143 During 2011 - 2017, it is clear that the need for high-skilled workers increased significantly, as shown in the increasing numbers of employed persons and the compound average growth rate in legislators, senior officials and mangers, professionals, and technicians and associate professionals. The group of semi-skilled workers such as clerks, service workers, plant and machine operators and assemblers also increased in numbers and growth rates. For unskilled workers at the elementary occupations, the numbers of employed workers did not change much. However, it is also clear that there was a shift from skilled agricultural and fishery workers, and craftsmen and related trade workers to more skilled and semi-skilled occupations. This can also lead to a situation of international labor migration to and from Thailand to fulfill the needs of employment in the country. Figure 10. Employment Share: Classified by Skills of Labor Force Source: Bank of Thailand, calculated by author. 3.1.4 Average Wage In this section, the average wage is studied in many aspects such as level of education, industry, occupation, and employment status. In general, payment for workers is positively related to the level of education. The higher the educational level, the higher the payments. Average wage classified by level of education at the fourth quarter of the year from 2011 to 2017 shows an increase in average wage with the overall growth rate of 5 percent. Moreover, there are groups in which the average growth rate of wage grew faster than the overall growth rate, such as group 1 – 4, group 5.1 vocational, group 6.3 teacher and training, and group 7.2 higher technical education. Workers by industry were also better off from 2011 to 2017 and Table 5 shows selected industries in which the average growth rate of wage was over 5.0 percent, except the agriculture sector in which the growth rate was only 3.08 percent. In 2017, payment
144 for workers in the service sector was much greater than that of the agriculture sector. The highest payment in 2017 was in the electricity, gas, stream and air conditioning supply industry, which accounted for 27,906.83 Baht per month (not shown in the table) followed by the information and communication industry (26,979.77 Baht per month), and financial and insurance activities (24,213.36 Baht per month). It accounted for 4 -5 times more than that of the average agriculture wage. The wage difference among industries was among the source of occupation transformation in the country from agriculture to other sectors.
145 Table 4. Wage Payments by Level of Education 2011 – 2017 (unit: Baht per month) Q4/2011 Q4/2012 Q4/2013 Q4/2014 Q4/2015 Q4/2016 Q4/2017 Total 10,425.84 11,336.91 12,163.15 13,581.10 13,774.29 13,963.14 13,971.36 1. None 4,789.17 5,678.49 6,271.28 6,972.48 7,138.77 7,255.01 7,567.58 2. Less than Elementary 5,734.00 6,268.47 7,025.20 7,584.41 7,508.21 7,735.28 7,694.28 3. Primary Education 6,089.98 6,816.61 7,453.58 8,307.01 8,351.71 8,366.78 8,501.19 4. Lower secondary education 6,972.18 7,877.59 8,428.67 9,371.21 9,416.94 9,586.41 9,605.45 5. Upper Secondary level education 9,153.46 9,652.79 10,222.56 11,314.10 11,404.96 11,488.64 11,583.03 5.1. General/Academic 7,863.45 8,874.37 9,664.70 10,756.96 10,860.33 10,900.34 10,910.80 5.2. Vocational 12,500.59 11,926.64 12,031.99 12,967.49 13,178.20 13,360.90 13,636.71 5.3. Teacher Training 7,960.42 14,094.27 10,790.54 36,256.14 18,387.31 7,835.89 10,362.13 6. Post-secondary Education 11,209.59 12,262.71 12,728.83 14,526.64 14,488.69 14,351.67 14,748.76 6.1. General/Academic 13,647.59 13,885.38 12,115.88 15,499.60 15,891.35 16,092.99 14,843.51 6.2. Higher Technical Education 11,054.49 12,217.11 12,777.76 14,520.64 14,432.41 14,293.44 14,739.05 6.3. Teacher Training 11,443.89 11,090.18 11,862.80 13,405.85 15,297.01 15,251.67 15,436.95 7. Bachelor Degree Education 18,743.53 20,538.17 21,729.41 22,694.32 22,796.80 23,424.30 23,471.44 7.1. Academic 17,882.10 20,369.12 21,728.33 22,482.71 22,434.19 22,937.24 23,233.52 7.2. Higher Technical Education 17,032.20 17,815.87 18,877.43 20,387.76 21,876.36 24,290.21 24,991.66 7.3. Teacher Training 22,796.45 22,389.77 22,729.67 24,573.04 25,056.09 25,505.89 24,166.32 8. Master Degree Level 33,881.35 35,161.73 36,856.50 41,397.31 40,672.41 39,711.41 37,381.33 9. Doctoral Degree Level 80,288.83 53,038.59 50,834.32 45,259.05 43,684.04 47,171.56 46,206.72 Source: Bank of Thailand, EC_RL_017: Average wage classified by level of education
146 Table 5: Wage Payments by Selected Industry (2011 – 2017) (Unit: Baht per month) Compound 2011 2012 2013 2014 2015 2016 2017 average growth rate (%) Agricultural 4,812.56 4,869.02 5,462.99 5,733.78 5,717.17 5,608.28 5,772.28 3.08% Manufacturing 8,361.12 10,153.68 11,142.90 12,151.13 12,337.59 12,501.66 12,531.54 6.98% Construction 6,537.67 7,359.97 8,263.58 9,247.36 9,501.26 9,714.47 9,710.73 6.82% Wholesale and retail trade; repair of motor 8,614.03 10,176.82 10,896.56 11,907.84 12,173.60 12,398.17 12,465.91 6.35% vehicles and motorcycles Transportation 13,259.90 14,669.09 16,693.86 17,212.92 17,554.49 18,791.02 17,815.81 5.05% and storage Accommodation and food service 7,383.98 8,102.32 9,202.94 10,165.91 10,725.84 10,407.94 10,818.17 6.57% activities Administrative and support 9,020.25 10,941.32 11,537.30 12,081.06 12,580.36 12,626.20 12,266.27 5.26% service activities Human health and social work 13,466.36 15,370.00 16,016.77 16,853.07 17,757.12 18,787.32 18,332.78 5.28% activities Arts, entertainment 7,865.87 9,659.33 9,560.43 10,037.73 11,085.06 10,892.31 11,673.48 6.80% and recreation Source: Bank of Thailand, EC_RL_014_S2: Average wage classified by industry (ISIC Rev.4)
147 Table 6 shows wage payments by occupation from 2011 – 2017. The wage rate for legislators, senior official, and managers was the highest among the 10 professionals, followed by professionals and technicians and associate professionals. The average growth rate of this 3 groups was approximately 3 – 4 percent. An interesting finding from wage payments by occupation is the growth rate of payment for elementary occupations has grown approximately 7 percent since 2011. The high increase in the wage rate has signaled that there could be a high demand for elementary workers (low- skilled workers). Table 6: Wage Payments by Occupation (2011 – 2017) (Unit: Baht per month) Q4/2011 Q4/2012 Q4/2013 Q4/2014 Q4/2015 Q4/2016 Q4/2017 Legislators, senior 26,360.33 26,903.16 27,542.29 30,210.53 31,609.89 32,460.29 31,438.40 officials and managers Professionals 21,984.92 23,731.62 24,339.21 26,837.02 26,234.07 26,926.55 26,826.64 Technicians and associate 16,264.77 18,149.38 18,205.66 19,705.07 20,313.94 20,671.09 20,477.34 professionals Clerks 12,532.73 13,124.54 13,000.55 14,056.60 14,425.92 14,663.65 15,013.55 Service workers, shop and market sales 8,806.28 9,134.33 9,880.18 11,019.08 11,167.30 11,037.80 11,304.25 workers Skilled agricultural 5,270.54 5,492.69 5,797.25 5,671.43 5,566.56 5,694.09 5,987.44 and fishery workers Craftsmen and related 7,502.91 8,309.73 9,001.62 10,046.78 10,175.34 10,451.61 10,608.35 trades workers Plant and machine 7,504.97 8,904.96 9,447.55 10,314.66 10,376.93 10,562.33 10,582.24 operators and assemblers Elementary 5,038.08 5,745.96 6,479.65 7,314.03 7,406.35 7,575.63 7,664.23 occupations Workers not included 13,388.81 17,250.09 19,420.91 17,854.79 18,175.87 21,140.02 21,690.32 elsewhere Source: Bank of Thailand, EC_RL_018: Average wage classified by occupation 3.2 Human Resources Development and Management in Thailand It was back with the First National Plan (1961 - 1963) of Thailand when human resources development and management were first discussed. The focus at that time was that human resources planning and human resources development should simultaneously be activated along with the National Economic Plan. Foreign aid that helped improve labor productivity during the first national plan was mainly in the form of academic and research funding on public health and education. On the fourth and fifth National Economic and Social Development Plan, the focus on human resources was extended to the quality of the labor force as a response to demand for labor and the country set up the Human Resources Development Plan during the sixth National Plan from 1982 to 1986. The next phase of human source development plan was formed from 1987 to 1999, while the objectives were to improve the quality of human resources in the country such that they could be able to rely on themselves in the long-term. The eighth National Economic and Social Development Plan from 1997 to 2001 introduced the new paradigm concerning “human” as the center of development by focusing on the holistic development of human potential in every aspect; health, education, and good quality of
148 social services for human well-being. Many summarized that the eighth National plan was aimed to prepare the country for sustainable development in the future. Although the plan had been set for human resources being the center of development and the country did seem prepared for the future development, Thailand faced a financial crisis in 1997. The economic growth of the country decreased sharply and the rate of unemployment increased. As vulnerability in labor market increased, the sufficiency economy philosophy was used as the guiding principal for economic recovery. Concentrating on human resources of the country, building up self-reliance and concentrating on the country’s internal resources were among the key issues. In business, human resources strategy began moving towards more competency-based and more talent management. The development programs changed from conventional training to transformational training and self-directed learning. The tenth National Economic and Social Development Plan (2007 – 2011) aimed to make usage of Thailand’s internal resources rather than looking for assistance from abroad. Programs that aimed to develop the quality of people through reforms of education and training, more investment in research and expertise, and better health care. Human resources management by the government was transformed from centralized to decentralized and mixed results that followed had both positive and negative experiences. However, the overall index which identifies human development of the country has shown improvement in every aspect. Using the Human Development Index as an indicator (2017), Thailand was ranked 83rd out of an overall 189 countries. Figure 11 shows the trend of human development index of the country. Figure 11. Human development index61 (1990 - 2017) #\"+ #\"* #\") #\"( #\"' #\"& #\"% #\"$ # Source: UNDP, Human Development Data (1990 – 2017) The human development index is the composite index of three basic dimensions of human development; health, education, and well-being. In the case of Thailand, the human development index has increased from 0.574 to 0.755, an increase of 31.5 percent. Each component and trend from 1990 to 2017 is presented in table 7 (for continuous time series data, one can visit the link http://hdr.undp.org/en/data). 61 UNDP, Human Development Data (1990 – 2017) http://hdr.undp.org/en/data $%%%$%%%$%%%$$,#,##,###,,###$###,#,#$,$,$,)+'#%'%)+##%')
149 Table 7. HDI index and the components (1990 - 2017) Year Life Expected Years Mean Years of GNI per capita HDI value Expectancy of Schooling Schooling (2011 PPP$) 0.574 0.611 1990 70.3 8.4 4.6 6,560 0.649 0.693 1995 70.2 9.6 5.0 9,177 0.724 0.727 2000 70.6 11.2 6.1 9,003 0.731 0.728 2005 72.1 12.7 7.0 11,006 0.735 0.741 2010 73.9 13.3 7.7 12,918 0.748 0.755 2011 74.2 13.5 7.5 13,209 2012 74.4 13.3 7.7 13,795 2013 74.7 13.2 7.5 13,840 2014 74.9 13.5 7.6 14,106 2015 75.1 13.9 7.6 14,455 2016 75.3 14.3 7.6 14,971 2017 75.5 14.7 7.6 15,516 Source: UNDP, Human Development Data (1990 – 2017) 4. Challenges for Thailand As many have agreed that human resources are among the key factors in the process of economic development, Thailand has faced many challenges, both internal and global. This section provides analysis of pressures that challenge the human resources development of the Thai economy. 4.1Globalization pressures There are at least 3 issues that can be considered as globalization pressures challenging human resources development and management of the Thai economy. One concerns the commitment of the country as the member of ASEAN community. The second concerns sustainable development goals and the third is about inclusive growth. All of these issues are important for the country to set the scope of planning and implementing in order to prepare the human resources of the country for development goals. 4.1.1 ASEAN Community Thailand’s commitment as a member of ASEAN community consists of 3 aspects: (1) ASEAN Economic Community (known as AEC), (2) ASEAN Socio-Cultural Community (known as ASCC), and (3) ASEAN Political-Security Community (known as APSC). There has been positive progress since 2009 in implementing the roadmap for the ASEAN Community. The plan for ASEAN connectivity reached a milestone and during the 27th ASEAN Summit in Kuala Lumpur, Malaysia in 2015, there was a celebration of the ASEAN Community 2015 and the charting of the ASEAN Community Vision 2025. Along with AEC framework, there is the ASEAN Framework Agreement on Services (known as ASAS) that allows free movement of labor force among ASEAN countries binding by the Mutual Recognition Agreements (MRA). Presently, there are 8 MRAs concerning the free flow of labor force. (see Table 8 on MRAs of each professional and agreement date). Empowerment of people via human development programs has been realized by all Southeast Asian countries. In the case of Thailand, reforms of health care and education were implemented in order to improve the standard of living and eventually to narrow the income gap of the people.
