Abstract
The book titled ASEAN and Global Value Chains: Locking in Resilience and Sustainability, published by the Asian Development Bank (ADB), comprises six chapters. It provides a comprehensive analysis of ASEAN’s participation in global value chains (GVCs) and the challenges it faces. It documents the ASEAN’s ability to maintain its place in global and regional integration through its GVC and regional value chain participation. Authors broadly describe disruptive effects on ASEAN’s GVC participation, and its ability to address the post-pandemic challenges it faces in enhancing competitiveness, and it also focuses on the sustainability and resilience of ASEAN’s GVCs. The chapters cover policies that help ASEAN’s economies to build resilience against recurring pandemics and other shocks. It also highlights that the core policy issues in the areas of jobs, technology, innovation and decarbonisation are vital for building a better future.
In Chapter 1, authors argue that ASEAN’s participation in GVCs has been a key driver of economic growth and development in the region and also provide an overview of the challenges it faces in enhancing its competitiveness and sustainability. They have also described the new normal baseline to account for shocks reflecting the Russian invasion of Ukraine and the recent surge in natural resource prices and offer a comprehensive and novel analysis and the evidence needed by the policymakers to respond to the risk such as access to resources, intermediate inputs and commodities, shortages of new skills, energy shortages, barriers to global and regional market access, disregard for multilateral trading rules, disruptions in financial flows and issues with debt financing confronting the internationally shared production network and value chains to sustained inclusive and green growth.
The authors further mention firms that assess risks and invest in contingency plans benefit the most, while those with alternative supply sources and delivery routes benefit. Policymakers must maintain stable macroeconomic fundamentals, create a non-distortive regulatory environment, choose non-trade policies, promote flexible labour markets, and be aware of financial and social protection to build resilience to external shocks. ASEAN’s sensitivity to shocks from its major trading partners has shifted over the last two decades, leading to a 9% decline in GVC trade in 2020 skewing ASEAN GVC trade towards backward linkages due to geopolitical and decarbonisation strategies. To address this, ASEAN economies may tap the network of existing regional trade agreements to circumvent any worsening in trade relations. ASEAN was seen as more vulnerable to the GVC contagion due to deeper interdependence and business cycles.
The multiple lockdowns in 2020 hit both demand and supply of products involved in the value chains. National statistics reported falling retail sales, industrial production and employment. But with the increasing vaccination rate, ASEAN economies enjoyed a strong recovery in GVC trade, which was also marked differently across sectors, particularly accelerated e-commerce. It is empirically evident that the GVC was not physically broken down, thus showing robust resilience.
GVC resilience can create more and better jobs in ASEAN innovation and technology can increase participation in ASEAN GVC. Now businesses being more resilient require stable macroeconomic fundamentals, a non-distortive regulatory environment, flexible labour markets, and financial and social protection to build resilience to external shocks. It further mentions that women hold 45% of the GVC-related jobs, which is almost double of their employment in 2000. In developing countries, employees tend to have better quality jobs, more job stability and better employment conditions. The jobs created through GVCs in ASEAN are driven by low- and medium-skilled occupations, such as garments, leather, footwear and electronics.
Chapter 2 discusses ASEAN’s participation in GVCs. It provides a detailed analysis of ASEAN’s participation in GVCs, including the sectors involved and the role of MNCs. Numerous studies show that deeper integration into international production networks boosts export and output growth, increasing employment opportunities, knowledge spillover and income, but these results vary across firms, sectors and countries. It emphasises upgrading infrastructure and skills to enhance ASEAN’s competitiveness and participation in GVC. It also identifies challenges ASEAN economies face in enhancing their participation in GVCs, such as inadequate infrastructure and weak institutional frameworks. It also discusses the state of play and future direction of ASEAN GVCs in post-pandemic period. Authors have also mentioned that factors like slower economic growth, reconfiguring GVCs and structural issues caused the slowdown in ASEAN’s GVCs.
Chapter 3 mentions the role of globalisation in transforming the change in the world of work. Southeast Asia is the key player in the GVC in recent years. It evaluates patterns and trends in the number of GVC occupations in Southeast Asia, providing updated figures and examining how these jobs have changed by sector and nation between 2000 and 2021. It then examines these patterns during the COVID-19 pandemic. It also lists jobs broken down by gender, age group, employment status and occupational skill level to provide readers a clear picture of the variety of jobs and workers engaged in GVCs. It empirically examines the relationship between forward and backward GVC participation on the one hand, and a variety of labour market indicators on the other, compared to nations outside of Southeast Asia. Labour market indicators include working poverty, labour productivity, and the share of wages employment and female employment to total employment. During the pandemic recovery and beyond, it identifies and explores policies that enable inclusive, sustainable and job-rich outcomes for women and men who participate in GVCs. It is evident from the literature review that employment gains associated with GVC engagement were only in less skill-intensive and lower-paid sectors resulting in a persistent deficit of decent work in the GVCs.
