Asian Economic Integration Report 2015 released by ADB

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Who: Asian Economic Integration Report 2015
What: Released by Asian Development Bank
When: 8 December 2015

Asian Development Bank (ADB) on 8 December 2015 released a report entitled Asian Economic Integration Report 2015: How Can Special Economic Zones Catalyze Economic Development?

The report examined current trends in trade, finance, migration, remittances and other economic activities in the region, with a special chapter on the role of special economic zones (SEZs).

Key findings of the report

• Asia’s income elasticity of trade declined from 2.69 before the global financial crisis (2008-09) to 1.30 in 2015.
• The value of Asia’s intermediate goods trade—almost 60 percent of total trade—contracted 2.6 percent in 2014.
• Structural factors for the above decline include a general trend of rebalancing away from export and investment toward consumption and services.

• And, the slowdown in the expansion of global and regional value chains after decades of rapid expansion and China’s growth moderation.
• However, regional trade integration is moving steady and Asia in general trades more with regional partners than outside the region.
• Asia has become an important source of outbound investment, with FDI outflows outstripping inflows, growing over 45 percent between 2010 and 2014.
• Increased investment was led by traditional investors including Japan, Hong Kong, China and Singapore and also emerging Asian investors such as India, Malaysia, and Thailand.
• Asia remains the world’s largest source of international migrants, accounting for a third of the global total in 2013, and the region also accounted for nearly 50 percent of global remittances in 2014.

Report on Special Economic Zones

• Special economic zones (SEZs) can be a driving force for increased trade, investment and economic reform in Asia at a time the region is experiencing a slowdown in trade, provided the right business environments and policies are put in place.
• The expansion in the number of SEZs from about 500 in 1995 to over 4300 in 2015 shows the strong and rising interest to this form of policy experiment, though the success record is somewhat mixed.
• The number of SEZs in an economy is positively related to overall export performance in Asia.
• In developing Asia, countries with SEZs attract significantly more FDI, with the existence of SEZs corresponding to 82 percent greater FDI levels.
• Fiscal incentives for initial investments and ensuring an adequate supply of labor, strategic locations, transport connectivity and dependable judicial systems and institutions, such as independent governing authorities and enabling legal frameworks are all key ingredients of successful zones.
• For zones to become a major driver of development they must be made an integral part of a government’s national development strategy and industrial policy.

Report with respect to India

• India has become the third largest source of inward FDI for the United Kingdom (UK) after the US and France in number of projects.
• For India, compared with 1990—when it focused mainly on low-technology exports—the economy gradually switched focus to higher technology products.
• China’s labor productivity began to fall in 2007, while India’s labor productivity slowed subsequently. The slowdown in labor productivity in agriculture is mainly due to falling investment, diversion of productive agricultural land to nonfarm purposes, and climate change—which reduced most farm yields.
• Compared with 1990—when it focused mainly on low-technology exports—the economy gradually switched focus to higher technology products.
• As a percentage of manufacturing exports, while high technology and low technology exports constituted 4.1 and 58.8 respectively in 1990, they contributed to 8.6 and 35.0 percent respectively in 2014.