150 Table 8: Mutual Recognition Arrangement on 8 professions and agreement period Mutual Recognition Arrangement (MRA) Agreement Period/Place 1. ASEAN MRA on Engineering Services 9 December 2005 (Malaysia) 2. ASEAN MRA on Nursing Services 8 December 2006 (Philippines) 3. ASEAN MRA on Architectural Services 19 November 2007 (Singapore) 4. ASEAN Framework Arrangement for the Mutual 19 November 2007 Recognition of Surveying Qualifications (Singapore) 5. ASEAN MRA Framework on Accountancy Services 26 February 2009 (Phetchaburi Province, Thailand) 6. ASEAN MRA on Medical Practitioners 26 February 2009 (Phetchaburi Province, Thailand) 7. ASEAN MRA on Dental Practitioners 26 February 2009 (Phetchaburi Province, Thailand) 8. ASEAN MRA Framework on Tourism Professionals 1st 9 January 2009 (except Thailand) (Vietnam, Hanoi) 2nd 9 November 2012 (Bangkok, Thailand) Source: ASEAN.org search on MRA https://asean.org/storage/images/2015/October/outreach- document/Edited%20MRA%20Services-2.pdf
151 4.1.2 Sustainable Development Goals (SDGs) The commitment of the country to achieve SDGs is another external pressure. The 2030 Agenda for Sustainable Development (United Nations) consists of 17 Sustainable Development Goals with 169 associated targets. The related goal to labor force and human resources is Goal No. 8, which is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. By aiming at the productive employment and decent work for all, the country must prepare human resourced to have the working ability to achieve this goal. 4.1.3 Inclusive Growth Inclusive growth is another external factor that has led to a transformation of the labor market because one of the objectives is to share prosperity. Ianchovichina and Gable62 (2012) describe “inclusive growth” as raising the pace of growth and enlarging the size of the economy by providing a level playing field for investment and increasing productive employment opportunities. Therefore, countries seeking to keep pace with labor market challenges accompanying the 4th Industrial Revolution should set a discrete national investment target and public-private implementation strategy across the following areas of human capital formation, such as (a) active labor market policies; (b) equity of access to quality basic education; (c) gender parity; and (d) non-standard work benefits and protections (e) effective school-to-work transitions. 4.2Internal Policies, Laws and Regulations Along with external pressures, internal challenges also have led to changes in human resources development and management of the county. It has been internal policies, laws and regulations that have also played important roles in human resources development and management programs in Thailand within the last 10 years. The new chapter of investment promotion in Thailand has changed from volume-based to value- based, capital-driven to innovation-driven, physical capital to human capital, and manufacturing to high-value services. It is clear that high competency industries require foreign direct investment for support. From the following circle (Figure 12), it is clear that if the country sets a targeted industry as its priority to have both backward and forward linkage, one important component in the production circle is human resources. The lack of qualified components to support investment in a targeted industry will lead to inappropriate achievement of the industry. 62 Ianchowichina, Elena, and Gable, S. Lundstrom (2012) “What is inclusive growth?” in Commodity prices and inclusive growth in low-income countries ed. by Rabah Arezki, Catherine Pattillo, Marc Quintyn, and Min Zhu. International Monetary Fund.
152 Figure 12 Simple Circle of Production Source: author’s diagram Besides investment-led-transformation, policies of the country can also lead to transformation as well. In the case of Thailand, major policies such as Special Economic Zones (SEZs) and the Thailand Eastern Economic Corridor (EEC) will lead to a transformation of many agents involved in the production and growth process of the country. SEZs mainly involve border trade in Thailand and there are two phases of implementation. The first phase involves the provinces of Tak, Sa Kaew, Trat, Mukdahan and Songkhla. The second phase will involve Chiang Rai, Nong Khai, Nakhon Pahnom, Kanchanaburi and Narathiwat (See Figure 13). Figure 13. Special Economic Zones of Thailand (1st and 2nd Phase) Source: https://www.aseanbriefing.com/news/2018/04/13/thailands-special-economic-zones- opportunities-investment.html
153 Another policy that will lead to a transformation is the Thailand Eastern Economic Corridor (EEC). There are 3 provinces that are involved in this policy; Chachoengsao, Chonburi, and Rayong. The advantages of designating these provinces as the center of development in the EEC project are derived from the long-term development of the Eastern Seaboard Project, which involved many fast growing industries in the era of the industrial revolution in Thailand in the 1980s. Some have called that era as Thailand 3.0. Presently, the government chooses this area as the strategic gateway to Asia, with many target industries such as “bio-economy” (functional food, bio-plastic, and cosmetic), “auto, auto-parts, electronics, and robotics” (smart automobiles, electronic parts, robotics for industrial and lifestyle use), “aviation, maintenance and related business” (aircraft parts and spare parts, maintenance/repair and overhaul (MRO), air cargo), and “medical hub” (wellness center, medical center, medicines and devices). Therefore, human resources to support all targets are needed. (See figure 14 for the map of EEC). Figure 14 Map of the Eastern Economic Corridor Source: http://thaiembdc.org/eastern-economic-corridor-eec/ 4.3 Reactions to challenges Thailand has formulated the 20-year National Strategy (2017 – 2036) in order to achieve the vision of “security, prosperity, sustainability” and to elevate the economy to become a high-income country. The country’s 12th national economic and social development plan was formed, based on the “sufficiency economy philosophy” to achieve the vision and ensure the well-being for all Thais. The 6 key strategies are as follows: (1) national security, (2) competitiveness enhancement, (3) development and
154 empowerment of human capital, (4) broadening opportunity and equality in society, (5) environmental-friendly development and growth, and (6) reforming and improving government administration. From these key strategies, the development and empowerment of human capital will lead to the “human resources development plan63 (2017 – 2036) and the formation by the Ministry of Labor of the 5-year master plan (2017 – 2021) on workforce development. The plan focusses on labor development and is aligned with future labor trends, supporting the labor force and activities in special economic zones and the development of industry toward industry 4.0. Figure 15. Thailand’s National Strategies to Human Resources Development Plan National The 12th National Economic Human Resource Strategies and Social Development Development Plan (2017 – 2036) Plan (2017 – 2021) (2017 – 2036) The human resources development plan (2017 – 2036) is divided into 4 phases; (1) productive workforce (2017 -2021), (2) innovative workforce (2022 – 2026), (3) creative workforce (2027 – 2031), and (4) brain power (2032 – 2036). The productive workforce stage is concerned with the national labor standard of each professional and preparation of high-productivity, multi-skills, re-skills, and being ready to work at the beginning stage of Thailand 4.0 The innovative workforce stage (2022 – 2026) is concerned with the creation of global citizens with high skills and competencies. In this stage, the labor force should be able to work in high technology, innovative firms for better productivity. Therefore, revising labor-related regulations and creating a holistic employment system to facilitate the ageing society are necessary. The third stage is concerned with the development of a creative workforce adding value to work processes, in order to create sustainability in employment for full productivity and valuable work. In other words, this stage is aimed at achieving sustainable development goals on full employment and decent work for all. The fourth stage is aimed at high value of income and moving beyond middle-income. At this stage, the labor force should be able to use knowledge and intellect in creating valuable work that should boost the country from being a middle-income country. The current strategic plan in the productive workforce scheme (phase 1) are as follows: - Improve labor and entrepreneur productivity and competency in order to strengthen the economy and improve the competitiveness of the country; - Emphasize labor protection and welfare, and labor relations systems, creating social security insurance and enhancing good quality of life; - Foreign workers management; 63 From Department of Employment, Ministry of Labour, Thailand (2016) https://www.doe.go.th/prd/assets/upload/files/bkk_th/4b170ce6542e5d25c87a7e94d7410cdf.pdf
155 - Improve and enhance a balance of the labor market and creating sustainability in the labor sector; - Develop the administrative ability of the Ministry of Labor, personnel with good governance and building collective effort; - Improve information technology for labor information management. The action plan is then divided into internal and external targets. The internal targets are (1) organization improvement to be compatible with globalization and suitable to be an efficient and effective labor management, (2) zero corruption, and (3) information technology for management. The external targets are set to meet labor standards, which are (1) preventing and solving problems such as human trafficking, or exploitation of labor force, or illegal labor force, (2) improving and increasing labor productivity to meet international standard, (3) having collective information to promote employment, and (4) improving the welfare and quality of life of informal employment labor force. Besides responding to the quality of labor force through the human development plan, there is another aspect of the ASEAN community known as ASEAN Socio-Cultural Community (ASCC) that has involved many institutes to work together. The following table shows the Government offices that involve in the ASCC blueprint. Table 9: Thai Government Offices participating in the ASCC Blueprint ASCC Blueprint Government Offices Human Development Ministry of Education, Ministry of Labor, Ministry of Culture, Ministry of Digital Economy and Society, Office of the Civil Service Commission, Office of the Public Sector Development Commission Social Protection Ministry of Interior, Ministry of Public Health, Office of National Economics and Social Development Board, Ministry of Finance, Ministry of Agriculture and Cooperatives, Ministry of Social Development and Human Security, Ministry of Defense, Ministry of Labor Preserving Rights and Ministry of Social Development and Human Security, Ministry of Social Justice Justice, Ministry of Finance, Ministry of Commerce, Ministry of Labor, Office of the Prime Minister, Office of the Civil Service Commission, Office of the Public Sector Development Commission Sustainable Ministry of Natural Resources and Environment, Ministry of Environment Agriculture and Cooperatives Narrowing the Ministry of Finance, Office of National Economics and Social Development Gap Development Board Promoting the ASEAN Ministry of Culture, Ministry of Foreign Affairs, Ministry of Identity Social Development and Human Security, The Public Relations Department Source: Ministry of Social Development and Human Security
156 5. Conclusion 5.1.Some findings on the current labor market situation and consequences From the basic macroeconomic information, there is evidence that GDP by products has been moving toward the service sector, relying more on manufacturing and the service sector than agriculture sector. Focusing on the labor market, the growth rate of labor force during 2014 – 2017 was lower than the growth rate of the population. The share of workers by age group also indicated that workers of an age greater than 40 years old account for the majority of the labor force of the country and this could identify that Thailand is experiencing an ageing society. Job vacancies and job placements showed that demand for labor has not been completely fulfilled. Demand for labor force showed by job vacancies (of group 18 – 29 years old) was greater than other age groups and the job placement of this age group has not yet been fulfilled. On the contrary, job placements of the age group 30 -39 years old was greater than job vacancies, which implies that some workers in this age group were over-qualified or there might be disguised unemployment. Looking at skills of the labor force, the supply of unskilled labor became increasingly scarce in the 1990s as a number of job placements at a certain level of education could not be fulfilled. (See Figure 8 (d)). There has been a transformation of the labor market within the past 7 years, from agriculture toward manufacturing and service industries using information from work status, labor force structure by industry, occupation, and average wage rates. Besides the transformation of occupation, there has been evidence that the labor force flows from Thailand to foreign countries has also changed during the past 10 years. The size of the labor force from Thailand dropped gradually in the early 2000s. In general, the number of workers decreased over time by looking at the share of workers in each destination. The positive trends of labor movement to foreign countries were to Japan and Malaysia. From Figure 16, we can see that size of the Thai labor force to Taiwan dropped very fast and then stayed rather constant during the past 5 years.
