Regional Aid and Regional Integration: East Asia’s Lessons from EU

Structural Funds

Jisun YiEwha Womans University, Seoul, Korea

Institute for Development and Human Security, Seoul, Korea

Research AgendaTopic: Different Use of Regional Aid in European and Asian Integration Process

Hypothesis: EU’s Structural Funds (of Regional Policy) represents a unprecedented ‘coordination mechanisms’ that are geared towards economic development and regional integration within community.

International trends

Significant expansion in aid for regional integration and cohesion within European and East Asian community

Beyond ‘Aid and Development’ nexus discussions

Expanded role of aid e.g. poverty reduction, economic growth

New approach: Regional cooperation, integration -> economic growth and poverty reduction

AidRegional

Integration

idea instituti

oninterest

Framework and Methodology“Close coordinating mechanisms” of SF to be examined

[Targeting] Coordination between aid and integration (specific development for regional cooperation and physical connectivity)

[Development Strategy] between aid and trade, FDI (investment for more private investment) cf) tied aid (part of package)

[Aid Governance (allocation)] multi-level governance: negotiations and feedback loop among supranational, national and sub-national institutions

Methodology and Aim

Qualitative methodology, comparative study of cases of EU’s SF and Asian counterparts

To draw lessons from an advanced form of regional aid (EU’s Structural Funds) for other emerging regional aid and ODA from institutional, development and domestic politics perspectives

Evolution of the Fund at times of EU enlargementPart 1

EU enlargeme

nt

Dev’t ofCP/SF

More cohesive, equitable

EU

Introduction to EU’s Structural Funds

Regional policy

Treaty (Rome~Lisbon)

“to promote economic and social cohesion by reducing disparities between the regions”

Toward a higher level of integration: monetary (single market, monetary union) and political integration

One third of the EU budget 2007-2013€347 billion over 7 years

“Redistribution” and “investment for investment”

Beneficiary: the least developed, worst-performing regions and nations (1/4: below 75% of EU average; 13 states: below 90%)

Cohesion Policy: Disparity Harms Integration

15 traditional EU member VS. 10 New members (per capita income); $7,000 ~ $78000

<50

50 - 75

75 - 90

90 - 100

100 - 125

³ 125

GDP per head as a % of the community average

Differences in development in the EU-27

EU 27 Member States GDP per capita in PPS in 2006

EU 27= 100

LU IE NL AT DE SE BE UK FI DE FR ES IT EL CY SI CZ MT PT EE HU SK LT LV PL RO BU0

50

100

150

200

250

300

(Source: Eurostat structural indicators)

Structural Funds Allocation (2007-2013)

Unit: EUR million, current prices

(Source: Europa official website)

Recent Challenges to SF

EU enlargement in 2004, 2007Income disparity within community, increased

e.g. EU GDP p.c. on average

8 CEEC: Formerly planned economies Strong presence of state in market and national boundaries (regulation, corruption, centralization)

Considerable gaps in infra and capital endowments

Serves as catalyst to evolve mechanisms for economic, financial, political integration within the EU

1. Targeting

“Aid that directly addresses regional cooperation and integration”

Priority

‘Development at lagging regions’ < ‘Regional integration and cooperation (intra-regional connectivity)’

Major Theme: Connectivity and Haman Capitals

‘transport’ – trade, FDI, labor movement-related infra.

2. Development Strategy

Western Development Experience & Integration Rationale

Free trade: income convergence among R & P

(cf. Dependency Theory)

Theory of MNEs and FDI

SF affects allocation of FDI (Breuss et al 2010)

(at the expense of FDI to Northwestern Europe, more FDI to new destinations)

Comparison with ‘aid for trade’ (overseas development assistance)

- functions, similar

- Volume, under the ‘Subsidiary’ principle

3. Multi-level Governance

EC•Top decision makingMS

•Policy making &•implementation

Local

EC MS

Local

- Public bodies- Businesses

including SMEs

- Associations- Voluntary

group

Analogy: Donor-Recipient Relationship / Agent-Principal Model

<Hierarchical, centralized Structure>

<Decentralized Structure>

CoordinationSystem

among multi-level

governance

Aid Allocation Politics

EC

Two-level bargaining process (Bodenstein & Kemmerling 2008)

Official allocation criteria + “alpha”

‘Convergence (Goal 1)’EU’s average GDP p.c. 75%

‘Competitiveness (Goal 2)’EU’s average unemployment rates (no other specific conditions)

