Structural reforms key to export competitiveness

MANILA, Philippines - Developing countries in East Asia Pacific (EAP) can boost their export competitiveness and maximize the benefits from the projected global economic recovery through structural reforms.

According to the East Asia Pacific Economic Update released by the World Bank, while the region as a whole will benefit more than any other region from the recovery of the global economy, the impact will vary across countries depending on their investment and export environment.

“As high-income economies pick up, their demand for imports will also increase. The extent of the gains for developing EAP countries other than China will depend on their capacity to respond, both by ramping up production, and by moving into new sectors and products,” the report said.

The report said carrying out structural reforms is imperative to increase export competitiveness, as the normalization of monetary policy in high-income economies results in a tightening of external financing conditions.

“Key reforms include infrastructure investment, logistics, and the liberalization of services and foreign direct investment (FDI),” it said.

The report pointed out that in several countries, a large number of inefficient border procedures and significant behind-the-border obstacles result in regional trade costs well above those of the newly industrialized countries and of high-income economies.

“Reforms in these areas raise the prospect of economy-wide gains, and may present a particular upside for exports, where the informal sector is relatively less important and regulations more binding,” it said.

The report said inadequate infrastructure significantly weakens logistical performance and export competitiveness in many countries.

Also, it said that restrictions on services trade and FDI hamper competitiveness, especially in the Asean-4.

“EAP imposes greater restrictions on trade in these services than most other developing regions, with particularly high barriers in professional services and transportation...Removing all these restrictions would significantly reduce the price of services, with a major impact on export competitiveness,” the report said.

Across Asean, services account for around 35 percent of the value of gross exports.

Further, the WB report stressed that human capital is critical to competitiveness.

“In this context, the region as a whole needs to shift its focus from raising access to education, where it has generally been successful, to developing more broadly the skills needed for labor market success. Upgrading workforce skills is particularly important when moving into more advanced sectors, or producing higher-quality goods,” it said.

Over the medium term, China’s continued development will place an even greater premium on other developing EAP countries in enhancing their competitiveness.

“As productivity and wages continue increasing in China, it will move further up the value chain. This will create opportunities for lower-income countries to expand their labor-intensive manufacturing and to move into higher value-added products,” the report said.