157 Figure 16. Flows of Thai labor force to foreign countries (1995 – 2017) Source: Bank of Thailand, EC_EI_018 Employment Indicators The size of the labor force from Thailand to foreign countries dropped because of the economic growth in Thailand and improvement of the wage rate over time. These attracted high-qualified workers to work in the country instead of going abroad and at the same time attracted labor force from other countries to migrate to Thailand. A shortage of unskilled labor force was fulfilled with labor movement from foreign countries. This turned Thailand into becoming a labor-importer. Considering details of labor movement within the Southeast Asia region in particular, Manprasert and Ariyasajjakorn64 (2015) found that low-skilled labor forces move to countries that are bases of production, whereas medium-skilled and high-skilled labor forces move to countries that have a large share of service sectors. The direction of movement is shown in Figure 17. Figure 17. Direction of Movement of Labor Force in ASEAN ! ! ! ! ! ! Source: Manprasert and Ariyasajjakorn (2015) 64 Ariyasajjakorn, Danupon and Manprasert, Somprawin (2015) Situation and Impacts of International Labor Movement in ASEAN, Chulalongkorn University Press, Bangkok. (in Thai)
158 Table 9: Number of foreign workers from ASEAN (July 2017) High-skilled/Semi-skilled workers Low-skilled/Unskilled workers No Country Total Total Act 9 Act 12 Total Act 9 Act 14 Investment Proof MOU Seasonal Promotion Total 1,439,326 23,751 20,218 3,533 1,415,575 950,129 448,538 16,908 1 Indonesia 1,081 1,081 756 325 2 Malaysia 2,932 2,932 1,978 954 3 Philippines 14,267 14,267 12,993 1,274 4 Singapore 2,033 2,033 1,531 502 5 Brunei 14 14 14 6 Vietnam 903 903 658 245 7 Lao PDR 111,641 194 169 25 111,447 58,772 52,675 269,311 88,356 169,109 8 Cambodia 269,697 386 367 19 1,034,817 803,001 226,754 11,846 5,062 9 Myanmar 1,036,758 1,941 1,752 189 Source: Foreign Workers Administration Office, Monthly report July 2017. https://www.doe.go.th/prd/assets/upload/files/alien_th/47b2915189a73a80d461869cb037651e.pdf
159 Data from Table 9 shows the size of the ASEAN labor force in Thailand in July 2017 and the top 3 countries were Myanmar, Cambodia, and Lao PDR, respectively. Divided by occupation, the labor force from Myanmar shared the biggest part for each occupation. The top 3 occupations that need foreign migrants are construction, services, and agriculture poultry. (See figure 18) Figure 18. Number of foreign workers by occupation (concentrated only on workers from Cambodia, Lao PDR, and Myanmar) (2017) Source: Collected from Migrant Database, www.doe.go.th With the flow of labor force within Southeast Asia region, it implies that Thailand and other ASEAN countries need management of labor supply and also an adjustment of labor rules and regulations to support sectors of production within ASEAN. The next section provides what Thailand has done concerning human resources development and management. 5.2 Policy Implications The policies of the country have led to a transformation in human resources development planning in Thailand (investment-led-transformation and policies-led- transformation). In order to achieve economic prosperity as has been targeted in the national strategic plan, Thailand needs preparation of its labor force for adequate skills needed in the production process and for development purposes. Health-care programs and education policies are the two basic requirements for improving the quality of the labor force. Formal education and training should be regularly evaluated and reformed. Moreover, to build up labor force competency skills in the production process, the training and development program should be demand-driven. If the size of the Thai workforce is inadequate and not sufficient, the flow of labor from neighboring countries is needed to fulfill the gap. Hence, rules and regulations on migrant workers must be formed and implemented. (This must be done with caution, otherwise a shortage of labor force will occur). A supporting system to help access to information, knowledge, and news for those who want to improve their own capabilities, such as training, must be available. Hence, up-to-date information is a key factor in management.
160 References (1)Ariyasajjakorn, Danupon and Manprasert, Somprawin (2015) Situation and Impacts of International Labor Movement in ASEAN, Chulalongkorn University Press, Bangkok. (in Thai) (2)ASEAN on Mutual Recognition Arrangement on Services (MRA) from https://asean.org/storage/images/2015/October/outreach- document/Edited%20MRA%20Services-2.pdf (3)Bank of Thailand, EC_EI_018 Employment Indicators (4)Bank of Thailand, EC_RL_010: Number of employed persons classified by work status (5)Bank of Thailand, EC_RL_012: Number of employed persons classified by occupation (6)Bank of Thailand, EC_RL_014_S2: Average wage classified by industry (ISIC Rev.4) (7)Bank of Thailand, EC_RL_017: Average wage classified by level of education (8)Bank of Thailand, EC_RL_018: Average wage classified by occupation (9)Bank of Thailand, Labor Force Survey (new Series ISIC Rev.4) (10)Bosworth, Barry. (2005). Economic Growth in Thailand: The Macroeconomic Context. This survey of economic growth accounting in Thailand was prepared for a World Bank project on the investment climate, firm competitiveness and growth in Thailand. Online (11)Department of Employment, Ministry of Labor, Labour Statistics Yearbook 2016 (12)Department of Employment, Ministry of Labor, National Strategic on Human Development 2017 – 2036. https://www.doe.go.th/prd/assets/upload/files/bkk_th/4b170ce6542e5d25c87 a7e94d7410cdf.pdf (13)Eastern Economic Corridor. http://thaiembdc.org/eastern-economic- corridor-eec/ (14)Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), \"The Next Generation of the Penn World Table\" American Economic Review, 105(10), 3150-3182, available for download at www.ggdc.net/pwt (15)Foreign Workers Administration Office (2017) Monthly report July 2017 https://www.doe.go.th/prd/assets/upload/files/alien_th/47b2915189a73a80d461869cb 037651e.pdf (16)Ianchowichina, Elena, and Gable, S. Lundstrom (2012) “What is inclusive growth?” in Commodity prices and inclusive growth in low-income countries ed. by Rabah Arezki, Catherine Pattillo, Marc Quintyn, and Min Zhu. International Monetary Fund.
161 (17)Office of the Permanent Secretary, Ministry of Labor (2015) Labor Market in ASEAN (in Thai) (18)Special Economic Zone https://www.aseanbriefing.com/news/2018/04/13/thailands-special- economic-zones-opportunities-investment.html (19)Tinankorn, Pranee and Sussangkarn, Chalongphop. ( 1998) . Total Factor Productivity Growth in Thailand: 1980 – 1995 ( p. 22) , research report submitted to the National Economics and Social Development Board. Online https://tdri.or.th/en/2013/05/m45-2/ (20)United Nations Development Programmes, Human Development Data (1990 – 2017) (21)Weil, David N. (2013) Economic Growth (3rd Edition), p. 162. (22)World Economic Forum, The Global Competitiveness Report ( various issues: 2012- 2017).
162 Appendix Table 1 Classification of economies by factors (or sub-index) Factors-driven Economies Efficiency-driven Economies Innovation-driven Economies Basic requirements sub-index Efficiency enhances sub- Innovation and sophistication index factors sub-index Pillar 1 Institution Pillar 5 High Education and Pillar 11 Business Pillar 2 Infrastructure Pillar 3 Macroeconomic training Sophistication Environment Pillar 6 Goods Market Pillar 12 Innovation Pillar 4 Health and Primary Education Efficiency Pillar 7 Labor Market Efficiency Pillar 8 Financial Market Development Pillar 9 Technological Readiness Pillar 10 Market Size Source: World Economic Forum 2017
163 6 Labor Movement in Mainland ASEAN: From Agreements to Implementations Piti Srisangnam65, Ph.D. and Wasutadon Nakaviroj66, Ph.D. 1. Introduction ASEAN countries have, for quite some time, acknowledged the importance of labor mobility, particularly in terms of skilled workforce and personnel. While there is room for further progress to be made, a number of actions have been implemented over time in favor of the labor mobility agenda. The progress on labor mobility in ASEAN began with the ASEAN Framework Agreement on Services ( AFAS2) in 1995, which enabled the liberalization in terms of “ presence of natural persons” (often referred to as “Mode 4” in trade in services). Mutual Recognition Arrangements ( MRAs) began to emerge in 2005, and allowed for movements in 8 professions. This was followed by the liberalization on visa exemptions which were marked by the ASEAN Framework Agreement on Visa Exemption, signed by foreign ministers of ASEAN member nations in 2006. The importance of this agreement, once in effect, will be to allow ASEAN nationals to stay in another member country for 14 days without the need for visas, which can be considered a step in facilitating the movement of people across countries. It is noteworthy, however, that the exemption remains only partially implemented and is currently not complete. In addition to the aforementioned steps, an important element in the AEC Blueprint of 2007 is the recognition that free flows of skilled labor serves as a crucial basis for the formation of a single market and production base. The definition of “free flow” is to “ allow for managed mobility or facilitated entry for the movement of natural persons engaged in trade in goods, services and investment”. In the smaller picture of the Mainland ASEAN Region, four countries who share borders ( Thailand, Myanmar, Cambodia and Lao PDR) have entered Memorandum of Understandings ( MOUs) on labor mobility and migrant workers which resulted from Thailand’ s economic situation within the past two decades This led to the rise in the demand for low-skilled workers and vacant jobs in manual labor- intensive positions, which Thai workers are becoming less willing to fill over time. The comparatively cheap wage rates for migrant workers ( and more so for informal or illegally hired workers) from Thailand’ s neighbors, and the relatively better performance and diligence of these workers, as perceived by Thai employers, have resulted in a continued influx of migrant workers to Thailand. Many of these were illegal or informal migrants not acknowledged by the system, and, as such, efforts 65 Faculty of Economics, Chulalongkorn University and ASEAN Studies Center, Chulalongkorn University. 66 National Science Technology and Innovation Policy, Ministry of Science and Technology.
