I. GLOBALIZATION: OPPORTUNITIES
AND CHALLENGES
A. NEW FORCES DRIVING GLOBALIZATION any people consider globalization nothing new – societies have been interconnected for years. But globalization took different forms in the past and the contemporary conjuncture is new.1 The world has never experienced globalization at this level of intensity before or the speed at which it is transforming and integrating societies. There is no single, all-encompassing definition of globalization, notes Sen.2 Instead, it has become a broad heading for a multitude of global interactions, ranging from the expansion of cultural influences across borders to the enlargement of economic and business relations throughout the world. For the economist, globalization is essentially the emergence of a global market. For the historian, it is an epoch dominated by global capitalism. Sociologists see globalization as the celebration of diversity and the convergence of social preferences in matters of lifestyle and social values. To the political scientist, it represents the gradual erosion of State sovereignty. But disciplinespecific studies explain only a part of the phenomenon. From a multidisciplinary angle, globalization may be treated as a phenomenon, a philosophy and a process which affect human beings as profoundly as any previous event.3 Several factors have been responsible for this phenomenon. This study confines its attention to four growthenhancing facets of globalization that have been among its key drivers, namely, trade, finance, communications and transport.
Trade

M

The world has never experienced globalization at this level of intensity before

The protectionism which emerged in international trade after the Second World War gave way to gradual liberalization, comprising both unilateral liberalization and rules-based multilateral liberalization spearheaded by GATT. The latter effort culminated in the Uruguay
1 2 3

Globalization web site , 5 January 2003. A. Sen, “Globalization: past and present”, Ishizaka Lectures, 18 February 2002. M. Khan, “Teaching globalization”, The Globalist, 28 August 2003.

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Meeting the Challenges in an Era of Globalization by Strengthening Regional Development Cooperation

Multilateral liberalization processes of trade spearheaded by WTO now have to coexist with a proliferation of RTAs and PTAs

Round of negotiations and the formation of WTO, which took over the process of multilateral negotiations and included agricultural goods and services in the process for the first time. These steps coincided with a proliferation of regional arrangements comprising of RTAs and PTAs intended to lead to increased market access for the contracting countries and to create new trading opportunities. WTO also laid the legal foundation for setting up RTAs so that such arrangements are able to accentuate the multilateral process.
Finance

Through outsourcing and international production networks, multinationals have enhanced global investment flows

Along with the wave of trade liberalization, capital from developed countries provided developing countries with new opportunities to fuel future growth. Most developing countries have been people-rich and capital-poor. Their domestic savings have been inadequate to meet their need for resources. Global capital markets and direct investments by multinational companies helped to fill the gap. There have been two types of FDI. The predominant type has been outsourcing to reduce production costs in terms of labour, infrastructure and natural resources as well as to promote exports. Production in some manufacturing sectors, such as electronics, cars, textiles and garments, tends to be relocated in stages from more advanced to less developed countries in search of lower labour costs, i.e., the so-called flying-geese pattern of FDI.4 Another important form of FDI has been the creation of new comparative advantages by accessing information technology and marketing channels as well as new technologies, products or services, with conventional international production networks (IPNs), i.e., within multinational enterprises. Later on new IPNs consisting of inter- and intrafirm relationships through which multinationals organize a complete range of business activities, including research and development, product design, supply of inputs, manufacturing, distribution and support services were formed. Examples include automobiles and ICT products. The multinationals also brought with them new technologies which increased productivity in the recipient countries.
Communication

Tremendous improvements in personal computers, the Internet and mobile phones created a communication revolution

The improvement in Internet-based satellite communication has been spectacular. Galloping development in the quality of personal computers has been complemented by the leap in Internet technology from only e-mail in the early 1990s to recent advances in multimedia transmission aided by broad banding and satellite communication. The use of mobile phones, which often rely on satellite technology, has increased dramatically. These developments have greatly increased economy-wide efficiency in production and trading.
4 R. Kumar, “Changing role of the public sector in the promotion of foreign direct investment”, in ESCAP, Asia-Pacific Development Journal, vol. 10, No. 2, December 2003, (United Nations publication, Sales No. E.03.II.F.57).