This chapter further suggests several policy-making areas. First, to mitigate the shocks that GVCs transmit and cope with the distributional effects, well-designed social safety and labour market policies are crucial. Second, in line with the heterogeneous link between GVC participation and skill development, investing in a wide variety of abilities is necessary to enter GVC segments with higher value-added. Third, deep trade agreements, which increasingly include labour provisions, are one instrument to reinforce the link between growing GVC involvement and decent employment because the relationship is not necessarily one of causation.
Chapter 4 examines the sustainability of ASEAN’s GVCs and different dimensions of sustainability it considers and the case studies of automotive and electronic GVCs. It aims to comprehend the technological advances that have affected these industry value chains and their possible effects on ASEAN members, who have participated actively in these GVCs. The chapter closes by recommending policy solutions as a crucial component of the overall innovation policies, particularly in skill development for future industries dominated by technology. The threat that the new technology skills bias poses to developing nations’ participation in the GVC is also covered. It mentions that over the next few decades it is anticipated that technological advancements like the internet of things and artificial intelligence would increase demand for semiconductors. Even with the ongoing digital revolution, the primary elements that decide MNC investments such as cost, market size and growth, suitable infrastructure, connectivity and skilled labour remain crucial factors. It also identifies the challenges ASEAN faces in enhancing the sustainability of its GVCs, such as a lack of environmental regulations and poor working conditions in some sectors.
In Chapter 5, authors make an effort to quantify the effects of emission targets and reduction programmes on GVC parameters and the economy. The Global Trade Analysis Project (GTAP) framework is used to build a computable general equilibrium (CGE) model. The common GTAP model is a multiregional, multisector model that takes into account links between different economic agents, such as households, governments and the rest of the world. To investigate the potential effects of lowering carbon emissions on GVCs, the GTAP-electricity (E)-Power model and the GTAP-value-added (VA) model are connected. Given the objectives and obligations of the Paris Agreement, the possibility for renewable energy to replace emission-intensive sources is also considered.
The most recent GTAP database is available for 141 nations and 65 industries through 2014. The model is calibrated and scaled to 2020 using data on the gross domestic product (GDP) from the International Monetary Fund (IMF), other international sources and national information to make it more accessible.
Two scenarios are used to estimate the effects of decarbonisation on GVCs: the business as usual (BAU) scenario, which assumes that each nation will reduce its carbon emission from 2020 to 2030 by the same amount as it did from 2010 to 2020; and the nationally determined contribution NDC scenario, which calculates the effects of reducing emissions by the NDC target baseline constructed in 2010. The technique attempts to benefit from the characteristics and skills shared by the GTAP-E, GTAP-Power and GTAP-VA model frameworks. The analysis of the relationships between energy, environment and economy was the result of a thorough study of the available model. The effects of a decrease in emissions on several macroeconomic variables, such as GDP, sectoral production, trade, employment and value-added trade components, are used to develop policy insights.
Chapter 6 summarises the main arguments and policy recommendations. It emphasises the need for collaboration between different stakeholders to ensure the long-term viability of GVCs in ASEAN. Its overall conclusion is that recent global shocks and prospective geopolitical trade interventions, which are largely outside of ASEAN’s control, might significantly impede the growth of ASEAN, Asia and the Pacific as a whole, and other economies with comparable structures. The non-economic effects of these measures, which serve as their primary justification, are not examined in this chapter. The chapter also discovers that other potential future policy decisions—primarily the scale and potential expansion of trade cooperation in Asia—could have a significant impact on long-term prospects for the world. The stakes are enormous and outcomes are not predetermined.
To conclude, the emergence of GVCs has particularly benefited the ASEAN. They make it easier for businesses to share knowledge on technologies and markets and make it possible for even small nations to establish market beachheads. Here, we use the CGE/GVC paradigm to study how economic shocks, such as changes in trade policy, impact GVC participation at the national and sectoral levels.
Simple commerce and GVC trade need not be similarly impacted by trade policy shocks. Effects will vary based on the particulars of the barriers; for instance, obstacles imposed on directly consumed products will have less of an impact on GVC participation than indiscriminate limits on intermediate inputs, even though both have comparable total trade effects. Geopolitical interference and other broadly applied restrictions seem to be particularly detrimental to GVC commerce. It calculates intermediate-term projections of global economic growth using a new, medium-term CGE model that also traces effects on international production chains. Three broad findings emerge: (a) recent shocks, including geopolitical threats and surging natural resource prices, are likely to persist; (b) current proposals for deeper geopolitical interventions in trade are not well defined and (c) ASEAN can work around global anti-trade trends. The region now has assets that are far stronger than it had for overcoming past challenges.
The study is a valuable resource for policymakers, academics and practitioners interested in trade and development issues in the Asia-Pacific region.