164 were made to compromise between the authorities and the demand for the migrant workers. Yet, these were mostly temporary measures and, while many of these workers were formalized or registered over time, Thailand and its neighbors will need to work out more permanent solutions to sort out the issue of migrant workers, particularly through MOUs and facilitation processes. These are examined later in a section on MOUs. Three main frameworks deserve significant attention in this paper; these are the ASEAN Agreement on Movement of Natural Persons ( MNPs) , the ASEAN Mutual Recognition Arrangements ( MRAs) , and the ( Mainland ASEAN) MOUs. Afterwards, we will examine the important issues in member countries, and underline the limitations and challenges facing ASEAN and its members with respect to labor mobility. 2. ASEAN Agreement on Movement of Natural Persons (MNPs) The following section will examine the characteristics and importance of the ASEAN Agreement on the Movement of Natural Persons ( MNP) . ASEAN MNPs were signed on November 19th, 2012 in Phnom Penh, Cambodia with the objective of significantly removing the barriers to the temporary movement across borders of natural persons engaged in trade in goods, services and investment among 10 ASEAN Member States (AMS). Basically, this agreement is concerned mainly with the movement of high- skilled human resources, and focuses only on the fourth mode (Mode 4 – presence of natural persons) aspect of the AFAS ( ASEAN Framework Agreement on Services) with respect to temporary movement of persons. This means that employees working for ASEAN companies will be able to temporarily relocate to other member countries for the purpose of providing their services. Yet, the scope of mobility remains limited to high- skilled personnel, as the agreement covers only business visitors ( for 7 ASEAN member states, where Singapore, Myanmar and Brunei are not included) , contractual service suppliers ( currently applied to Cambodia, the Philippines and Vietnam only), and intra-company transfers of personnel for all member states. This means that beneficiaries of the agreement will mostly be specialists, white- collar employees, professionals, and executives, and that the benefits of free movement apply only for temporary stays. Currently, permanent movements remain prohibited, and unskilled labor movements remain restricted even for short-term relocations. In detail, the three main types of beneficiaries from the agreement are “ASEAN Business Visitors”, “Contractual Service Suppliers”, and “Intra- corporate Transferees” . It shall be useful to examine the cases for each of the types separately as follows: 2.1 ASEAN Business Visitors This refers to individuals ( natural persons) seeking to enter and/ or stay, temporarily, within the borders of another ASEAN member state, and whose remuneration and financial support for the duration of their visit is derived from outside of that other member state; as a representative of a goods seller/ service supplier, for the purpose of negotiating the sale of goods or supply of services or entering into agreements to sell
165 goods or supply services for that goods seller/ service supplier, where such negotiations do not involve direct sale of goods or supply of services to the general public; as an employee of a juridical person as defined in subparagraphs e( i) , e( ii) and e( iii) of this Article only for the purpose of establishing an investment or setting up a commercial presence, for the juridical person in the territory of another Member State; for the purpose of participating in business negotiations or meetings; or for the purpose of establishing an investment or setting up a commercial presence in the territory of another Member State. 2.2 Contractual Service Suppliers Contractual Service Supplier means a natural person who is an employee of a juridical person established in the territory of a Member State which has no commercial presence in the territory of the other Member State where the services will be provided, who: enters the territory of that other Member State temporarily in order to supply a service pursuant to a contract(s) between his/her employer and service consumer(s) in the territory of the other Member State; is either an executive, manager, or specialist as defined in subparagraph e(i), e(ii) and e(iii) of this Article, who receives remuneration from his/her employer; must possess the appropriate educational and professional qualifications relevant to the service to be provided; and as may be applicable, has been an employee of the juridical person for a period as may be specified in the Schedule of Commitments. 2.3 Intra-corporate Transferees Intra–Corporate Transferee (ICT) means a natural person who is an employee of a juridical person established in the territory of a Member State, who is transferred temporarily for the supply of a service through commercial presence ( either through a representative office, branch, subsidiary or affiliate) in the territory of another Member State, and who has been an employee of the juridical person for a period as may be specified in the Schedule of Commitments, and who is: an Executive: a natural person within the organisation who primarily directs the management of the organisation and exercises wide latitude in decision making and receives only general supervision or direction from higher level executives, the board of directors, or stockholders of the business; an executive would not directly perform tasks related to the actual provision of the service or services of the organisation; a Manager: a natural person within the organisation who primarily directs the organisation/department/subdivision and exercises supervisory and control functions over other supervisory, managerial or professional staff; does not include first line supervisors unless employees supervised are professionals; does not include employees who primarily perform tasks necessary for the provision of the service; or a Specialist: a natural person within the organisation who possesses knowledge at an advanced level of expertise essential to the establishment/ provision
166 of the service and/ or possesses proprietary knowledge of the organisation’ s service, research equipment, techniques or management; may include, but is not limited to, members of a licensed profession; It should be noted that each sector differs with respect to their internal characteristics and details, hence the ensuing differences in their approaches to labor mobility. As a result, the number of sectors committed to cross- border free flow of labor differs across countries. These differences can be vast, even within the group of fellow ASEAN member states. Brunei and Cambodia have made commitments in as many as 153 subsectors, out of 154 existing subsectors ( bordering on total liberalization in terms of sectors covered), while the number of subsectors committed is only at 59 for Myanmar. As was mentioned, there are 154 subsectors in total, and currently, the average number of sectors committed stands at approximately 110. 9 subsectors per country, translating into approximately 72% coverage, whereas AANZFTA has 79.9 committed subsectors on average and AFAS 8 has 80. 8 subsectors, making the ASEAN MNP Agreement the currently most progressive and comprehensive of the three. Fukunaga and Ishido ( 2015) examined the level of commitments made by ASEAN member nations represented by “the Hoekman Index”. This index originated from the work of Hoekman ( 1995) , where higher scores signify greater levels of commitment towards liberalization, and lower scores represent the lack thereof. Table 1: Level of MNP Commitments in terms of the Hoekman Index Source: Fukunaga and Ishido (2015) From Table 1, we can compare the levels of liberalization progress across ASEAN member countries. Brunei Darussalam and Singapore exhibit the highest overall levels of liberalization within the region, scoring at 0. 5 for as many as 10 out of 11 sectors, and having a total score of 0.5. Cambodia ranks third at 0.49 on average. The most restrictive member country is Myanmar (0.17 overall). We will take a look the characteristics of each country in detail in the succeeding section.
167 Sector- wise, the construction sector remains the most liberalized, with most countries having a score of 0. 5, and 1. 00 for the case of Indonesia. The recreation sector is the least liberalized at 0.26. 3. ASEAN Mutual Recognition Arrangements (MRAs) Let us now examine the ASEAN Mutual Recognition Arrangements in Services ( ASEAN MRAs) . These are mutual recognition arrangements in their respective service sectors which collectively play an important role in the liberalization of trade in services within ASEAN and the framework of its integration. Basically, an MRA allows the professional qualifications recognized in the home country to be accepted by other member countries who signed the MRA. This means that, given the conditions are met, professionals and service suppliers in one country can be mutually recognized by authorities in another signatory member country. Yet, given its scope, MRAs cannot be enforced in conflict with local laws of the signatory partner; laws and regulations in the other countries will need to be adhered to nonetheless. The progression of MRAs in ASEAN began during the 7th Summit in November 2001, where members collaborated to deepen the regional integration in trade in services. This resulted in the agenda of MRA formulation and facilitation of skilled labor movement in professional services under the AFAS. Following the agenda, labor mobility MRAs began to emerge in several professions, and 7 of them have been concluded and signed as follows: 1. MRA on Engineering Services (9 December 2005) 2. MRA on Nursing Services (8 December 2006) 3. MRA on Architectural Services and Framework Arrangement for the Mutual Recognition of Surveying Qualifications (19 November 2007) 4. MRA on Medical Practitioners (26 February 2009) 5. MRA on Dental Practitioners (26 February 2009) 6. MRA Framework on Accountancy Services ( 26 February 2009) – led to the subsequent MRA on Accounting Services (13 November 2014) 7. MRA on Tourism Professionals (9 November 2012) To qualify as an ASEAN practitioner in a profession, one needs to meet the standards of the qualifications, which differs from one sector to another, but generally requires a significant amount of (continued) post-education experience in the field of occupation, adequate skills & expertise, permits ( where applicable) , and requires the absence of criminal records or any professional and ethical misdemeanor. For example, to qualify as an “ASEAN-certified architect”, one will need no less than 10 years of continued post- education working experience, with several additional conditions specifying years of project management experience and permit holding years, while engineers require 7 years of continued post- study working experience with 2 years of project management. Other professions, such as medical and dental practitioners and nurses face less strict requirements with respect to time periods in years, but continued post-education working experience is mandatory. For the tourism sector, personnel are covered by the ASEAN Common Competency Standards Framework for Tourism Professionals ( ACCSTP) , which allows for the movement and employment of numerous occupations in the sector,
168 including front office staff members, housekeeping crew members, chefs, cooks and employees in the culinary services, food and beverages service providers, travel agency staffs, and tour operators. 3.1 Stages of MRA Implementations67 According to the information outlined by Fukunaga (2015), the process is to examine the progress in the following aspects: 1. The submission of notification of participation, 2. Establishment of a monitoring committee, 3. The preparation and submission of an assessment statement, 4. The screening of domestic applicants, the approval for domestic applicants by the AAC, and, 6. The establishment of a system to authorize RFAs. Most ASEAN member states have gone through the preparation processes, with Brunei, Malaysia, the Philippines, Singapore and Thailand having completed all steps of the preparation stage. Indonesia, Myanmar and Vietnam are at an advanced stage of preparation, with only the establishment of the RFA authorization remaining to be completed. However, the progress of implementation is lagging in Cambodia and Laos. Cambodia, while already having completed the first four steps ( notification of participation, establishment of committee, submission of assessment statement, initiating screening process for ASEAN architects), is still waiting for the approval of the AAC of its assessment statement. Laos has yet to start its screening process for domestic applicants for ASEAN architects. Both countries have not yet established the system to authorize foreign architects as RFAs by a professional regulatory authority (PRA). Fukunaga (2015) then made the comparison between the countries’s progress in 2011 and 2015, and reported that significant improvements in MRA implementation were made in the cases of Brunei, Laos, Myanmar, the Philippines, Thailand, and Vietnam. Yet, the most impressive case is that of Myanmar, where all the implementation processes have been fully completed ( despite the currently unfinished progress of the RFA authorization system for ASEAN architects). 3.2 Domestic Regulatory Revisions68 As was mentioned earlier, MRAs cannot contradict or override existing local or national laws or regulations. Yet, as the purpose of MRA formulations are to facilitate liberalization towards a more open and integrated regional economy, it is desirable that certain local laws and regulations be reviewed, updated, and revised where necessary to suit the needs of the new economic playing field, so that national and regional regulatory systems can be harmonized to reduce conflicts and disruptions. This underlines the need and importance of domestic regulatory assessments and revisions where needed. Existing sets of regulations may be directly related to MRAs (such as the relationship between the Architect Act and the ASEAN Architect MRA) , or indirectly related ( i. e. immigration laws that affect the de facto movement of labor). Brunei, an enthusiastic player with significant progress, has reported the completion of its regulatory revisions, and is the only country to have done so. In 67 Fukunaga (2015) 68 Ibid. (2015)
169 terms of progress, Brunei is followed by Malaysia and Vietnam. In other member countries, such as Singapore, Thailand, and Malaysia, regulatory revisions remain underway despite their completion of the six steps of preparatory work mentioned earlier. Myanmar, a significant contributor in terms of preparation, however, lags behind in that most regulations and laws are in need of updates and changes, a trait shared by Laos to a lesser extent. At any rate, Myanmar and Laos, regardless of their position on the roadmap, are making significant improvements. Brunei, Malaysia, and Cambodia are also making good progress along the line. The emergences of MRAs in the current liberalization trend have resulted in pressures towards changes in domestic employment, foreign talent, and labor regulations in member states. Yet, it should be noted that such changes may not always positively facilitate the liberalization progress in line with the MRAs; in light of these changes and revisions, some countries have increased their professional standards or requirements for professionals. In effect, heightened standards following these updates can also impede the progress of labor movement. At any rate, these updates and revisions, as long as they are not made to deliberately block or obstruct the inflow/ outflow of regional talents ( as a form of “ labor protectionism” ) , can be considered an improvement to the existing situation. Fukunaga ( ibid. ) explains that Vietnam’ s report states that officials in Vietnam consider the impact of MRAs on regulatory adjustments as a positive contribution to the system, since they prompt the update of the laws and rules to be more accommodating and facilitative towards foreign talent. However, the Indonesian report is of the view that MRAs do not significantly trigger the move towards harmonization of regulations. It should be noted that there are currently no best practice regulations specified for the scope of ASEAN, which means that MRAs form the major basis for the agendas of regulatory revisions. Of course, difficulties in the structural and institutional dimensions are to be expected amongst member countries in the process of implementing said revisions. Amongst other things, language barriers, most importantly the lack of English proficiency, creates an obstacle against the de facto movement of ASEAN talent within the region. Other obstacles include the lack of trust which stems from fear of competition and domestic job loss for locals, the differences in codes of practice across countries, accreditation issues of educational institutions, lack of collaboration, awareness, and enthusiasm to apply for the ASEAN architect license. The degrees and severity of these problems would differ across countries, and form a bottleneck for policymakers to tackle in the future. The issue of English proficiency also affects the aspect of information dissemination. Access to information in English can be significantly obstructed for countries not using English as an official language, or countries with low success in English education amongst their workforce. Brunei, Cambodia, and Thailand have reported that the English versions of their regulations have been made available, while Vietnam, Laos, and Myanmar are still in the process of translating the rules and regulations ( currently undergoing revisions) to their respective official English versions69. 69 Fukunaga (2015).
