Regional Integration: European Lessons for Asia?

New Approaches to Regional Integration:
Lessons for Asia from Europe’s Baltic Sea Region?

Dr Christian H. M. Ketels
Institute for Strategy and Competitiveness
Harvard Business School
ADB Workshop on Regional Integration
3-5 March 2014
Manila, Philippines

• Proximity still a key factor in driving trade and investment relations
• However, strong ties with neighbors are not automatic; policy matters
• Asian countries traditionally more focused on global markets than on
regional integration

2

2014 © Christian Ketels

• The two different faces of regional integration

• A European Experience: Collaboration across the Baltic Sea Region

• Implications for Asia

3


Different Modes of Regional Integration
Competitiveness

Tipping Point

Trade Liberalization
• Focus on the
removal of tariff
barriers
• Logic of tit-for-tat
agreements;
liberalization as
concession

• Potential for ‘easy’
tariff reductions
exploited
• Balance between
economic gain
and political pain
increasingly
unfavorable

• Focus on activities
where regional
collaboration can
enhance national
competitiveness
• Logic of win-win
participation

Retardation
• Lack of progress in
‘sensitive’ areas
• Rising complexity of
tariff rules

• Regional approach
as second best to
global liberalization

• “Dual economy” for
exports vs domestic
market
4


Different Modes of Regional Integration:
Taking A Closer Look

Trade Liberalization

Competitiveness

• Focused on barriers to trade (and
investment) at the border

• Broad set of trade-related and other
joint measures to upgrade
competitiveness

• Aims to achieve better exploitation
of gains-from-trade; largely one-off

• Aims to achieve business
environment improvements;
potentially on-going benefits to
innovative capacity

• Clear winners (consumers,
exporters) and losers (import
competing sectors)

• All can be winners, but only if they
leverage the opportunities through
internal changes

Different economic mechanisms, policy tools, and political economy
5


Upgrading Competitiveness via Regional Collaboration
Types of Collaboration

Joint action
• No independence
• Includes common standards and policies as well as joint positioning of the region abroad,
including towards investors and in international/supranational bodies

Coordinated National Policy Reforms
• Limited independence
• Includes negotiated policy packages that tie participation in joint regional programs
and access to funds to domestic policy reform

Cross-Border Activities
• Medium level of independence
• Includes joint efforts to upgrade border procedures, improve infrastructure, and develop
cluster linkages

Learning and benchmarking
• Leaves national autonomy fully intact
• Includes networks covering all areas of policy in an “open model of cooperation”

6



• A European Experience:
Collaboration across the Baltic Sea Region


7


Profile of the Baltic Sea Region

• Countries bordering the Baltic Sea, i.e. the Nordics, Baltics, and
relevant coastal regions of Germany, Poland, and Russia
•
•
•
•

Modest overall size (roughly 55% of German GDP, 10% of EU GDP)
Small Open Economies
Huge heterogeneity in terms of economic development
Some overlap in sectorial specialization patterns

• Close historical connections, but disrupted during the Cold War
• All core countries EU members; Russia connected through joint
institutions
• Most core countries entirely within the geographic boundaries of the
region

8


Context for Regional Integration

• EU Membership sets the key context for regional integration
– Four freedoms across the region (free movement of goods, services,
capital, and people)
– acquis communautaire (overall set of EU legislation, legal acts, and judicial
decisions) that set standards for the regulatory context
– Limits to state aid and any government action discriminating between firms
based on their nationality

• Strong political support for regional collaboration, especially in the
core countries
– Baltic countries view tight economic integration with European partners as
guarantee against Russian pressure
– Scandinavian countries see the Baltic Sea Region as their home turf in
which they can play a dominant role; their small size often makes them
marginal players in the broader context of the EU’s political system
– There are a number of specific regional issues, especially the
environmental state of the Baltic Sea and sea transport
9


Baltic Sea Region: Signs of Economic Integration
Share of flow to other
parts of the BSR