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I. Globalization: Opportunities and Challenges

Transport

Expansion of international trade created concomitant demand for more transport. The rise in productivity of the maritime sector took place through massive increases in ship sizes and the number of container ships. These have contributed to a considerable reduction in unit transport costs, thereby shrinking the economic distance between raw material sources, producers and consumers. The efficiency of the transport sector further increased with the arrival of multimodal transport, linking maritime and surface transport. As a result, countries became better linked, both internally as well as with neighbours, through highways and roads. During the 1990s, air traffic in the Asia-Pacific region grew at a much faster rate than in the rest of the world. Demand for air cargo services increased sharply owing to increased movement of high-value products. These included many niche items such as flowers and fresh vegetables as well as parts and components to feed the needs of the international production networks, particularly those of ICT equipment manufacturers. In fact, the growth in commercial air services continues to outstrip the available capacity of more and more airports, forcing Governments, airlines and airports to tackle problems of insufficient airport capacity. These developments have been the driving forces of globalization in recent years. The interconnection and synergy between the forces are clear: trade expansion creates additional demand for finance, transport and communication, whereas improvement in the latter areas makes trade more efficient. At the same time, the sudden rise of the Internet and mobile phone communications brought an unparalleled increase in productivity. The sectors which use these technologies i.e., trade, finance and transport, experienced equally impressive increases in productivity. For example, a convoy of container trucks on the move can remain in continuous contact with all the relevant parties. The development of e-commerce has been very fast; trade and financial deals can be made within minutes. The result of this synergy is the increased speed of integration between countries. Distance, size, natural endowments and specific skills do not pose a constraint to economic development any more, provided that a country has sufficient human skills, infrastructure and institutions to take advantage of the opportunities that globalization can provide.

Containerization and use of multimodal transport have increased efficiency in the movement of goods

B. GLOBALIZATION: THE ASIA-PACIFIC SITUATION
Table I.1 indicates the state of globalization in developing AsiaPacific countries, grouped into five geographical subregions, namely, East and North-East Asia, South-East Asia, South and South-West Asia, North and Central Asia, and the Pacific. They are also grouped by the
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Meeting the Challenges in an Era of Globalization by Strengthening Regional Development Cooperation

Table I.1. Indicators of globalization
Trade openness Capital openness Average Average inward portfolio inward equity flows FDI stock ($ billions) ($ billions) 2000-2002 2000-2002 Information openness Telephone mainlines and mobile phone users (per 10,000 population) 2001 Container traffic

Economies/areas

Trade (% of GNP) 1999-2001

Exports (% of GNP) 1999-2001

Internet users (per 10,000 population) 2001

Container traffic (TEU)a 2001

Container traffic (Growth) 1997-2001

East and North-East Asia China Democratic People’s Republic of Korea Hong Kong, China Macao, China Mongolia Republic of Korea Taiwan Province of China South-East Asia Brunei Darussalam Cambodia Indonesia Lao People’s Democratic Republic Malaysia Myanmar Philippines Singapore Thailand Viet Nam South and South-West Asia Afghanistan Bangladesh Bhutan India Iran (Islamic Republic of) Maldives Nepal Pakistan Sri Lanka Turkey North and Central Asia Armenia Azerbaijan Georgia Kazakhstan Kyrgyzstan Russian Federation Tajikistan Turkmenistan Uzbekistan Pacific Fiji French Polynesia Kiribati Marshall Islands Micronesia (Federated States of) New Caledonia Papua New Guinea Samoa Solomon Islands Tonga Tuvalu Vanuatu Developed Economies Australia Japan New Zealand

42.2 .. 233.6 .. 83.7 68.0 83.3c .. 57.1 60.9 56.1 207.4 43.4c 85.7 264.7 102.5 90.0 .. 30.2 .. 19.5 38.3 .. 39.6 33.4 69.4 39.5 57.4 63.3 32.2 71.5 81.2 63.0 136.3 89.4 63.5 71.4 c .. 73.5c .. .. .. 90.1 56.1c 58.9c 78.5c .. 45.7 c 33.4 16.7 55.0

