PS 6 (b)

PLENARY SESSION SIXTuesday, 31 May 2011

Physical and Institutional Connectivity in ASEAN

by

Fukunari KIMURAChief Economist

Economic Research Institute for ASEAN and East Asia (ERIA)

Physical Connectivity andthe East Asian Economy

Fukunari KimuraChief Economist

E i R h I tit t f ASEAN d E t A i (ERIA)Economic Research Institute for ASEAN and East Asia (ERIA)

25th Asia‐Pacific Roundtable, Kuala Lumpur, 31 May 2011

1. Why physical connectivity?1. Why physical connectivity?

• Physical connectivity should be upgradedPhysical connectivity should be upgraded hand‐in‐hand with institutional connectivity.

• Particularly in ASEAN and East Asia• Particularly in ASEAN and East Asia, production networks are the strength.

U d t d f t ti d l ti– Unprecedented fragmentation and agglomeration of economic activities

2nd unbundling (Baldwin (2010)– 2nd unbundling (Baldwin (2010)

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2. The assessment of logistics finfrastructure in ASEAN

• The development of logistics infrastructureThe development of logistics infrastructure closely links with the degree of participation in  production networks.– Logistics Performance Index (LPI) 2010 by WB– Doing Business 2010 by WB– By transport modes

• Roadsl• Railways

• Ports and marine transportation• Airports and air transportationAirports and air transportation

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3. Initiatives in ASEAN and East Asia3. Initiatives in ASEAN and East Asia

• Comprehensive Asia Development PlanComprehensive Asia Development Plan (CADP) (ERIA (2010))– Three tier development strategies in terms of the– Three‐tier development strategies in terms of the degree of participation in production networks

• Master Plan on ASEAN Connectivity (ASEAN• Master Plan on ASEAN Connectivity (ASEAN Secretariat (2010b))

B i A ti Pl (ASEAN St t i T t• Brunei Action Plan (ASEAN Strategic Transport Plan) (ASEAN Secretariat (2010a))

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Selected prospective projects in Mekong subSelected prospective projects in Mekong sub--regionregion

Hanoi Vientiane International Airport Security and Safety Improvement

Nam Theun 2 and Nam Ngum 2 Hydropower Plant

Yangon port: Quay cranes

Hanoi - Ports: Cai Lan, Lach Huyen - Noi Bai Airport terminal 2, Expansion of Cat Bi Airport - Rail link from Hanoi: Hai Phong, Noibai, Lang Hoa Lac - Hoa Lac high tech park, Vietnam space center - ICT infrastructure enhancement

Hanoi Special Border Zone at Myawadi

Route No.8: Kawkareik-Mawlamyyne - Thaton

Nam Theun 2 and Nam Ngum 2 Hydropower Plant

Upgrading Dawei airport

Yangon port: Quay cranes Thilawa port improvement

Savarnnakhet airport improvement Pharma & biotech city in Ayutthaya IT & ITES part in Phthum Thani CDZ Yangon

Ma lam aingMyawadi

Khon Kaen

Vientiane

Savannakhet

North-South High Speed Railway (to HCMC)

SEZ in Savarnnakhet

Border Trading Zone in Dansavanh

NSEC

Highway: Kanchanaburi - Dawei

SKRL: PP – Loc Ninh – HCMC

Dawei deep sea port

Cross-border facility at Bavet-Moc Bai

Upgrading Dawei airport

Da Nang airport: Passenger terminal Da Nang port improvement

Mawlamyaing

Dawei

Da Nang

BangkokSEZ/FTZ in Dawei Multimodal logistic park in Dawei

MIEC

EWEC

Bangkok - MRT network - Suvarnnabumi airport: Phase 2 development - Laem Chabang port: Phase 2 development - Highway management improvement

Ho Chi Minh City (HCMC) - Bypass and express ways around HCMC - Cai Mep–Thi Vai port: development, improvement - Rail link: HCMC – Vung Tau, HCMC –My Tho - Software technology park, petro-chemical complex - Transmission line: Can Tho – HCMC

Ho Chi Minh

Phnom Penh

Sihanoukville

Mekong bridge in Neak Loung (NR1)

Reconstruction of NR3: PP-Kampot Phnom Penh port rehabilitation

Koh Kong Industrial Estate Poipet Industrial Estate SKRL: Poipet - Sisophon (48km)

- Transmission line: Can Tho – HCMC - Power plants in O Mon

Enhancement of port security, improvement of port maintenance, port related procedures, port management and operation.