170 3.3 Limitations of ASEAN MRAs Currently, the existing MRAs cover 8 professions and can be considered an important milestone. Yet, the overall contribution to the vision of free skilled labor mobility on the regional scale remains miniscule. We might compare the other regional frameworks with respect to the scope and progress. For example, NAFTA allows the movement of 63 professions across the member states (Canada, USA, and Mexico) while requiring only a work contract. Moreover, the 8 professions covered by the MRAs account for only 1. 5% of the total regional workforce, in the ASEAN region where the majority (if not most) of the labor force can be classified as unskilled. In this respect, 87% of intra-ASEAN migrant workers are unskilled. It should also be noted that there remain significant gaps and differences between visa standards of member countries. All of these factors raise the concern of whether the existing agreements and frameworks will be able to raise the level of talent mobility within the region. In addition to the obstacles listed above, there are also additional issues that may hamper member states’ ability to make use of the MRAs in practice. For example, there are clauses in Cambodia, Thailand, Myanmar and Laos which require companies to demonstrate that skill and expertise transfer to locals will occur as a result of foreign talent employment, and that jobs will eventually be rotated to locals. Indonesian laws require companies to provide proof that local employees are unable to fill the position ( hence justifying foreign employment) whereas the constitution of the Philippines prohibits foreigners from taking up a number of occupations. These factors prove to obstruct the process of intra- regional labor mobility as hiring foreign workers and talent are made more difficult due to these conditions and restrictions. Multinational companies (MNEs), on the other hand, can circumvent such restrictions by employing staff members from one country and then rotate them to another market, which will be more of an internal staff placement rather than direct foreign employment in its simple form. As such, it can be criticized that, in its current state, the ASEAN framework on labor mobility remains highly limited, both in terms of sectoral coverage, actual progress along the roadmaps, and the practical limitations and obstacles in the regional playing field. It can be argued that the restrictiveness of the existing policies and regulations signify the lack of political will to actively pursue actual increases in labor mobility liberalization and free flow of regional talent. With respect to political concerns, richer countries worry about the flooding of foreign workers and talent which may result in increased competition for jobs and positions, lowering the payment rates, and concerns of security and stability. Poorer countries, on the other hand, are fearful of the possibility that their (already dwindling) skilled workers will migrate to other countries with better payment and job opportunities, which will, in effect, deprive these home countries of their educated manpower. These factors are important sentiments that tend to dilute the political will to press forward the regional labor mobility agenda. The fact remains that several ASEAN countries, if not most, are suffering from some form of labor shortage, especially in terms of skilled labor availability. In reality, member states can actually benefit from the increased mobility of skilled workers and inflow of foreign talent through connections with other ASEAN members with strong educational systems. The current outlook being Indonesia, the Philippines,
171 and Vietnam dealing with skilled labor shortages at home, while Singapore, Malaysia, and Thailand are looking for affordable labor and workers with cheaper wage rates. The introduction of greater mobility would fill these gaps (for example, Indonesia has its surplus of young unemployed workers that may find occupation elsewhere if mobility is made available in the region). Table 2: Number of Licenses issues for professionals in each ASEAN Member States Member States Engineering Architecture Accountancy Surveying ACPEs AAs Brunei - - -- Darussalam Cambodia - - -- Indonesia 154 51 - - Lao PDR - - -- Malaysia 199 32 - - Myanmar 72 12 - Philippines 38 40 - - Singapore 218 58 - - Thailand - 3 -- Vietnam 113 7 - - Total 795 203 - Source: Bureau of Trade in Service and Investment, Department of Trade Negotiation, Ministry of Commerce as of November 2014 4. Memorandum of Understanding (MOU) Let us now talk about another important issue on intra- ASEAN labor mobility, the Memorandum of Understanding ( MOU) on Cooperation in the Employment of Workers between Thailand, Lao PDR, Cambodia and Myanmar. We examine this particular MOU in detail in this section. Despite the MOU not covering the entirety of ASEAN member countries, it should not be overlooked since it provides useful insights on the overview of labor movement and migration in mainland ASEAN, especially in terms of unskilled workers. Noteworthy, in this respect, it differs from the ASEAN MRA and MNP in that the MOU deals with a large mass of unskilled labor workers and their flows en
172 masse, rather than a relatively small number of skilled professionals, executives, or elite-level personnel (high-skilled workers). The MOU came into being through a series of events which started during Thailand’ s changing situation in the 1990s, where its net labor flow pattern shifted from that of a net- sending country to a net- receiving country for labor migrants through several economic factors and rising developmental levels. This resulted in the inflow of workers (mostly unskilled workers) from Thailand’s neighboring countries, most notably Myanmar, Cambodia and Laos. Economic growth in Thailand and shifting structural patterns resulted in the shortage of unskilled workers, and also due to Thai nationals seeking better paying jobs and more rewarding opportunities. This meant that many manual labor jobs and physically demanding tasks ( associated with low levels of payment and lower social statuses) were becoming less attractive to Thais. Labor shortages in these jobs ensued. Thailand has, for a significant amount of time, resorted to the use of cheaper and more hard- working labor from its surrounding countries, but many of these employed workers were illegal immigrants. As such, efforts were made to compromise between the regulatory dimension and economic reality in the production sectors by relieving the penalties on immigration. Measures were made by successive governments to allow for the temporary stay and employment of immigrant workers, and provisions of short- term amnesty to infringers were introduced. Yet, the structural problems of unskilled labor shortage in Thailand was a long- term issue, and, as such, temporary measures did not abolish the gap between the ever-strong demand for cheap unskilled workers and the inadequate supply. It has been deemed that the Thai economy has grown dependent on low-wage labor. In addition, the competition between exports of various similar products from developing countries mean that the cost of labor will inevitably determine the success or failure in competitiveness. As such, migrant workers were essential in maintaining a competitive edge in exported articles. The temporary registration process, which was meant to be a short- term solution in reducing the tensions in the production sectors, had proven to be inadequate since illegal immigrations had not decreased, and that migrants were frequently re-registering, showing that the flow of migrant workers remained strong regardless of the efforts to stop them. Given the aforementioned circumstances, the Bangkok Declaration on Irregular Migration was adopted in 1999, and was supported by 19 Asian and Pacific countries. An important agenda of the Declaration is the need for cooperative management of labour migration between the country of origin and the destination. This Declaration also laid the foundations for three ensuing bilateral MOUs, between Thailand and Cambodia, Laos, and Myanmar (Vasuprasat, 2008). A significant majority of illegal immigrant workers in Thailand are from Myanmar, and these migrants, along with those from other neighbor countries, were granted a comprehensive amnesty program in 2004 through a registration process. This allowed existing migrant workers to be issued temporary ID cards for work as a short- term solution to the widespread presence of informal and illegal immigrant workers in Thailand. As was mentioned, this turned out to be an inadequate short- term solution, and several registration windows followed, notably in 2009 and 2011. The Alien Employment Act was amended in 2008, providing the legal framework for
173 employing foreigners, and facilitated the implementation of MOU and NV procedures. However, the actual implementation process of MOUs was delayed substantially, as a result of obstacles, in cooperation with governments, as well as limitations in these governments’ agencies in carrying out the procedures in the MOUs. Given the bilateral nature of these MOUs, the labour ministries of each of the countries needed to meet and discuss the details of cooperation, which proved to be a slow process. As a result, the deployment of migrant workers did not begin in Cambodia and Laos until 2006, and were deferred in Myanmar until 2009. The MOUs are often considered to be underutilized; the impact of MOUs have thus far proven to be limited and labor demand continues to remain above the reported migration numbers. Vasuprasat ( 2008) argued that this gap between low supply and high demand for workers may have been filled by the employment of informal immigrants. Data in 2014 showed that approximately 250,000 migrants had completed the MOU process. This should be compared to the 1.2 registering migrant workers in the 2004 temporary ID amnesty. It can be argued that the utilization of the MOUs remains highly limited. Table 3: Migrant workers with work permits under the MOU agreements as of November 2014 The MOUs have prompted development and reforms in multiple aspects within the four signatory countries, and not limited only to the dimension of labor migration. In general, there is a positive trend for the situation in each of the countries. Yet, the implementation process, as we have mentioned, remains far from complete or adequate, and additional actions to tackle existing challenges are needed.