22.3 .. 113.9 37.5 33.3 35.8 .. .. 29.2 39.8 20.7 114.2 .. 45.1 134.7 53.8 44.1 .. 12.9 .. 8.9 23.9 .. 12.8 15.2 30.4 15.3 14.5 33.3 10.1 43.6 38.0 42.1 69.8 52.0 33.4 39.5 8.3 9.5 .. .. .. 56.4 .. .. .. .. 15.7 15.8 9.3 26.8

9.5 .. .. .. .. .. .. .. .. –0.2 .. –0.5 .. 0.2 .. 0.3 .. .. .. .. 1.4 .. .. .. .. .. 0.2 .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..

397.14 1.03 435.93 2.86 0.24 40.52 31.15 4.55 1.43 57.94 0.57 54.22 3.28 10.38 117.98 27.95 15.89 0.02 1.05 0.00 22.33 2.52 0.13 0.11 5.94 2.52 18.43 0.59 4.35 0.55 12.49 0.43 20.22 0.15 1.05 1.10 1.10 .. 0.01 .. .. 0.14 2.07 0.05 0.12 0.02 0.00 0.38 114.45 53.43 24.78

265 .. 3 883 .. 167 5 154 .. 1 167 8 191 19 2 731 2 255 4 146 578 127 .. 14 24 68 156 333 25 35 80 604 184 31 88 101 301 297 5 15 60 183 .. 22 180 455 .. 94 176 44 280 .. 275 3 711 3 850 4 637

2 778 .. 15 885 .. 879 10 945 .. .. 207 657 154 5 121 64 1 918 12 049 1 744 .. .. 81 .. 436 2 013 1 530 133 273 736 5 812 1 437 1 863 2 206 1 693 838 2 833 363 733 688 2 110 .. 44 1 000 909 .. 138 765 .. 1 100 .. 350 11 143 9 907 10 818

22 871 000b .. 17 900 000 .. .. 9 277 576 10 647 378 .. .. 3 492 153 .. 6 148 492 .. 5 485 759 15 590 000 3 514 601 1 086 340 .. 539 709 .. 3 195 084 618 223 .. .. 870 000 1 827 336 1 554 875 .. .. .. .. .. 360 899 .. .. .. .. 60 330 .. .. .. .. .. .. .. .. .. .. 3 500 905 12 635 446 1 120 747

164.0 .. 22.9 .. .. 64.6 34.5 .. .. 40.9 .. 116.2 .. 120.1 10.3 65.5 .. .. 79.6 .. 83.8 95.4 .. .. 43.1 8.3 34.4 .. .. .. .. .. 23.5 .. .. .. .. 9.7 .. .. .. .. .. .. .. .. .. .. 31.2 16.5 17.9

Sources: ESCAP, Review of Developments in Transport and Communications in the ESCAP Region 1996-2001 (ST/ESCAP/2157) and Statistics Division database; IMF, International Financial Statistics, September 2003 and World Economic Outlook Database, September 2003, , 5 January 2004; World Bank, “East Asia update: regional overview, October 2003”, , 17 June 2003, World Development Indicators 2003 (Washington, World Bank, 2003), and World Development Indicators 2002 CD-ROM (Washington, World Bank, 2002); UNCTAD, World Investment Report 2003 (United Nations publication, Sales No. E.03.II.D.8); UNDP, Human Development Report 2003 (New York, Oxford University Press, 2003); Containerisation International Yearbook 2003 (United Kingdom, Informa, 2003); and national sources. Note: (..) indicates that data are not available a TEU stands for 20-foot-equivalent units, a standard-size container. b Data includes 14 major ports of the People’s Republic of China. c Data refer to trade (percentage of GDP).