Sihanoukville airport upgradation

Expressway: PP - Sihanoukville

Sihanoukville port expansion

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Selected prospective projects in IMT+ subSelected prospective projects in IMT+ sub--regionregion

Bangkok

Kuala Lumpur - KLIA capacity enhancement

Phuket Port improvement Pakbara New Cargo Port Songkhla Port: Dredging channel and improvement

Songkhla

Phuket

Ulee Port improvement Penang

Medan

Kuala Lumpur

Dumai

Medan – Binjai Toll Road Belawan Port improvement

Enhancement of vessel traffic system in Malacca Strait Development of integrated security system in Malacca Strait

- LRT expansion in KL

New Medan Airport

Banda AcheUlee Port improvement Mafahayati Port improvement

Dumai

Pekanbaru Singapore

Palembang

Dumai Port expansion Pekanbaru – Kandis – Dumai Toll Road

Medan – Lualanamu – Tebing Tinggi Toll Road

Bandar Lampung Jakarta

Palembang – Indralaja Toll Road Tegineneng – Babatan Toll Road Palembang Port: Dedging channel

Bander Lampung – Bakahuni Highway

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Selected prospective projects in BIMP+ subSelected prospective projects in BIMP+ sub--regionregion

Manila

Manila Nautical Hi h

- Manila port expansion, Subic port - 1st and 2nd LRT line extension - Metro Manila C6 Expressway - NAIA Expressway and MIAA’s international cargo terminal - Cavite-Laguna North South Highway - Clark dryport development

Kota KinabaluDavao

Cebu Bypass around General Santos, Korondal, Palo, and Tuguegarao

Enhancement of port security, improvement og port maintenance, port

Muara port container terminal

Highways

Borneo Economic Corridor:

Balikpapan Port: New container terminal

Zamboanga Port: New container terminal

Port inmrovement and expansion: Davao, General Santos, Zamboanga, etc.

Bander Sri Begawan

Kota Kinabalu

Manado/Bitung

Balikpapan

related procedure and port management and operation

Jakarta - Jakarta New Port - Railway connection to Soekarno Hatta Airport

J k MRT

Coal railway: Palaci - Bangkuang

o eo co o c Co do

Kuching Upgradation of Trans-Sulawesi Road / Western Sulawesi IEDC

Pontianak Port: Dredging channel and expansion

Bitung Port: Expansion of terminal

Zamboanga

Jakarta

PontianakJayapura

Makassar Surabaya

- Jakarta MRT - Intelligent Traffic System in Jabotabek - Water supply improvement

Banjarmasin

Denpasar

Makassar port container terminal

Tanjung Emas Port: Deep water terminal

Surabaya - Greater Surabaya Metropolitan Port - Tanjung Perak port: New terminal and access road

Java high speed railway

Eastern Indonesia geothermal power plants

Kalimantan IEDC

Jayapura Port: Expansion of multi-purpose terminal

Semarang

Makassar port container terminal Tanjung Perak port: New terminal and access road, and power plant repowering

- Surabaya MRT

Kalimantan IEDC

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4. Essence of public‐private h ( )partnership (PPP)

• Investment demand for infrastructureInvestment demand for infrastructure

• Theoretical foundation of PPPWh i PPP l t?– When is PPP relevant?

