Connecting Emerging Asia and Emerging Europe

Transcription

1 Connecting Emerging Asia and Emerging Europe Rising Trade and Investment Ties ADBI and EBRD 14 May 2014

2 Outline of ADBI-EBRD Study a) To understand pattern of economic ties between Emerging Asia (EA) and Emerging Europe (EE) Trade and investment flows, major players, relevant policies b) To identify main drivers and impediments to deeper economic linkages and economic diversification Finance, infrastructure, institutions, regional cooperation c) To derive policy implications Synthesize key lessons and suggestion for enhancing economic ties between EA and EE

3 Rising Trade between Emerging Asia and Emerging Europe Trade between Emerging Asia and Emerging Europe Source: UN COMTRADE via WITS 3

4 Major players and commodities Major Emerging Asia Trade Items with Emerging Europe, % 7% PRC petroleum imports PRC machinery exports 62% 6% 3% 3% 3% 2% 2% 2% 2% PRC electrical machinery exports JPN transport exports PRC clothing exports KOR transport exports JPN petroleum imports PRC metalliferous ore imports JPN natural gas imports PRC textile yarn exports Rest of trade items Source: UN COMTRADE via WITS 4

5 Gravity Estimation: Bilateral Trade and Its Determinants The estimating equation is given by m ij = β 0 + γd ij + λ j + χ i + uij where m ij is the log of import volume of i from j; d ij is the log of distance between i and j; λ j is a fixed effect of the exporting country; χ i is the fixed effect of the importing country; and u ij ~ N(0,σ 2 u). Dependent variable: Log[Trade(ij)] Emerging Asia Central Asia Emerging Europe (1) (2) (3) Log[Distance(ij)] (.04)*** (.08)*** (.04)*** Log[GDP(i)*GDP(j)] (.05)* (.08) (.04)*** Land border (.08)*** (.15)*** (.07)*** Landlock (.35)** (.36) (.10)*** Language (.05)*** (.26) (.18)** Colonial ties (.14)*** (.64)*** (.07)*** Emerging Central Asia Trading Partners (.62)*** (.48)*** Emerging European Trading Partners (.58)*** (1.46)*** Emerging Asian Trading Partners (1.42) (.47)*** R-sq Observations 41,694 10,044 49,757 5

6 Average MFN tariffs and Non-Tariff Measures Emerging Asia Emerging Asia and Europe Agriculture MFN Tariffs Manufacturing MFN Tariffs PRC India Indonesia Japan Korea, Rep Taipei, China Thailand Russia Turkey Ukraine Source: WITS 6

7 Significant non-tariff barriers to trade remain Average cost of exporting / importing one container, US$ Source: World Bank Doing Business Report (2013) 7

8 Selected FTAs involving Emerging Asia and Emerging Europe Countries ASEAN India Other Asia EU members Non-EU members FTAs involving Emerging European EU Members ASEAN-EU FTA (Negotiation launched 2007) Vietnam-EU FTA (Negotiation launched 2012) India-EU FTA (Negotiation launched 2007) EU-Korea FTA in force since July 2011 European Customs Union (1997) FTAs involving Emerging European Non-EU Members Preferential Tariff Arrangement, Group of Eight Developing Countries (2006) India-Russia (Proposed 2006) India-Turkey (Proposed 2009) Korea-Russia (Proposed 2007) European Free Trade Association-Russia, Belarus, Kazakhstan (Negotiation launched, 2010) CIS Free Trade Area (2012) Georgia-Ukraine-Azerbaijan- Moldova (2006) Several non-eu bilateral FTAs singed and in-effect including, Turkmenistan-Russia FTA (1993); Armenia-Russia FTA (1993); Armenia- Moldova FTA (1995); Armenia-Ukraine (1996); Azerbaijan-Ukraine FTA (2006); Georgia-Turkey (2008) 8

9 Adjustment to Free Trade and FTAs Gains and costs from further trade and investment linkages Restructuring should be gradual Pool the gains from Free Trade Agreements Government support to declining sectors Set up a trust fund with individual investors Provide compensation for those who do not gain sufficiently from trade If structural reforms succeed, the rate of return will rise Market-based foreign exchange rates Freely-opened movements capital flows 9

10 Crisis Rapidly increasing cross-border investment Higher volumes from Emerging Asia to Emerging Europe Investment flows recovered swiftly after the crisis FDI between selected countries in Emerging Asia and Emerging Europe (US$ m) 1, Early Post Asia- Russia crisis Boom Recovery Emerging Europe to Emerging Asia Emerging Asia to Emerging Europe Source: Eurostat dataset and authors calculation 10

11 Investment links are also becoming more diversified Emerging Europe to Emerging Asia, Structure of China s ODI by sectors, 2012, in percent Coal, Oil and Natural Gas 4% 4% 3% Metals Financial Services 6% 6% 9% 9% 10% 14% 35% Aerospace Transportation Alternative/Renewa ble energy Automotive OEM Real Estate Communications Source: : fdi Markets ( Source: Europe China Research and Advice Network

12 Could Emerging Europe be a new destination for Emerging Asia s savings? Emerging Europe had been heavily reliant on FDI from Advanced Europe, US Need to diversify sources of investment post-crisis Savings, investment and capital flows, in per cent of GDP Emerging Europe (EU-10) Emerging Asia FDI, net Savings Other capital flows, net Investment FDI, net Other capital flows, net Savings Investment Source: IMF and authors calculations. Unweighted averages. 12

13 SMEs account for a significant share of cross-border investment In particular to smaller economies Hence the importance of improving business environment to diversify investment Share of SMEs in Korea s ODI by country, in per cent Source: ExIm Bank of Korea and authors calculations 13

14 Growing number of bilateral investment treaties, but they could become more comprehensive Very high incidence of BITs between Emerging Asia, Emerging Europe and Central Asia But BITS have not always been effective in terms of opening up service sectors or ensuring effective enforcement of investor rights Number of bilateral investment agreements signed in each period with countries in Emerging Europe and Central Asia Source: UNCTAD, as of June 2013

15 Full potential of economic links yet to be explored Trade and investment flows between emerging Asia and emerging Europe, while still modest, have strengthened over the years Strong potential for further deepening of links, which will help to raise productivity in both regions through technology transfers, increased product differentiation, competition Both emerging Asia and Europe should benefit from lower tariff and nontariff barriers, improvements in local and cross-border infrastructure, higher human capital, better business environment and economic institutions Sustainable and inclusive trade and investment linkages call for greater participation from firms of all sizes, from SMEs to multinationals This needs to be supported by financial development, specialized trade finance products, deeper financial linkages, deeper and more comprehensive free trade agreements and investment treaties 15