiles and
components
Gallant Venture Ltd Indomobil Sukses Internasional
4 2012 Thailand Singapore Metals and mining PTT Mining Ltd Sakari Resources Ltd
5 2013 Singapore Indonesia
Automobiles and
components
Gallant Venture Ltd Indomobil Sukses Internasional
6 2007 Singapore Indonesia
Paper and forest
products
Investor Group LonSum
7 2011 Thailand Indonesia Chemicals SCG Chemicals Co Ltd Chandra Asri Petrochemical
8 2007 Singapore Malaysia Food and beverage Wilmar International Ltd PGEO Group Sdn Bhd
9 2012 Singapore Malaysia Chemicals
Reliance Global Holdings
Pte
BP Chemicals(Malaysia)Sdn
Bhd
10 2010 Thailand Malaysia
Containers and
packaging
Investor Group
Malaya Glass Products Sdn
Bhd
Largest intra-ASEAN M&A investments in manufacturing, 2004-13

32. www.oecd.org/dev
Mario.PEZZINI@oecd.org
32
Thank you!