-
30 -67. This role for services in GVCs is also seen in the case of knowledge-intensive (value added) tasks such as education, health and Business Process Outsourcing. This is the situation of Malaysia and Thailand, and to some extent the Philippines. Providing specialized education services is the natural next step in the services GVC in these countries since there is a need to level up the skilled manpower to match the requisite demand from the multinational corporations. This was the path taken by Singapore not too long ago, and more recently Malaysia, when Malaysia opened its doors for foreign universities from Australia, China, and the United Kingdom, such as Nottingham and Hull, to set up regional campuses to educate the local market and serve international students. A good percentage of these international students actually come from the region, notably Indonesia, Myanmar, and Vietnam. These students after receiving their education will return home and help increase the productive capacity of their countries. This creates a virtuous circle and increases Indonesia’s and Vietnam’s share in the production GVCs, especially for the high-tech and health care GVCs. The natural spinoff from all this is the deepening of regional integration of specific industries in ASEAN.
68. Though small geographically, Singapore has successfully become a value chain location for more knowledge-intensive industries in the GVC, such as in pharmaceutical research and development, highlighting the potential of services to provide an entry point for competitive GVC participation even for smaller economies. This in turn has led to more international pharmaceutical companies basing themselves in Singapore to undertake more active pharmaceutical ingredient production.
By default, this moves Singapore up the GVC and opens new doors for other GVC activities, especially in drug testing and high-end medical tourism. This inevitably increases the variety of trade through horizontal diversification in the product space, increased opportunities for growth in new markets, and reduced vulnerability to economic disruptions (Brunner 2013, 2). Effectively, Singapore now sits on the right ends of the smiling curve. Singapore has research and development/innovation centers for respected multinational corporations such as P&G and GSK, and Singapore is the global logistics center for DHL.
This is only made possible as the workforce becomes more educated, with strong institutional support for the investment in human capital, and with the existing government focus on policy reform to support services integration domestically and regionally. In the area of logistics services, virtually all the large shipping lines call at the Port of Singapore to offload cargo for the region and pick up cargo through feeder services for their destination markets in Asia, the Americas, or Europe. This resonates well with the Master Plan on ASEAN Connectivity (ASEAN 2011a), which recognizes the role of the various and specific services in reaching its goal of facilitating the movement of goods, people, and services themselves.
However, this choice of a value chain location is not achieved by default, but more by deliberate and careful design, since it needs to be meshed with the associated financial services offered by the financial institutions and insurance houses to support this industry.
69.
Thus, GVCs in services should be exploited as strategically as possible to enhance trade and development, as regional integration through logistics and connectivity improvements. This increases the potential for trade in services within the region and beyond. However, commitments from the member economies must be improved and implemented, and domestic regulatory reforms and cooperation must be undertaken if the region wants to achieve this reality by 2020.Figure 1.19 Share of Regional Exports in Total Services Exports
Source: World Bank Trade in Services Database.
71. The varying services trade exposure raises two important questions. First, are ASEAN countries trading to their potential, or are there untapped opportunities? And second, what are the impediments for enhancing integration? These questions are assessed by looking at two indicators, the trade complementarity index and the Trade Intensity Index, and by estimating a gravity model of trade in services. The complementarity index looks at whether a potential importer buys services that a country exports abroad by measuring how well the export structure of one country matches the import structure of another country. The index is based on export and import data at the disaggregated service sectoral level that are then aggregated into a single index for each country pair. The index number varies between 0 and 100. The higher the index number, the higher the potential for that country to export to the other markets.
Figure 1.20 depicts the development of the indexes of trade complementarity of each country of interest with all other ASEAN countries for which data are available.8
72. In general, the services complementarity index values for Singapore and middle-income ASEAN Member States (AMS) with all ASEAN states (figure 1.20) are high—above 80 percent, except for trade with Cambodia and Myanmar. The Philippines has increased its complementarity index with respect to Indonesia, Malaysia, and Thailand, while maintaining a stable index with Singapore.
Indonesia’s indexes with respect to ASEAN middle-income countries are relatively unstable. Something similar can be found in the case of Malaysia, except in the case of its index with Indonesia. Singapore also has high but unstable index values, while Thailand has decreasing index values compared to other middle-income countries, except Malaysia.
73. The trade complementary index trends vary across ASEAN’s lower-income countries, as presented in figure 1.21. Lao PDR’s complementarity indexes have increased in recent years compared to ASEAN middle-income countries, while in the case of Cambodia, there is comparatively less and decreasing complementarity. In the case of Myanmar, there is a declining trend in recent years. In the case of Vietnam, the indexes are above 80 percent and relatively stable over time.
