tci 2015 building economic zones and cluster ecologies in emerging asia: approaches and early...

Building Economic Zones and Cluster

Ecologies in Emerging Asia: approaches and

early lessonsJong Woo Kang

Plenary Session 1: Asian Cluster Model: New Perspective and Trends

Economic Research and Regional Cooperation Department

Building Economic Zones and Cluster Ecologies in Emerging Asia: approaches and early lessons

Jong Woo KangPrincipal EconomistRegional Cooperation and Integration Division (ERCI)Economic Research and Regional Cooperation Department (ERCD)


Outline Background

Cluster-based City Economic Development (CCED) Analysis

Country Examples

Special Economic Zones in Asia

Conclusion


Background Asia is rapidly urbanizing In 1950, some 232 million people, or 17% of the

population of Asia, lived in the urban areas. By 2030, about 2.66 billion, or almost 55%, will be urban

Bangladesh, Cambodia, Lao PDR, and Sri Lanka are the least urbanized, while in Malaysia and the Philippines the population is more than 60% urban

Japan and the Republic of Korea are more than 85% urbanized, indicating that urbanization is not incompatible with high living standards


Urbanization and GDP per Capita of Asian DMCs



Started by ADB in 2008; framework of analysis CCED works toward sustainable economic growth and

development in cities by fostering agglomeration, innovation, integration, and clustering of productive economic activity and land-use activities

CCED aims to capitalize on both supply- and demand-side approaches to economic development

Supply side: governments introduce policies, provide specialized infrastructure, and offer financial incentives to companies that locate in a city or region

Demand side: specialized skills, technologies, networks, and markets catalyze investment and development by giving a competitive advantage to businesses



Step 1. Compiling profiles of National Economic Strategy

The first step of analysis involves a macro-level overview

Much of the necessary information can be collected from existing public reports and studies.



Step 2. Understanding Six Key Building Blocks of City Competitiveness

Building blocks of Competitiveness of Cities Index Enabling environment Business dynamism Human resource and training Endowed resources Infrastructure Catalysts



Step 3. Identifying the Competitiveness of Industry Clusters at the Local Level

It is important to identify the industry clusters in a selected city (or city region) which can best contribute to increase local GDP

This involves a multi-sector industry analysis at the local level, comparing local performance with the national level to understand the changing patterns and structure of local industry and local economic potentials


Rise and fall of industry clusters in a hypothetical urban area: location quotient and shift share analysis



Step 4. Spatial Mapping of Industry Sector Cluster in a Selected Local Area

This analysis identifies significant spatial concentrations of employment and business activities and financial related transactions

The spatial mapping of industry clusters in a city will be useful for planning and locating key strategic infrastructure and development projects

Spatial plans can be used to encourage the co-location of supporting industries and logistics facilities that the cluster needs



Step 5. Conducting Gap Analysis for Industry Clusters

This step aims to assess the relative competitiveness of the selected industry by using a scoring or ranking nominal scale or symbols (+) to evaluate the strength of five factors (Porter 1990) using 47 indicators: Input factor condition Demand conditions Firm strategy, structure and rivalry Condition Related supporting industries Government’s role



Step 6. Preparing a Strategic Business Plan Based on the Results of the Gap Analysis

After obtaining a strong commitment from stakeholders, a consensus on how to develop a cluster should define:i. A Business Plan. What should each industry cluster’s

stakeholders intend to achieve collectively?ii. Time-Bound Action Plans. What needs to be done to

foster the development of the cluster?iii. Benefits of Participating. What do stakeholders

potentially gain from participating in the development of a cluster?