– Market failure and the role of government

– Economic viability of the project

– Additional gains from private incentive

– Price and non‐price competitiveness

• Toward designing Asian PPP

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Why is the publicWhy is the public--private partnership needed?private partnership needed?

e

Private 100%

over

nanc

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PPPPPP

stag

es, g

o

Public 100%

elop

men

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eve

Economic viability of the project

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Market failure with which government intervention is possibly justifiedMarket failure with which government intervention is possibly justified

Market failure Examples

E i t f i f lAt the firm or plant levelAt th i d t l lExistence of economies of scale At the industry or macro levelIn industrial agglomeration

Existence of positive or negativeSocial net benefits > project net benefits (e g infrastructure projects)Existence of positive or negative

externalities(e.g., infrastructure projects)Social net benefits < project net benefits (e.g., pollution industry)

Existence of goods with non-rivalry andExistence of public goods

Existence of goods with non rivalry and non-excludability (e.g., rural access roads)

Monopoly, oligopolyExistence of imperfect competition

p y, g p yState monopoly

Existence of imperfect competition Liquidity constraints (e.g., shortage of SME finance)p p

and/or uncertainty SME finance)Super large infrastructure projects

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Price and nonPrice and non--price competitiveness of private players in open biddingprice competitiveness of private players in open bidding

Non-price competitiveness

Community indifference curve II

The pool of private players

Community indifference curve II

Community indifference curve I

Price competitiveness0

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5. Toward more prosperous and bl dequitable ASEAN and East Asia

• ASEAN and East Asia present a new development p pstrategy.

• Connectivity is the key to further enhancing the titi f th ASEANcompetitiveness of the ASEAN economy.

– Institutional connectivity by AEC– Physical connectivity by infrastructure developmentPhysical connectivity by infrastructure development

• The “establishment” of AEC in 2015 is not a final goal.  Still far from a “perfectly integrated economy.”

• As for logistics infrastructure development, connectivity for Tier 3, linkage for Tier 2, and innovation for Tier 1 should be promotedinnovation for Tier 1 should be promoted.

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ReferencesReferences• ASEAN Secretariat. (2010a) Brunei Action Plan (ASEAN Strategic Transport Plan) 

2011‐2015.  November.  Jakarta: The ASEAN Secretariat.  http://www.aseansec.org/25790.htm.p // g/

• ASEAN Secretariat. (2010b) Master Plan on ASEAN Connectivity. December.  Jakarta: The ASEAN Secretariat.  http://www.aseansec.org/.

• Baldwin, Richard. (2010) “21st Century Regionalism: Filling the Gap between 21stCentury Trade and 20th Century Trade rules” (November 3).  y y ( )http://www.wto.org/english/res_e/reser_e/wkshop_nov10_e/baldwin_e.pdf/.

• Economic Research Institute for ASEAN and East Asia (ERIA). (2010) Comprehensive Asia Development Plan.  http://www.eria.org.

• Fujimoto, Takeshi; Hara, Shoichiro; and Kimura, Fukunari. (2010) “Comprehensive j , ; , ; , ( ) pAsia Development Plan and Beyond: Growth Strategies for More Prosperous and Equitable East Asia.”  ERIA Policy Brief No 2010‐02 (http://www.eria.org).

• Jones, Ronald W. and Kierzkowski, Henryk. (1990) “The Role of Services in Production and International Trade: A Theoretical Framework.”  In Ronald W. Jones and Anne O. Krueger, eds., The Political Economy of International Trade: Essays in Honor of Robert E. Baldwin, Oxford: Basil Blackwell: 31‐48.

• Kimura, Fukunari and Ando, Mitsuyo. (2005) “Two‐dimensional Fragmentation in East Asia: Conceptual Framework and Empirics.”  International Review of E i d Fi ( i l i “O t i d F t ti Bl iEconomics and Finance (special issue on “Outsourcing and Fragmentation: Blessing or Threat” edited by Henryk Kierzkowski), 14, Issue 3: 317‐348.

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