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I. Globalization: Opportunities and Challenges

four driving forces of globalization: trade openness, the extent of capital inflows, penetration of communication infrastructure and capacity to handle bulk transport. The indices used are average trade and exports as percentages of GNP during 1999-2001, average inflows of portfolio capital and the average stock of FDI during 2000-2002, Internet, mainline and mobile telephone users per 10,000 population in 2001, and the volume and growth of container traffic in 1997-2001. The following observations can be made:
1. TRADE

Trade openness, the extent of capital inflows, penetration of communication infrastructure and capacity to handle bulk transport are good indicators of a country’s readiness to benefit from globalization

In trade and export openness, both East and North-East Asia and South-East Asia are ahead of the other subregions. The top three positions are occupied by Singapore (with a trade-to-GNP ratio of 264.7), Hong Kong (233.6) and Malaysia (207.4). Countries belonging to South and South-West Asia appear to be the least liberalized, with India recording the lowest trade-to-GNP and export-to-GNP ratios (19.5 and 8.9 per cent respectively during 1999-2001) in the region. But a wide variation in the extent of trade openness is also observed within each subregion. Within South-East Asia, the relatively low trade-to-GNP ratio of the Myanmar (43.4 per cent) contrasts with Singapore’s high 264.7 per cent. Within South and South-West Asia, India’s trade-to-GNP ratio of 19.5 per cent contrasts with Sri Lanka’s much higher ratio (69.4 per cent). In North and Central Asia, Tajikistan’s trade openness is four times that of Georgia. In the Pacific region, however, the variations are relatively small. Among the countries for which data are available, a trade-to-GNP ratio of 90.1 per cent observed for Papua New Guinea is almost twice that of Vanuatu (45.7 per cent). Clearly the level of trade openness varies between subregions as well as within them. A number of wide-ranging and interconnected policies are responsible for this variation, ranging from the extent and timing of external sector and market-oriented policy reforms to appropriate investment in domestic infrastructure.
2. FINANCE

East and North-East Asia and South-East Asia are ahead of other regions in trade openness

During the period 2000-2002, only seven countries recorded portfolio equity capital movements. Such inflows are dependent on a country’s financial infrastructure, the availability of opportunities for investing profitably in equity and other financial markets and a liberalized capital market regime. The very few entries in the table under this heading point to the fact that only a limited number of countries possess the necessary conditions for attracting portfolio capital. The outflow of portfolio capital observed in two countries also points to the possibility

Only a few countries were able to attract portfolio capital while higher FDI stocks are found in countries of East and North-East Asia which integrated early
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Meeting the Challenges in an Era of Globalization by Strengthening Regional Development Cooperation

of a reversal in such capital flows when investors, based on their perception of their investment’s profitability, quickly decide to withdraw from a market. By contrast, FDI has been a more stable and universal instrument for accessing global resources. A large number of developing countries of the region have been able to build FDI stocks. Higher FDI stocks which accrued because of past flows at higher levels can mostly be found in the developing countries of East and North-East Asia and South-East Asia, notably Hong Kong, China, with $435.93 billion, Singapore $117.98 billion, Indonesia $57.94 billion, Malaysia $54.22 billion and the Republic of Korea $40.52 billion. These countries and areas also recorded higher trade openness by integrating their economies with the rest of the world from the early to mid-1980s. However, countries which began to participate in the globalization process relatively late were also able to accumulate significant FDI stock. The best example is China, which amassed the second-highest stock of FDI, amounting to $397.14 billion. Countries in South and South-West Asia and North and Central Asia (especially India, Turkey, Kazakhstan and the Russian Federation) also attracted significant FDI flows. However, direct investment flows to the Pacific subregion have been very modest. Papua New Guinea, with the highest stock, had accumulated only $2.07 billion.
3. COMMUNICATION

Substantial differences are evident in telephone and Internet use; many countries of East and North-East Asia, followed by South-East Asia, have recorded high values