Implementing Cluster Development Projects— the Key Intervention Areas

The range of activities needed to support the development of industry clusters :i. Logistics and infrastructure catering to the local

industry clusterii. Human resource developmentiii. Institutions and regulatory systemsiv. Technology development and disseminationv. Business systems


Examples of Best PracticesICT cluster in Bangalore, India IT industry cluster accounts for a significant share of global market

in software and ICT services; contributed 33% of India’s IT exports in 2006–2007; the city has a diversified economic base, with several major ICT, biotechnology, and fast-moving consumer goods companies based outside the city

Success attributed to responsiveness of economic policies, enabling mechanisms, and networks that have developed through the Indian diaspora

The clustering process in Bangalore has worked at different levels: job creation, inward investment, innovation, skill formation, and development of physical, digital, and social infrastructure

Recently, however, the industry of Bangalore has been under stress, mainly due to the lack of urban infrastructure to accommodate flows of people, goods, and services


Examples of Best PracticesEducation cluster in Sleman, Indonesia

Sleman is one of five local governments or regencies that make up the Yogyakarta Special Territory and forms the northern part of the city of Yogyakarta

Known as Indonesia’s City of Education: houses Gajah Mada University and 35 other large and small public and private universities

The university campuses and their activities naturally attract economic development; level of education of Sleman residents is relatively high

Initiatives taken to support education cluster and emerging agribusiness and tourism: performance-based management, local policies and initiatives


Examples of Best PracticesMulti-industry cluster development, Chiang Mai, Thailand

National Science and Technology Development Agency has supported a cluster-based economic development model to meet the challenges of a knowledge-based economy

Key industries are tourism and handicrafts, but Chiang Mai is unique because it hosts the only center in Thailand dedicated to private sector innovation

R&D activities have led to development of new products and quality improvements in existing products

Industry clusters include: food and agri-industry, construction, handicrafts, fashion, health, tourism, knowledge-intensive services


Special Ec0nomic Zones in AsiaWhy SEZs in Asia?

Second best, temporary distortionary measure - With greater, nationwide economic and developmental benefits expected Promotion of export, FDI, spillover effects,

industrial development / test bed for structural reform

=> Growth pole for development

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Evolution of SEZs

Initial stage zones focus on employment and skills upgrading through FDI attraction, labor-intensive manufacturing for export of a limited range of goods

Secondary stage zones focus on export competitiveness and product diversification

More advanced stage zones focus on improving labor productivity, innovation, policy experimentation, and social cohesion and environmental enhancements

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Special Ec0nomic Zones in Asia

Economic Research and Regional Cooperation Department 20

Economic Impact of SEZsNational level• Presence of an EPZ increases per capita income by 0.9

percent annually based on endogenous growth model using annual country data for 87 countries for the period of 1961-1999 (Tyler and Negrete, 2009)

City/municipal level• SEZs affect not only levels but also trends in FDI, TFP growth

and wages. Most FDI is new activity rather than simple relocation from non-SEZ areas in PRC (Wang, 2013)

Firm level• PRC’s zone program has a large and positive effect on newly

entered firms and relocated Firms. Firms in capital-intensive sectors benefit more than those in labor-intensive sectors (Lu, Wang, Zhu, 2015).

Special Ec0nomic Zones in Asia


Success and failure factorsSuccess Factors Failure Factors• Fiscal incentives may be necessary for

firms to undertake initial investment; other institutional factors exercise a greater pull.

• Cheap factory sites, abundant labor supply, and strategic location and multi modal connectivity with resources and major trading destinations are crucial.

• Non-fiscal incentives expedite decision-making and streamline day-to-day operations. Institutional efficiency, dependable judicial system and adequate security are prerequisites.

• State and local governments’ strong

commitment and policy stance ensure higher probability of zone successes.

• Ambitious goals relative to country’s comparative advantage

• Zones as industrial islands (enclaves)

• Governance capacity and rent seeking

• Abuse of land• Lack of localized strategy

for upgrading industrial chain and creating technology spillovers

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Conclusion

Clusters and zones should be linked to the country’s development strategy

Backward and forward linkages with the domestic economic economy ensures nationwide impact

Public and private partnership is crucial

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Thank youJong Woo [email protected] Research and Regional Cooperation Department (ERCD)

tci 2015 building economic zones and cluster ecologies in emerging asia: approaches and early...

Economy & Finance