174 Diagram 1: MOU Recruitment and Placement Process for Workers from Myanmar as of 3 July 2014 PEO = Provincial Employment Office (Thailand), DOE = Department of Employment (Thailand) Source: Review of the effectiveness of the MOUs in managing labour migration between Thailand and neighbouring countries / ILO Regional Office for Asia and the Pacific. – Bangkok : ILO, 2015
175 4.1 Country Overview Thailand Being an upper tier developing country attempting to escape the middle income trap, but highly reliant on its industrial and manufacturing sector, Thailand’ s dependence on low-skilled labor and labor intensive production activities has resulted in steady demand for migrant workers, especially from neighboring countries, as employers consider Thai unskilled workers as relatively more expensive and less productive at work. This has been exacerbated by the demographic shift towards an aging society and declining share of working age population. Nevertheless, Thailand still lacks a clear long-term policy on migrant labor, and still needs an adequate supply of forecasts and research on how the migration outlook under the new MOU-enforced system would affect the economy and society. The implementation of labor policies should take into account the effects on the interests of various stakeholders and balance them. There is a positive trend on government attention towards the need to protect migrant workers from exploitation and abuses, as well as the need to combat trafficking This is largely as a result of pressures from the international community that demands higher government effort on such issues. For example, the US Trafficking in Persons Report (TIP) and the awareness of buyers and retailers of Thai exports in developed countries such as the US, European countries, and Australia, are concerned with the issue of labor conditions in the production of goods. Contributing factors have led to the emergence of numerous measures to enhance the protection of migrant labor. These changes include the revision of ministerial regulations in the domestic work sector and the fisheries sector, with respect to the strengthening of the labor inspection system, the formal registration of migrant workers in the fishery industries, and greater collaboration between the authorities and non- government organizations (NGOs) in ensuring increased labor welfare and safety. Issues related to migrants and trafficking problems have been given even more of attention since the military government came to power in 2014. Government stances and expectations towards the authority pose significant impacts on the labor sector. In June of 2014, government actions and statements triggered a sudden outward migration of Cambodian workers back to their home country, which caused a shortage shock on the agricultural sector and several industrial subsectors, as producers in these sectors have been reliant on Cambodian workers. This incident led to the increasing public awareness of the Thai economy’s reliance on migrant workers in its production processes. In the same month of the Cambodian exodus, Thailand was downgraded to Tier 3 ( the lowest tier) in the US TIP Report, on alleged grounds of worsening trafficking situations. The National Council for Peace and Order (NCPO), in response, established a committee and the Sub- committee on Solving Problems of Migrant Workers, to specifically deal with the worsening evaluations. This was followed by the NCPO’ s measure to open up one- stop service centers for registering migrant laborers throughout the country, in an attempt to formalize these workers and combat illegal migration and trafficking. Consequently, more than 1. 6 million irregular migrants were registered between June 26 – November 29 of that year, thus formalizing a very large portion of the migrant labor force. The government has since made efforts to reduce costs and obstacles in the registration processes, work permits,
176 and extensions, and to standardize such processes across the country. In addition, corruption problems have been denounced and acknowledged by the government as another source of inefficiency in handling labor and migration-related issues. Myanmar Being one of the most noteworthy sources of migrant workers in Thailand, Myanmar is also a country undergoing rapid changes as a result of its political reform, and positive expectations in multiple aspects have been anticipated since 2011. For example, in terms of labor and foreign workers, the authorities have recognized that its Overseas Employment Law ( 1999) needs revision and updates in order to keep track with changing economic and social situations. Myanmar’s outlook, at any rate, should be examined with consideration that many of its determined goals are still only underway. The Ministry of Labour, Employment and Social Security ( MOLES) has planned a five- year national plan known as the “ National Plan of Action for the Management of International Labour Migration” which, when adopted, will address the issues of governance of labor migration, the protection and empowerment of migrant workers, migration and development, worker rights and remittances, and data collection & management. An aspect of Myanmar’ s migrating workforce is remittances, which the NPA draft acknowledges as an important factor to the country’s development. In addition, whereas Thailand realizes the impact and importance of the migrant labor inflow from Myanmar, Myanmar acknowledges the issue of labor outflow from the home economy into Thailand. The authorities are concerned with workers exiting the country through informal or illegal channels and are making efforts to formalize the process for their workers through documents and identifications. Myanmar had formerly issued their workers who complete the formal process with temporary passports, but after 2014, the government has been working to replace temporary passports with regular passports for their workers. As the issue of Myanmar- Thai cross border migrant workers concern both countries significantly, the Government of Myanmar is working together with Thai authorities to implement the aforementioned measures. In detail, migrant workers must submit documents in the same way as any other Myanmar nationals to apply for a regular passport. At any rate, an observed problem amongst workers, especially those who are from rural backgrounds or those who have been away from home for a long time, is that they may have lost the required documents needed to apply for a passport, may have never had the papers in the first place, or traveling back home to obtain a physical copy of the documents may prove to be too costly for them, hence the choice to turn to cheaper illegal migration channels. Currently, there are over 200 registered overseas employment agencies, approximately 70 of which are focused on sending workers to Thailand. This signifies the importance of the Thai economy to workers form Myanmar seeking jobs overseas, and also reflects Myanmar’ s importance as an economic partner and supplier of workers to Thailand. The government of Myanmar is working together with these agencies, as well as the Thai government, to promote lawful practices within the process.
177 Lao PDR While Laos may not have as large a share of labor in Thailand as Myanmar or Cambodia, Thailand is recognized as a destination for Laotian workers. Nevertheless, the governmental strategy is to promote industry and employment at home rather than encourage outward migration, partly due to labor shortages at home. This relative scarcity of labor in Lao PDR has made Laos another destination country for migrant workers from neighbouring countries. The government promotes legally compliant entries and acknowledges worker safety and welfare. The Ministry of Labor and Social Welfare ( MOLSW) is the main authority in charge of labor affairs, with migration issues handled through the National Labor Law ( Amended) ( 2014) . This legislation is supported by several smaller frame regulations. These include: 1. the MOLSW Decision No. 43 on the Establishment and Governance for the Employment Services Enterprises ( 2010) , which handles the recruitment of Laotian workers and the registration of recruitment agencies, 2. the Prime Ministerial Decree No. 68 ( 2002) on the Sending of Lao Workers to Work Abroad, defining the rights and obligations of migrant workers from Laos (this decree also acknowledges Thailand as an approved destination for workers) , and 3. the Implementing Guideline No. 2417 (2002). At any rate, the regulatory framework may need further updates to keep up with the issues on labor migration and further implementation details. Cambodia Cambodian workers form a notable share of migrant labor force in the Thai economy, and, at home, Cambodia is enjoying the supply of a young workforce, where many are interested in becoming migrant labor in Thailand. The country is also making comprehensive legislative updates which can be considered some of the most groundbreaking in ASEAN. There has been a labour Migration Policy and Action Plan since 2010 (which has also been updated for 2015-2018), which focused on the overseas employment programmes. In addition, Cambodia in 2011 enacted the “Sub- decree 190 on Sending Khmer Abroad through Private Recruitment Agencies”, which has become the main law dealing with the issue of labor migration, and, in 2013, there were 8 ministerial orders (prakas) issued to provide depth and clarification to the 2011 Sub-decree. While they are not laws per se, the ministerial orders are effective as guidelines and tools for the Ministry of Labour and Vocational Training ( MOLVT) , and handle the licensing of recruitment agencies. Through these ministerial orders, recruitment agencies are regulated in terms of various aspects concerned with labor migration, and standards, guidelines, awards and penalties, and complaint mechanisms have been introduced. The Cambodian Government became more closely attentive on the issue of migrant labor following the exodus of 200,000 Cambodian workers from Thailand in June 2014, and have placed much attention on the issue of obstacles to labor migration. This included the reduction of costs and impediments of Cambodians obtaining a passport, and the policy to open one- stop centres. At any rate, these initiatives of the Cambodian government came at the same time that the Thai government opened up registration windows at home, where approximately 700,000 Cambodian migrant workers registered.
178 Also, it should be noted that Cambodian migrant workers are broadening their choices of destination countries. Thailand remains the most important destination for work, but workers are becoming increasingly inclined to seek jobs in Korea and Malaysia, and, to a lesser extent, Japan and Singapore. In this respect, Cambodia has also signed MOUs with Qatar and Kuwait on labor mobility.
179 7 Impact of Japan’s ODA on CLMV’s Growth and Trade Kitti Limskul70 and Tran Van Hoa71 1. Introduction The CLMV countries (Cambodia, Laos, Myanmar, and Vietnam) are strategic members of the Mekong River Subregion (that includes China and Thailand), the 10-member ASEAN and its various expanded regional and mega free trade agreements (ASEAN 2017). Since their integration into the global economy in recent years, the CLMV countries have liberalized trade and investment and increased regional cooperation after significant domestic reforms. They have achieved high growth, improving living standard and reducing poverty. Being the lower income members of the ASEAN, the CLMV countries have also attracted generous ODA (official development assistance) from the OECD DAC especially Japan. Also, new donors also cover Korea, China PRC, and Thailand in recent years (OECD 2017). The overall ODA havely induced their national development agenda and implementation which has aimed to reduce their regional economic gap and to promote economic integration into an international standard (Mikishima and Yokoyoma 2008). This regional and international cooperation and assistance have shown CLMV’s geopolitical importance. The market for trade, investment, and business opportunities of CLMV is underexplored with bountiful natural and human resources (EIC 2016). Some studies have been undertaken to investigate especially Japan’s ODA to the CLMV countries and, to a lesser extent, its impact on growth and development. These studies involve a detailed description of the main ODA-supported projects and to a much lesser extent their microeconomic assessment (e.g., Makishima and Yokoyoma 2008, Makishima 2010, Pan 2014, EIC 2016) but lack strong empirical and analytical content at the macroeconomic level for useful national policy debate and analysis. The paper is a contribution from an econometric perspective to the literature in this aspect of CLMV growth causality and the importance of Japan’s ODA and its impact on the CLMV countries. We will develop a model of growth and trade for open economies (Tran 2007a, 2007b, Tran and Limskul 2013). The model is based crucially on the fundamental causality concept of regional trade agreement (RTA) or economic integration where trade, FDI, services and ODA (not conventional capital and labor) as key drivers of growth (WTO 2017). Also, the model assumes circular causality between growth and trade (Tran 2007a, 2007b), and specifies ‘economic conditionality’ as having simultaneously influence on growth and international trade (Johansen 1982, Krueger 2007). 70 Saitama University, Japan 71 Vietnam and East Asia Summit Research Program, Victoria University, Australia
180 2. The CLMV Economies’ Main Indicators The following discussion on the statistical characteristics of the key data for an economic integration model of growth and trade (ASEAN 2017) with ODA is based on the information from the databases of the UNCTAD (2017) and OECD (2017) and for the period 1970-2015. The period was selected because some of the other necessary variables used in estimation (e.g., terms of trade) were available only for this time. The critical data in the model consist of growth, merchandise trade or openness (exports+imports/GDP), FDI/GDP, services/GDP, and ODA/GDP. The ratio indicators are used to take into account the different sizes of the CLMV economies for meaningful international comparison purposes. The historical patterns and movements of the critical data for the CLMV are given in Charts 1-5 respectively for graphical analysis. Chart 1: *),+&#*$)*'!(\"#)$ #!*&!(%# #!*&!(%# #!*&!(%# #!*&!(%# Sources of data for Charts 1-5: UNCTAD (2017), OECD (2017). First, from Chart 1 the average growth rates during 1970-2015 were impressive for Cambodia (3.82 % p.a.), Myanmar (6.32% p.a.), Laos (6.02% p.a.), and Vietnam (5.97% p.a.) respectively. The growth performances of other ASEAN neighbors during the same period were 5.93 % p.a. for Indonesia, 6.6% p.a. for Malaysia, 4.07 % p.a. for the Phillippines, and 5.6% p.a. for Thailand, 7.10 % p.a. for Singapore accordingly. Also, The pace of growth of CLMV and other ASEAN countries were lower than rapid growth performance of 9.01% p.a. for China PRC and 7.15% p.a. for Korea respectively. The main ODA donor for CLMV which is Japan had her growth performance of 2.58% p.a. during the same period.