30%

25%

20%
East-East
East-West
West-East
West-West

15%

10%

5%

0%
Export

Source: WTO, UNCTAD, national agencies, author’s calculations

Migration

10

FDI


Institutional Architecture

• CBSS
• BDF
• NIB
• Nordic Council
• Baltic Council of Ministers/
Baltic Assembly
• Bilateral programs
• EU InterReg
11


EU Strategy for the Baltic Sea Region
Key characteristics
• Initiative by Nordic countries and group
of EU parliamentarians
• Approved in 2009 by the European
Council
• Core objective to better prioritize and
coordinate collaborative actions across
the region
• Action agenda based on priorities set by
the region
• No new institutions; High-Level
coordination group
• No new budget lines; national and
InterReg funds

Action Priorities

12


Cluster-Based Programs with a Regional Scope
Baltic Sea Region
ScanBalt
• Bottom-up coalition of local clusters, companies, research
institutions, and others active in Life Sciences
• Attempt to overcome lack of critical mass in individual clusters
trough closer linkages between them
• Focus on pre-market activities like joint academic training
programs, research collaborations, marketing, etc.
• www.scanbalt.org
BSR STARS
• Top-down effort as part of EU BSR strategy to create networks of
regional clusters in five areas of regional economic strength
• Attempt to create stronger regional value chains and enhance
innovation in markets with perceived global potential
• Focus on developing linkages and collaborate on selected pilot
initiatives
• www.bsrstars.se
13


Creating Corridors in the Baltic Sea Region

• A number of cross-border
projects to enhance
collaboration along physical
corridors
–
–
–
–

Oresundbridge
Rail Baltica
Femern Sund Tunnel
Motorways

• Effective to enhance common
planning across public
administrations
• Challenges are financing and
company engagement
14


Baltic Sea Region Integration:
A Preliminary Assessment
• Solid economic performance
– Economic performance is solid
– Catch-up of the Baltics is happening
– Crisis in the Baltics was severe, but regional linkages were critical buffers
both during the crisis and the post-crisis recovery
– Cross-regional linkages are well-developed, and in parts slowly rising

15


Prosperity Decomposition
Selected Cross-national Regions in 2012

GDP per Capita
(PPP)

EmploymentFactor

ProductivityFactor (PPP)

Oceania
NAFTA
British Isles
Core Euro-zone
Asian tigers
EU-15
EU-27
Baltic Sea Region
PIGS
Iberian Peninsula
Danube Region
EU-8

Asian tigers
Oceania
EU-8
Baltic Sea Region
NAFTA
British Isles
Danube Region
EU-27
EU-15
PIGS
Core Euro-zone
Iberian Peninsula

Core Euro-zone
Oceania
EU-15
British Isles
NAFTA
EU-27
Iberian Peninsula
PIGS
Baltic Sea Region
Asian tigers
Danube Region
EU-8

=

x

Note: Working hours for Russia are estimated
Source: Groningen Growth and Development Centre and The Conference Board (2013),
authors’ calculations
State of the Region-Report 2013

Prosperity Dispersion Within Cross-National Regions
1995 - 2012
Ratio of GDP (PPP adjusted) per
Capita, Richest to Poorest
Country per Region

6

5

EU-27*

4

Baltic Sea Region
3

2

EU-15*

1

Note: Norway and Russia levels adjusted for natural resource sector; Luxembourg excluded
Source: Conference Board (2013)


Baltic Sea Region Integration:
A Preliminary Assessment
• Solid economic performance
– Economic performance is solid
– Catch-up of the Baltics is happening
– Crisis in the Baltics was severe, but regional linkages were critical buffers
both during the crisis and the post-crisis recovery
– Cross-regional linkages are well-developed, and in parts slowly rising

• EU context has been critical
– Provided the necessary stability and drove key changes at the national
level across the entire region

• Impact of regional efforts more limited
– Political role important, and critical during the crisis
– EU Baltic Sea Region strategy has led to better alignment of cross-regional
projects and initiatives
– But actual on-the-ground activities are time-consuming and their impact
has often been relatively limited
– Lack of organization, budget, and clear linkage to national policies has
been an issue
18