• More room for politics to come in• More aid to countries that have strong

electoral competitions (competitions among member states)

• Reflective of local, regional actors (electorates)

MS

MS

MS

MS

R R

R

R

RR

R

R

R

R

R

R

R

Effectiveness and limitation of SF

Empirical evidence

SF – Regional Economic growth (literature list)

SF – Efficient Governance – Regional Economic

growth

SF – Disparity reduction – Regional Integration

Implications and limitation of SF

Inconclusive results of SF effectiveness

Case by case (spatial divergence)

Evolution of SF with reforms (before multi-year

plans) overtime: “positive” progress

ASEAN Plus Three & Regional

AidPart 2

Cooperation Among East Asia and ASEAN

Different Nature & Process of Asian Integration

• Double track (ASEAN and Northeast) 60’s~80’s -> 1997 financial crisis -> financial, monetary integration among ASEAN Plus Three (FTAs: intra-region trade boosters)

• FDI, financial integration indicators on the rise (ADB 2006)

• Lower levels of integration (huge limits to labor mobility)

Regional Aid: East Asian advanced economies to ASEAN states

• Major donors: Japan (traditional), China (lack of data), Korea (emerging), ADB (integration-focused)

• Emergence of integration-concerned aid

• Addressing economic cooperation and South-South cooperation in aid policy as taking global, regional responsibility (public goods)

• Newly joined ASEAN countries: Cambodia, Laos, Myanmar, Vietnam

Major West and East Donors to ASEAN nations

Percent Japan Korea China N.

America EU-DAC

1990 44.6 0.0 - 6.5 48.9 1991 44.4 0.1 - 6.1 49.4 1992 51.9 0.1 - 4.9 43.1 1993 46.6 0.1 - 5.1 48.2 1994 45.9 0.1 - 3.8 50.2 1995 51.1 0.2 - 3.3 45.4 1996 50.6 0.6 - 2.5 46.2 1997 47.0 0.7 - 4.7 47.6 1998 49.9 0.6 -  3.0 46.5 1999 55.2 0.4 - 4.9 39.4 2000 53.4 0.4 - 4.2 41.9 2001 47.8 1.0 - 4.5 46.7 2002 44.3 1.3 - 7.4 47.0 2003 48.4 1.0 - 6.5 44.2 2004 46.7 1.2 - 5.5 46.6 2005 47.2 1.0 - 5.7 46.2 2006 42.9 1.0 - 7.0 49.1 2007 42.3 1.7 - 7.9 48.2 2008 39.1 1.8 - 9.7 49.5 2009 45.6 1.7 7.3 45.4(Source: OECD

database)

Asian CounterpartsMajor themes of Regional Aid

Trade-related infrastructure (e.g. transport, storage, energy, etc.)

Technical Assistance (Soft Power): development experience to developing ASEAN regions

Japan ODA to ASEAN• Before the Cold War, lack of

philosophy; export promotion• After; METI < MFA (Addressing

regional, global responsibility)• Grants ratio, volume

increased• Priority: ‘Political stability’ in

ASEAN• Human security approach

ADB aid for RCP• Integration in Asia and the

Pacific• RCP in 1994• Major Pillar and theme in RCP

• Cross-border infra. & related Software

e.g. Transport and ICT (33.4%), multi-s. (13.5%)(Source: “Regional Cooperation and Integration Strategy (2006)”)

EU and EA Integration:Implications and conclusion Part 3

Comparison: Different Use of Regional Aid of European and East

Asian communityEU Structural Funds East Asian ODA

ADB aid for RCP

Integration Targeting

Importance Lack of philosophy

Development Strategy

Intergovernmental grants Japan, China, Korea (Loans)

Aid Governance

Multi-level governanceConflict and cooperation in politics“Interplay of multi-level governance -> better feedback -> reform agenda, ‘refocusing, smart’ aid”

*Donor-recipient relationship“One way” from donor to beneficiary (cf. ownership, the Paris Declaration)*Domestic politics in donor countries in aid allocationState interest vs. others (transparency of aid)

Limitation of discourse: integration level in discrepancy, source of regional aid (co-financing), etc.

Further Evolution of Regional Aid

in EA?Aid for regional development and integration

Possible determinants of evolution

Emergence of multi-level governance, effective mechanisms in a future, more integrated Asia

Obstacle: Sovereignty of state and intervention of supranational institution (development aid policy competence competitions)

Application of a new strategic approach of the EU