181 The success of the economic development in CLMV was impressive as countries starting with a low income per capita and living standard as compared with other ASEAN neighbors. The achievement of higher growth performance by Cambodia, Laos, and Vietnam attributed by own endowments of rich unexploited natural resources and population. The flow of external resources to CLMV has helped to build up of physical as well as human capital for further development of production. It would also help CLMV to open her trade toward the world market as well. Chart 2: 2+0+44#3+0*1, $ '!# ' '!# ' \" +(463+*,13 2+0'!(5.1% '!# ' & ! '!# '$# 15+ 2+0!(5.1 +3)-(0*.4+72135 +3)-(0*.4/2135 Sources of data for Charts 1-5: UNCTAD (2017), OECD (2017). Trade openness is the key engine of growth in economic integration and the objective of WTO. The pattern of trade openness in CLMV during 1970-2015 was remarkable for Cambodia and especially for Vietnam accordingly. The openness of trade was still moderate for Laos while it was quite rapid for Myanmar during the pre- 2000 year and decline after that. It is a wonder if ASIAN and Global Financial Crisis would have any impact on CLMV's delaying their trade openness. Myanmar and Laos seemed to have changed their openness trend after the Asian crisis in 1997 while Cambodia and Vietnam have not shown such structural change. Cambodia-Vietnam has chosen her path of economic development in climbing the level of globalization and economic integration, while Laos and Myanmar have been more cautious.
182 Trade in services, a significant growth determinant in economic integration theory, has become an increasingly important sector in the CLMV (EIC 2016). Chart 3 depicts the rising trend of Cambodia on the importance of trade in services as compared with other neighbors. It reflects her openness to trade in general as well as on service trade. Net trade in service (not shown in Chart 3) of Cambodia and Laos have incurred a deficit during 2001-2015. It is interesting that Vietnam has relied less on the volume of trade in services (import plus export) as a percentage of GDP. During 2001-2015, Vietnam, however, had enjoyed a sizable and growing trade surplus in services. Myanmar and Laos have less volume of trade in service. On average during 2001-2015, the annual deficit for Cambodia and Laos was -6.71 and -4.68 percent respectively. On the other hand, the annual surplus was 0.39 and 1.63 percent for Myanmar and Vietnam respectively. Trade in services in Cambodia appeared unaffected by the contagion of the Asian Financial Crisis in1997, while other neighbors had their service trade-GDP ratio declined from past trend. All of them were however immune to the GFC in 2008. Chart 3: 0$'(*- (04*&( $2*..)! !# # !# # !# # \" !# #! 0$2*.5 .2( 0$'(*-1(04*&( 0$'(*-1(04*&(*,/.021(04*&((5/.02 0$'(*-1(04*&(0$2*. 0$'(*-1(04*&( ++4$0*$%+(1$0(,($130('*-,*++*.- &300(-2/0*&( Sources of data for Charts 1-5: UNCTAD (2017), OECD (2017).
183 # # Chart 4: # # +,&('*(,&%.*/&-)&*.+/&, ,$.(+ # # # # \" # #\" # # # # # # # #! The CLMV has tried to attract foreign capital to supplement their domestic savings for development purposes. In Chart 4, FDI/GDP ratio has shown a rising trend over the period in CLMV. During 1970-2015, the annual average FDI/GDP ratio is 3.31% for Laos, 5.7% for Cambodia, 3.73 for Myanmar, and 5.2% for Vietnam respectively. The chart also shows that CLMV like some other ASEAN countries has been affected by the Asian Financial Crisis and GFC. Myanmar received its most substantial boost of FDI during the Iraq War of 2003 and the post-GFC of 2010. The openness of CLMV has attracted foreign direct investment from abroad to exploit their cheap labor. The FDI flow to ASEAN countries can be sources of gross fixed capital formation (GFCF or Gross Investment). The FDI/GFCF ratio has been impressive in the build-up of capital stock. This FDI flow came together with the ODA at the beginning of economic development period. Without appropriate infrastructure development in ASEAN and CLMV, the region would not be able to invite the FDI from developed countries. On the contrary, without FDI there would not be industrialization, trade openness and growth either. All CLMV countries were affected by both the Asian Financial Crisis in 1997 and the GFC in 2008.
184 Chart 5-1: +-%'&*'-%#/*0%./)%*/-+..'1%$\",'/\"(+-)\"/'+*'*,%-#%*/\"&% !! !! !! !! !! !! !! !! !! Sources of data for Charts 1-5: UNCTAD (2017), OECD (2017). OECD https://www.oecd.org/development/stats/idsonline.htm The ODA flow to CLMV was remarkable after the 1990s. During 1970-2015, the ODA/GDP ratio was 16.6% p.a. for Laos, 8.6% p.a. for Cambodia, 2.76% p.a. for Myanmar, and 5.76% p.a. for Vietnam, respectively. The annual average of Japan’s ODA/GDP during the 1990-2015 period was 1.46, 2.04, 0.55 and 0.94 percent for the Cambodia, Laos, Myanmar, and Vietnam respectively, indicating that Laos was still on average the largest recipient of Japan’s ODA in her GDP. Japan was the biggest donor to the CLMV as noted by Mikishima and Yokoyoma (2008) as its national aid policy. The ODA to CLMV consisted of loans, grant aids, and technical assistance cooperation. It comprised both hard infrastructure, soft or management infrastructure and social infrastructure such as education, health, civic welfare, and government services, etc. Japan has been a major DAC donor to CLMV starting from the 1990s with Japan’s ODA to Myanmar in 2013 was mainly for debt relieve 2,528.32 Million USD (not shown in Chart 5) after Myanmar has resumed her democratic process. The ODA from Japan as compared with all other donors was significant during the past decades. The increasing trend of ODA from all donors (including Japan) has been increasing significantly since the 1990s. No significant impact of the GFC’s effects on Japan’s ODA flow into the CLMV. The overall trend of ODA/GDP ratio has been declining as economic development has expanded the GDP’s size.
185 Chart5-2: Comparison of ODA flow from All Donor and Japan 1960-2015 %#$$#'& \"$'. $$ ( &+' % ' # #&#$$#'& #$$#'& $'. $$'&') ( &+' '*#$$#'& $'.$$ % ' # #& ,))!&+%#$$#'& $'. ( & % ' # #&%#$$#'& \"$'.\")'%+' '*#&#$ \"$'.\")'% $$+' '*#&%#$$ #$$#'& $'.\" )'%$$ #&#$$#'& #$$#'& \"$'. $$ ( &+'/ &% ) #&#$$#'& '+!\"$'.\")'% (&#&. *\"') ! +)!$#!-! \"$'.\")'%$$ '&&!)+'#!+& %#$ \"$'.\")'% ( &+'#!+& %#&#$ \"$'.\")'% $$+'/ &% )#&%#$ \"$'.\")'% ( &+'/ &% )%#$$ Source: OECD https://www.oecd.org/development/stats/idsonline.htm
186 Chart 5-3: ,) \",&))% )-(,*&$+ '$\"+-*$#&(. ! ! ! ! ! ! ! ! Source: OECD https://www.oecd.org/development/stats/idsonline.htm Note: ODA to Myanmar in 2003 was inclusive of ‘debt relieve,' therefore showing a ‘spike’ ratio. The above summary of the CLMV’s essential growth and economic integration activities and trends of the new era of CLMV since 2001-2015 has provided useful information on these economies under globalization. We hypothesize that Japan's ODA flow is the main impetus to the economic prosperity of the region. We will apply an econometric analysis to investigate the causal interaction between growth, openness, and capital stock formation respectively. We test the null hypothesis whether Japan’s ODA would have an impact on growth, and trade of the CLMV. 3. An Economic Integration Model To Study The Impact Of Japan’s ODA On The CLMV Countries The econometric model of growth-trade-ODA is a causal relationship for a development policy analysis under economic integration (or SNA93 expenditure) framework. The unique features of the CLMV based on the fundamental postulates of a regional trade agreement (WTO 2017). It followed a conventional international economics and trade (including gravity) theory (Frankel and Romer 1999), and Johansen (1982) contributing factors. We have followed Kydland (2006) where prediction-reality compatibility or empirical fit is a crucial credibility criterion (e.g., Tran 2002a, 2002c, 2004, 2005, Tran and Kitti 2013). The economic foundation and econometric specification and the features of the model are as follows. We consider, for convenience and without loss of generality, a simple model of three simultaneous (circular causality) implicit or arbitrary functions for income (Y) and trade (T) and physical capital stock and human capital formation (K/L). This
187 model extends the basic economic-theoretic postulates under economic integration theory on growth to trade, investment and capital stock build-up, trade in services, Japan’s ODA, economic policy, shocks, and reforms, respectively. We have followed the model specification that incorporates not only economic factors but also geographic or demographic attributes (see Frankel and Romer 1999, Johansen 1982) or demographic dynamics (see Kydland 2006). Thus for simplicity FJ (CONSTANT ‘a’, ‘b’ ‘u’, REAL GDP GROWTH, TRADE-OPENESS, FDI, CAPITAL ACCUMULATION , ODA/GDP,S, YT, X, W) = 0 (J) J= 1,2,3 The F1, F2, and F3 are implicit functions linking the income or real GDP growth, capital/labor ratio, and trade openness. It is theoretically plausible and empirically testable determinants (Easterly 2007). Trade openness is merchandise exports plus imports over GDP ratio. Also, the FDI/GDP and S denote foreign direct investment to GDP ratio and trade in services. ODA is net ODA disbursement flow from Japan to recipient CLMV countries in focus. YT is the center country's trading partners. X and W denote, respectively, other economic that we would add to physical and human capital stock formation equation to reflect a long-term adjustment of ODA's impact. For additional economic and non-economic variables, relevant to a country’s growth or development are nominated regarding ‘dummy variables’ (see Sala-i-Martin (1991), and Johansen (1982), and Tran (2005) respectively. Using planar approximations and invariant transformations (e.g., see Allen 1960. Following Tran (1992a, 2004) and Tran and Kitti (2013), the 3-simultaneous equation model (j=1)-(j=3) can be written more explicitly in stochastic form with rates of change for continuous economic variables. Here, the first two simultaneous equations represent a ‘demand side system, while the third equation (determination of the capital/labor determination) represent the ‘supply side’ of the simultaneous system. The three equations system accounts for a demand-supply interaction for each CLMV’s economy. The coefficients a’s, b’s and c’s are the elasticities or impact parameters, and u’s other unknown factors outside the model (Frankel and Romer 1999) or the disturbances with standard statistical properties. A circular and instantaneous causality in the sense of Granger (1969) or Engle-Granger (1987) is assumed to exist for this testable hypothesis. In their nonstochastic forms (in which all disturbances are idealistically zero), these equations form the core structure of the models of the Johansen class, in which all elasticities are usually assumed (calibrated) to be given or known a priori. The impact of endogenous or endogenized variables (say K/L, Trade openness) on ‘real GDP’ is dependent on the exogenous variables such as Japan’s ODA over the ODA from all donors estimated with a system-wide using such iterative procedures as the Gauss- Euler algorithm with a known sparse matrix of elasticities. Here, our ‘functional-free’ real GDP growth, trade openness, and capital/labor as stock formation equations model above is the consistency of macroeconomic demand and supply. An impact study of ODA (or endogenous Trade openness, K/L or exogenous X and W) on growth can be analyzed directly via its 2SLS (or reduced-form adjusted) or instrumental-variables (IV) estimation. Our impact study, we apply a historical data 1970-2015 to estimate elasticities and
