Our Research posts are about the latest academic research being done in the School of Economics. This week:
THAILAND’S EXPORT OPPORTUNITIES AND EXPORT POTENTIAL IN ASEAN +3
By Ludo Cuyvers, Ermie Steenkamp & Wilma Viviers
The Asia-Pacific Region is rightly considered as the most dynamic economic region in the world (see e.g. Lasserre and Schütte, 2006). During the past decade the region has taken immense steps of regional economic integration, among which the creation of the ASEAN Free Trade Area (AFTA) and the ASEAN+3 agreements between the ASEAN countries, Japan, China and South Korea. The commitments under AFTA have opened up less-developed economies such as Vietnam, Laos and Cambodia for international trade and investment relations with the more developed ASEAN countries, among which is Thailand. At the same time, international trade and investment links between ASEAN countries, such as Thailand and China, have increased tremendously after the WTO membership of China in December 2001 and will deepen further under the China-ASEAN Free Trade Area which became operative in January 2010.
In this paper, we endeavor to make a quantitative assessment of Thailand’s export opportunities in the Asia-Pacific region. The Asia-Pacific region can be defined as consisting of the countries of East, South-East and South Asia along the Pacific Ocean. Strictly speaking, we should not include India, which is a SAARC country, bordering the Indian Ocean, but because of the signing of the Free Trade Agreement between ASEAN and India in August 2009 it seems appropriate to also include this subcontinent. Nevertheless, for the sake of comparability with some previous results, we decided to exclude India, and concentrate on ASEAN+3. Therefore Thailand’s export opportunities in the other ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Vietnam), as well as in China, Hong Kong, Taiwan, Japan and South Korea will be identified and investigated.
Applying the DSM methodology, using international macroeconomic data and detailed international trade data for Thailand up to 2008, has led to the identification of 55,259 country’s realistic export opportunities (REOs) in the world at large. It was found that in contrast to previous studies in which the same methodology was applied, the EU-15 and the Central and Eastern European Countries take up a larger share in these opportunities and that proportionately much less opportunities than before are situated in the ASEAN+3 countries. It remains to be seen whether using more recent data similar results will be obtained, which is doubtful taking into account the impact of the persistently recurring Eurocrisis.
Concentrating on Thailand’s 2,920 export opportunities in ASEAN+3, a first comparison with previous results for 1993 and 1997 provides evidence of important shifts of these REOs, when categorized according to import market characteristics and Thailand’s market share situation. Designing export promotion policies and strategies is difficult, and even hazardous, when based on the REOs which are affected by volatile business conditions. Thailand’s export promotion policies and strategies should rather focus on the REOs, the categorization of which remains stable over time. As the nature of the international trade data used in the calculations in the past and in the present study changed from SITC 4 digit to the much more detailed and practical HS 6 digit data, the identification of these REOs must be postponed until more recent HS data can be obtained.
Whereas in previous research a headcount was used of the REOs identified per importing country or per product, in the present research an attempt is made to weigh each individual REO by an (admittedly rough) estimate of its potential export value in US dollars. It is shown that such weighing allows one to focus on the more important REOs (in export value), instead of these which are more often detected but which might easily dilute export promotion efforts (as to be applied to too many import markets).
A further distinction is made between “actual” REOs (for which Thailand has already reached a sizable comparative advantage in international trade) and “potential” REOs (i.e. the set of all REOs, irrespective of Thailand’s comparative advantage). The distinction is of particular importance as it allows a focus by Thailand’s export promotion agency on the promotion of the exports of products that are already successfully exported by the country. It is shown that 35 % of the REOs (unweighted by estimated potential export value) in ASEAN+3 are in China and another 18.9 % in Japan. Based on a headcount of the number of REOs as categorized according to import market characteristics and Thailand’s market position, one third (34,6 %) of Thailand’s “potential” REOs are in markets where the country’s market share can be considered as high or moderately high, thus offering immediate export potential. This conclusion is strengthened when considering Thailand’s “actual” REOs, with a share of 42.5 % in such markets. Moreover, the largest number of REOs, both “potential” and “actual”, is found in markets which are growing in the short and long term: 41.8 % and 44.3 %, respectively.
Weighing the individual REOs with the estimated potential export value, reinforces the importance of the REOs in ASEAN+3 for which the country has achieved already high or moderately high market share, which then represent 60.9 % of the potential export value in ASEAN+3 of the “potential” REOs, and even 79.3 % of the potential export value in ASEAN+3 of the “actual” REOs. When compared with the corresponding shares of these respective types of REOs in the set of Thailand’s REOs worldwide, which are considerably smaller, it can be concluded that many ASEAN+3 REOs will, probably and on average, offer Thailand quicker results than REOs elsewhere in the world.
Based on the product composition of Thailand’s “actual” REOs in ASEAN+3, the product category machinery and equipment takes up the biggest share (54.2 %), thus offering more immediate export potential in the ASEAN+3 markets, and even more there than in the world at large (the share of this product category in the “actual” REOs worldwide being smaller: 34.9 %).
Also the composition of the top 30 list of REOs in ASEAN+3 according to potential export value, much more than the top 30 list of Thailand’s REOs worldwide, advocates in favor of a sufficiently important regional focus of export promotion of Thailand. It is e.g., striking that in the former list, the products which can be considered as the traditional “playground” of multinational business (automobiles, pharmaceuticals, etc.) are less prominent, thus offering scope for the promotion of Thai export products, among which many machines, parts and components, electrical appliances and parts, etc. This is evidently not to say that one should neglect the export potentials that multinational corporations are offering, as a number of products in the top 30 REOs in ASEAN+3 can be outsourced to and supplied by Thai producers.
Although it seems unwise to advocate to solely concentrate Thailand’s export promotion on the region, our conclusions nevertheless are in favor of concentrating relatively more of the country’s scarce public export promotion resources on ASEAN+3, in spite of its apparent and somewhat surprisingly low share in Thailand’s REOs. As economic integration in the region is deepening, in particular taking into account the prospective creation of the ASEAN Economic Community in 2015 and the Chinese-Japanese backed plans for the establishment of an East Asia Free Trade Area, an enhanced regional focus, seems to contribute to the most export success.
The full CAS discussion paper nr 83, is available here.