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ASEAN ECONOMIC CommunityA Long Term View

DTN Annual Symposium 2012AEC 2015 and Beyond

February 24, 2012

Mathew VerghisLead EconomistThe World Bank

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A Preview

• In the long term: Asian Century or Middle Income Trap?

• What trap?• Claiming the Asian Century

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Asia could enter the Asian Century by 2050…

4

…Or could enter a Middle Income Trap!

Middle East & North Africa, 5%

Rest of World, 2%

Asia, 31%

North America, 21%

Latin America & Carribean, 9%

Europe, 28%

Sub Saharan Africa, 4%

Middle Income Trap Scenario

Asia GDP: $65 trillion

5

Current trajectory not encouraging

$-

$5,000

$10,000

$15,000

$20,000

$25,000

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Gro

ss N

ation

al I

ncom

e pe

r cap

ita

(200

0 co

nsta

nt U

SD)

GNI per capita (2000 constant USD)

China

Korea, Rep.

Malaysia

Taiwan, China

Thailand

6

What trap?

Global environment might be less favorable

Reaching limits of low-wage based manufacturing

Environmental concerns

Growth with equity

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What could be the new sources of growth for ASEAN?

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1. Moving to higher value added regional trade

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1. Moving to higher value added regional trade

Share of processing imports in China’s total imports by country of origin, 2007 (%)

ASEAN can increase exports of finished products to China

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2. Skills Development to Move Up Value-Chain

Lack of skills and skills mismatch are major obstacles to firms’ operations in ASEAN

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Skill Gap in Creativity, Leadership and English are largest

2. Skills Development to Move Up Value-Chain

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Increased quality of higher education would help raise competitiveness of ASEAN countries

2. Skills Development to Move Up Value-Chain

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Quality of basic education is key to further skills improvements

2. Skills Development to Move Up Value-Chain

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3. Services Sector as a new engine of growth

Rising services share have led the way for successful economies

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Perc

ent

Services (% of GDP)

ChinaKorea, Rep.MalaysiaTaiwan, ChinaThailand

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ASEAN members maintain high level of restrictiveness in services trade

MNG

KHM

VNM

MYSTHACHN

IDN

PHL

NZL NLDIRLGBRSWEESPCZEHUN DEUUSAAUTGRCAUSDNKCANPRT BELKORJPNFINFRAITA

10

20

30

40

50

60

Serv

ices

Tra

de R

est

rict

iveness

Index

5 6 7 8 9 10 11 12Log of GDP per capita

EAP economies OECD economies

Source: Borchert, Gootiiz and Mattoo, "Policy Barriers To International Trade in Services: New Empirical Evidence", World Bank: forthcoming.Note: GDP per capita taken from WDI, 2007 PPP data in constant 2005 international US$

Thailand, EAP and OECDServices Trade Openness

OECD

3. Services Sector as a new engine of growth

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…Environmentally and Socially

4. Making sure growth is Sustainable…

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

LOS ANGELES

Bangkok

BEIJING

SINGAPORE

LONDON

NEW YORK CITY

HONG KONG

JAKARTA

TOKYO

PARIS

Stockhom

tCO2e / capita

Buildings Power Industry Ground Transportation Aviation and Marine Waste

3.6

4.6

4.7

4.9

6.0

7.8

9.6

9.7

10.1

10.7

13.0

CO2 missions per capita

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THANK YOUTHANK YOU