8 Specifically, the trade complementarity index between exporter ݅ and importer ݆ is calculated as ܶܥܫǡൌ ൭ͳ െ σ ȁ
௫ǡ
ൗ ିೕǡ
ெೕ
൘ ȁ
ଶ ൱ כ ͳͲͲ, where ݔǡ is exports from ݅ in product , ܺ is total exports of ݅, ݉ǡ is imports of ݆ in , and ܯ is total imports of ݆.
020406080100
Regional export share, %
2000 2002 2004 2006 2008 2010
Year
Cambodia Myanmar
Vietnam
020406080100Regional export share, %
2000 2002 2004 2006 2008 2010
Year
Indonesia Malaysia Philippines
Singapore Thailand
-
32 -Figure 1.20 Trade Complementarity of Singapore and ASEAN Middle-Income Countries
Source: Calculated using data from UNCTADstat.
Figure 1.21 Trade Complementarity of Low-Income Countries
Source: Calculated using data from UNCTADstat.
32 ASEAN Services Integration Report
32 ASEAN Services Integration Report
74. The second measure of services integration potential, the Trade Intensity Index (TII), indicates that there is still great scope for deepening services integration in the region. The TII indicates a country’s relative share of exports to a particular country compared to the rest of the world’s share of exports to this country. A large index number suggests the trade between a country and its partner is more intense than trade with the country and the rest of the world. Figure 1.22 depicts the indexes of trade intensity of each bilateral pair observed in the database, averaged over 2005–09 to maximize the number of observations.9 The TIIs are found to be relatively low for all ASEAN countries, except Singapore. This means that there is untapped potential to increase regional trade. This confirms the findings here that despite the significant progress achieved in the context of ASEAN Framework Agreement on Services, there is still great scope for deepening integration.
Figure 1.22 Trade Intensity Index (TII)
Source: World Bank Trade in Services Database.
75. The estimated potential trade volumes predicted by structural trade determinants vary in comparison to the actual intraregional trade values between 2008 and 2009 for different countries in the region. In order to identify if there are still regulatory constraints that may be acting as barriers to trade, a gravity model is estimated. The gravity model relates countries’ bilateral trade flows to structural determinants of GDP, geographic distance, and other factors that affect trade barriers. The structural determinants for each pair of countries together with the estimated regression coefficients are used to compute the bilateral trade potentials. The level of bilateral trade between a pair of countries is compared with their trade potential to categorize bilateral exports as overtraded or undertraded, depending on the comparison between realized bilateral export values and the model’s predictions. In addition, the regression includes a country’s Services Trade Restrictions Index of the World Bank Services Trade Restrictions Database to assess if these are important determinants in explaining the level of bilateral services trade
9 Specifically, the TII between exporter ݅ and importer ݆ is calculated as ܶܫܫǡൌ
௫ǡೕ
ൗ ௫ೢǡೕ
ೢ
ൗ , where ݔǡ is exports from ݅ to ݆, ܺ is total exports of ݅, ݔ௪ǡ is exports from the world to ݆, and ܺ௪ is total world exports.
03691215
TII IDN KHM MYS PHL SGP THA VNM
Exports of BRN
03691215
TII BRN KHM MYS PHL SGP THA VNM
Exports of IDN
03691215
TII BRN IDN KHM PHL SGP THA VNM
Exports of MYS
03691215
TII BRN IDN KHM MYS SGP THA VNM
Exports of PHL
03691215
TII BRN IDN KHM MMR MYS PHL THA VNM
Exports of SGP
03691215
TII BRN IDN KHM MYS PHL SGP VNM
Exports of THA
03691215
TII BRN IDN MYS PHL SGP THA VNM
Exports of KHM
03691215
TII BRN IDN KHM MYS PHL SGP THA
Exports of VNM
-
34 -among ASEAN countries. (See Annex 1.B for a detailed discussion of the methodology and a formal presentation of the results.)
76. The results indicate that while some countries appear to be overtrading, others undertrading, and still others trading at their potential, all ASEAN countries are shown to underexport with Malaysia and Singapore (and Malaysia and Singapore with each other). There also appears to be untapped potential for countries such as Brunei Darussalam, Cambodia, Malaysia, and Singapore to increase services exports with select countries in the region. In addition, countries with more restrictive services regulatory environments are significantly less likely to export services. At the same time, the results suggest there may be limited scope for further trade integration in the region unless structural domestic reforms are implemented in the participating countries. Thus, undertrading in services may suggest the existence of untapped potential to increase exports among these countries via the removal of trade-related obstacles.