The penetration of information and communication technology (ICT) infrastructure followed a pattern similar to that of trade openness. Countries of East and North-East Asia have recorded much higher use of the Internet, telephones and mobile phones. As with trade openness, use of communications infrastructure is impressive in Hong Kong, China (with 3,883 Internet users and 15,885 telephone and mobile connections per 10,000 population), Singapore and Malaysia. The Republic of Korea has the highest Internet use in the Asia-Pacific region (with 5,154 Internet users per 10,000 people) and high telephone use as well. All these countries and areas belong to subregions which also show high trade openness. Within all the subregions, the penetration of ICT varies widely between member countries. East and North-East Asia contains Mongolia with 167 Internet users per 10,000, compared with 5,154 in the Republic of Korea. In South-East Asia, Myanmar with very low Internet use (in fact, the lowest recorded in the whole region) with 2 users per 10,000 population contrasts with Singapore with very high Internet use intensity. In South and South-West Asia, Bangladesh (14 users per 10,000 population) contrasts with Turkey (604 users per

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I. Globalization: Opportunities and Challenges

10,000 population). Tajikistan (5 users per 10,000 population) also compares very unfavourably with Kyrgyzstan (301 users per 10,000 population). The Pacific subregion, in general, appears to be more equitably connected although use intensity has been only moderate (the Federated States of Micronesia scored highest with 455 Internet users per 10,000 people). To the extent that Internet and telephone connectivity are important elements enabling countries to participate in and benefit from globalization, a large number of countries of the AsiaPacific region have a great deal of catching up to do.
4. TRANSPORT

Volume and growth in container traffic can serve as good indicators of the state of a country’s transport infrastructure for trade. Countries belonging to East and North-East Asia and South-East Asia once again are well ahead. China records the highest growth rate in container traffic (164.0 per cent from 1997 to 2001), which shows the increasing availability of transport infrastructure, including the higher handling capacity of port and link road networks. It is followed by the Philippines (120.1 per cent), Malaysia (116.2 per cent) and the Islamic Republic of Iran (95.4 per cent). High growth rates signify a conscious attempt by policy makers to draw both public and private investment into this sector, thus enabling the countries to strengthen the process of integration through trade. But in contrast to Asia-Pacific’s frontrunners, many developing countries recorded relatively modest growth. To the extent that improved transport infrastructure contributes to increased container traffic, policy makers of the latter group of countries need to take care that their globalization does not become constrained by lack of transport facilities.
5. INCOME AND POVERTY

Growth of container traffic has been relatively high in China, the Philippines, Malaysia and the Islamic Republic of Iran

The level of development of the major countries of the AsiaPacific region is shown in table I.2 through the use of two indicators: gross national income (GNI) per capita and percentage of the population living under the one dollar a day poverty line. Globalization creates opportunities to improve economic performance and achieve sustained economic growth, which increases per capita income and reduces poverty. In this context, table I.2 shows that East and North-East Asia and South-East Asia seem to be ahead of the other subregions in realizing the benefits of globalization. The average unweighted per capita
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Meeting the Challenges in an Era of Globalization by Strengthening Regional Development Cooperation

Table I.2. Indicators of development
Indicators of development Selected economies/areas GNI per capita (PPP $) 2001 East and North-East Asia China Hong Kong, China Macao, China Mongolia Republic of Korea South-East Asia Cambodia Indonesia Lao People’s Democratic Republic Malaysia Philippines Singapore Thailand Viet Nam South and South-West Asia Bangladesh Bhutan India Iran (Islamic Republic of) Maldives Nepal Pakistan Sri Lanka Turkey North and Central Asia Armenia Azerbaijan Georgia Kazakhstan Kyrgyzstan Russian Federation Tajikistan Turkmenistan Uzbekistan Pacific Fiji French Polynesia New Caledonia Papua New Guinea Samoa Solomon Islands Tonga Vanuatu Developed economies Australia Japan New Zealand 25 780 27 430 19 130 26 960 26 070 20 020 .. .. .. 5 23 21 2 5 1 140 340 820 150 450 680 .. 2 710 5 24 21 2 5 1 6 2 310 360 960 080 350 520 340 770 .. .. .. 42.8 .. .. .. .. 2 880 3 020 2 860 6 370 2 710 8 660 1 150 4 580 2 470 3 060 2 920 2 210 5 480 1 520 7 820 900 4 570 1 590 12.8 d 3.7 f