• A European Experience:
Collaboration across the Baltic Sea Region


19


Integration in Europe’s Baltic Sea Region:
Emerging Lessons for Asia
• Be conscious about the political context

• The political motivation has been critical for launching and sustaining
the regional integration efforts in the Baltic Sea Region
• If the motivation is primarily economic, the ability to make long-term
investments in institutional architecture and capacity is severely
limited
• In this case, more narrow efforts in specific cross-border projects or
specific clusters with clear win-win outcomes already in the short- to
medium-term are more likely to succeed

20


• Set the right level of geography for regional efforts

Neighborhoods

Nations
Sub-national Regions

Macroeconomic coordination
Tariffs
Economy-wide regulations

•
•
•

Global / Large Geographies

•
•
•

Infrastructure
Administrative practices and clusterspecific regulations
Cluster linkages

•
•
•
•

Strengthen the context for competitiveness
Business environment upgrading
Cluster development
Company sophistication
21


• Be conscious about the broader economic policy context within
countries
– Directly competing national industrial policy efforts in specific industries
make collaboration in these areas very hard

• Integrate regional efforts into broader economic strategies pursued at
the national level
– Benefits of creating stronger regional ties depends largely on overall
improvements in competitiveness within countries
– Regional efforts can easily become ‘islands’ in the public sector system,
and then lack the resources and power to have impact

22


• Be conscious about the broader economic policy context within
countries
– Directly competing national industrial policy efforts in specific industries
make collaboration in these areas very hard

• Integrate regional efforts into the broader competitiveness strategies
at national level
– Benefits depend largely on overall improvements in competitiveness
– Regional efforts can easily become ‘islands’ in the public sector systems,
and then lack the resources and power to have impact

• Look for pilot areas – networks of clusters are a strong candidate
– Easier to increase value added shares in export-oriented GVCs than
upgrade import-competing activities directly
23


Elements of a Regional Cluster Action Plan
• Identify existing clusters with regional presence and willingness to upgrade
and collaborate
• Create cluster-oriented institutional architecture, involving the private
sector, especially foreign investors
• Strengthen economic linkages between regional clusters
• Connect cross-border and national policy programs, including infrastructure
investments and the creation of ‘corridors’, to clusters
• Identify issues and solutions for general business environment upgrading

• ADB can provide intelligence, a neutral platform for mobilization/
collaboration, and seed capital
• Other partners (e.g., ASEAN, chambers, foreign investor councils, etc.) should
be mobilized as well
24



• Clear potential
• But not an easy or quick fix
• A way to make competitiveness upgrading more likely and more
beneficial

25


Back-Up

26


State Of the Region Report: 2004 – 2013
www.bdforum.org

• Convergence
• Competitiveness
• Collaboration

The Role of Within-Region Trade
Share of Intra-BSR Exports in
total BSR Exports

Share of 2010 Exports to
Other BSR Countries

14%

20%

12%

10%

10%

0%
2010

30%

2009

16%

2007
2008

40%

2006

18%

2004
2005

50%

2003

20%

2001
2002

60%

2000

22%

Source: UNCTAD (2012)

28


Integration
Foreign Direct Investment Flows
Share of inward FDI from other
BSR countries, 1999 - 2004

80%
70%

Source country

60%
50%
40%
30%
BSR average

20%

Sweden
Finland
Denmark
Estonia
N Germany
Norway
Latvia
Iceland
Lithuania
NW Russia
N Poland

10%

y
er
m
an
G

us
si
a
R

Ic
el
an
d

N

N

W

Po
la
nd
N

en
Sw
ed

ar
k
en
m
D

or
wa
y
N

ia
Es
to
n

Fi
nl
an
d

Li
th
ua
ni
a

0%

Source: UNCTAD, national statistical offices, author’s calculations
29


Regional Integration: European Lessons for Asia?

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (10)

Destaque

Destaque (14)

Semelhante a Regional Integration: European Lessons for Asia?

Semelhante a Regional Integration: European Lessons for Asia? (20)

Último

Último (20)

Regional Integration: European Lessons for Asia?