188 coefficients with suitable methods, e.g., 2SLS or the 3SLS without assuming a priori functional forms, e.g., linear, log, log-linear (see Minier 2007). It is interesting to note the result of our model as a long-run impact in the context of Engel-Granger (1987). It is a co-integration or long run causality if all variables in the equations are integrated of degree one or a short-run in the context of Granger (1969) causality if they are all integrated of degree zero. 4. Empirical Implementation Of The Model And Substantive Findings: Demand Side Approach 4.1. Data In addition to the CLMV's critical economic and trade variables mentioned earlier, X in the trade equation includes conventional terms of trade and real exchange rates. Data for the estimation were from the OECD (2017), UNCTAD (2017) and USDA-ERS (2017) databases. The ratio variables include merchandise trade, FDI, services, and ODA. Other non-ratio variables include population (a gravity factor proxy), terms of trade, real exchange rates, and qualitative variables representing the occurrence of the economic, financial and the other main crises, policy shift or reforms over the period 1970 to 2015 in the CLMV. The qualitative binary variables reflect, in a conventional manner, the significant domestic, regional and global event dates with the assumption of long-term non-decaying effects on the CLMV's growth and trade. All non-binary variables converted to their percentage rate of changes. As the GDP data for CLMV’s major trading partners are not appropriate to incorporate due to their potential multicollinearity and our limited available sampling size, we have focused on the world GDP as a proxy GDP for all CLMV countries’ trading partners. Also, we assume a unidirectional direction of trade- and ODA-to-growth below in a ‘dual’ context, that is, Japan’s ODA and CLMV’s world trade (in goods, FDI, and services) and their causal impact on CLMV’s growth and trade. Major reforms and crises and economic variables that had been identified or assumed as exogenous and affected each of the CLMV’s growth and trade in their empirical findings tables below. 4.2. The Estimated Models To provide insights into Japan’s ODA and the various contributing factors to growth and trade in the CLMV countries, four full models of growth and trade have been estimated by the 3SLS separately for each of these countries using the data for the period 2000-2015. The primary ‘demand side’ approach to GDP growth and Trade openness are simultaneously estimated. The findings reported in Table 1-4 below. The models identified according to the order identification’s tests. All percentage variables are statistically stationary according to the Augmented Dickey-Fuller unit root tests. The modeling performance of the estimated models as measured by Kydland (2006) data-model compatibility or simply ‘empirical fit’ criterion shown by statistical characteristics of Theil’s-MSE decomposition are given in Tables 5-6 for the four CLMV countries respectively. As assessed by these various modeling diagnostics, all the estimated models perform very well in emulating the volatile movements, peaks, and troughs, especially the turning points of the growth and trade data for the CLMV over the sample period. All models’ residuals (except Laos’ trade) have also been tested for evidence of unit roots and found to be statistically stationary. Also, in all models, the R2 and DW values appear acceptable and show no first-order
189 autocorrelation problem. The following discussions and their credibility based on these empirical findings. 4.3 General CLMV Findings Based on Demand Side (Equation System F1, and F2) On the central question in our economic integration-based study about the impact of Japan's ODA on the CLMV countries, we note two general features in the empirical findings reported in Table 1-4. First, the economic impact is almost universally statistically weak in both growth and also trade in these countries. Second, the magnitude and direction of the effects are diverse between these countries and even in each CLMV country. The short-run demand-side analysis here supports other findings that there was a lack of effectiveness of foreign aid by donors (DAC and non-DAC) in recipient developing countries’ growth and trade. (See Sachs 2005, Rodrik 2006, Easterly 2006, 2007, IMF 2007, Krueger 2007, Rajan and Subramanian 2007, Tran 2007a, 2007b, EIC 2016). The CLMV countries have joined the global economy and achieved significant economic and trade benefits and poverty reduction in recent years. The findings from Tables 1-4 show however that the gains from regional economic integration through specifically liberalized commodity trade, FDI and services have been statistically weak in the short-run. However, after inserting a long-run equation on capital accumulation represented by ‘capital-labor ratio’ to the simultaneous system, the long-run demand-supply adjustment was impressive. Japan's ODA has a significant economic impact on ‘growth, trade openness, capital accumulation' of CLMV countries. 4.4 Country Specific Findings on The Demands Side (Short-run Economic Impact of Japan’s ODA) 4.4.1 CAMBODIA The findings reported in Table 1 for Cambodia show that, despite being the second largest recipient on average of Japan’s ODA/GDP in the CLMV of 1.46 percent, only a weak beneficial impact of Japan’s ODA on the country’s growth and trade. For growth, principal RTA factors such as trade (openness) and FDI appeared, however, to have contributed significantly to growth but services seemed on the other hand to have weakly adverse effects. Cambodia’s growth had been considerably affected however by major global crises such as the GFC in 2009, the world recovery in 2011, and the country’s continuing development path. For trade, the crowding-out effect of domestic demand and the importance of the trading partners’ demand were highly significant. Real exchange rates and terms of trade appeared to have adverse effects on trade. Cambodia’s trade had declined in its development path and was not significantly affected by the GFC but by the world post-GFC recovery. 4.4.2 LAOS Being the largest recipient of Japan’s ODA/GDP of 2.04 percent on average among the CLMV during 2001-2015, this foreign aid, from Table 2, had, however, no impact on the country’s growth but interestingly contributed about 0.238 percent and at the 10% significance level to its trade expansion. For growth, all three key determinant components of the RTA theory (i.e., commodity trade, FDI, and services) had a beneficial impact on Laos’s growth, but only FDI is highly significant. It confirms the importance and success of relevant FDI and its distribution and
190 implementation in Laos. The GFC did not significantly impact on Cambodia’s growth, but the country’s reform policy of 2006 did. For trade, the crowding-out effect of domestic demand and the importance of trading partners’ demand were confirmed but only very weakly. Real exchange rates and terms of trade had unexpectedly adverse effects on trade. Trade was negatively affected by the terrorist attacks in 2001, but reforms in 2005 and the GFC had a statistically beneficial impact on Laos’ trade. 4.4.3 MYANMAR Myanmar was the late recipient of Japan’s ODA into the CLMV with an annual average of 0.55 percent during 2001-2015. In spite of this, from Table 3, this foreign aid had some positive impact on both growth and especially trade (openness). While the impact on growth was negligible at 0.0003 with a p-value of 0.604, the implications for trade was much more significant at 0.015 with a very small p-value of 0.002. For growth, unlike the case of Laos, the three key RTA determinant components were found to have a dampening effect on Myanmar’s growth. All their three elasticity are however statistically insignificant. We also note the consequences of the GFC (2008) and the global recovery (2013) on this growth. For trade, like the case of Cambodia, the crowding-out effects of domestic demand and the importance of Myanmar’s trading partners’ demand on trade were found statistically significant. Real exchange rates and terms of trade were also found to have the correct sign but statistically insignificant. Myanmar’s trade was considered to be affected by major domestic reforms, the post-GFC (2010) and the slow global recovery in 2013. 4.4.4 VIETNAM Vietnam was the third largest recipient of Japan’s ODA/GDP in the CLMV with an annual average of 0.94 percent. The findings reported in Table 4 about the impact of this foreign aid in the country. First, as opposed to the case of Laos, Japan’s ODA to Vietnam appeared to have a positive but weak effect on Vietnam’s growth, but it had a negative and highly significant impact on Vietnam’s trade (openness). A detailed analysis of Japan’s ODA, its supported projects, its disbursements and implementation and domestic governance in Laos and Vietnam may be able to provide useful insights about the difference. Trade and FDI did have a positive impact on Vietnam’s growth, but the findings were weakly significant for trade. This increase had been however affected by the GFC and reforms but only very weakly. For trade, unlike other CLMV countries such as Cambodia and Myanmar, the crowding-out effects of domestic demand loosely existed, and the increase in it's trading partners' demand highly dampened Vietnam's trade unexpectedly. Real exchange rates and terms of trade were found to have significantly impeded trade expansion. Vietnam’s trade has although benefited after entering as WTO membership in 2007 but still severely affected by the GFC and the effects of the lingering euro crisis. It benefitted significantly however from the post-GFC recovery.
191 Table 1: Japan’s ODA and Cambodia’s Growth and Trade. 3SLS Estimates. 2001-2015 Variables Growth Trade/GDP Const 8.666** 37.893** Trade/GDP 0.093* FDI/GDP 0.039** Services/GDP -0.007 ODA/GDP 0.001 0.044 Post-Terrorist Attacks -0.467 2002 Strategic Plan 2004 15.810** Strategic Plan 2005 0.219 GFC 2009 -6.203** -11.533 Post GFC Recovery 2011 4.632** 25.824** Domestic Demand -5.290** Trade Partner Demand 7.676** Real Exchange Rates -0.445 Terms of Trade -0.433* Post- Euro Crisis 2014 -5.549 RSQ 0.829 0.842 DW 2.561 2.649 DF p-value 0.984 0.527 Notes: For Tables 1-4, *=significant at 10% level, **=significant at 5% level, RSQ=R-squared, DW=Durbin-Watson statistic, DF p-value=Dickey-Fuller unit root test p-value for the estimated model’s residuals.
192 Table 2: Japan’s ODA and Laos’s Growth and Trade. 3SLS Estimates. 2001-2015 Variables Growth Trade/GDP Const 6.303** 161.073 Trade/GDP 0.013 FDI/GDP 0.002** Services/GDP 0.011 ODA/GDP -0.004 Post-Terrorist Attacks -43.823* 2002 Growth Strategy 2005 0.410 46.687** Development Plan 2006 1.579** Crisis 2007 -22.562 GFC 2009 0.292 44.687* Post GFC Recovery 2010 11.848 Domestic Demand -19.690 Trade Partner Demand 3.444 Real Exchange Rates -4.997** Terms of Trade -0.084 Trend -0.064 -5.814 RSQ 0.894 0.406 DW 1.270 2.865 DF p-value 0.335 0.0008
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