1
Dr. Sorayod Kumbunlue
13-Jul-17
Main Content
Development of ASEAN
ASEAN Regionalism
and European
Integration
East-Southeast Asian
Economic Integration
and its Implications for
ASEAN
Theory on Economic
Development and
Integration
Modeling
Short-term
Long-term Strategy
Simulations
Thailand
ASEAN
2
Dr. Sorayod Kumbunlue
13-Jul-17
Principle & Objective
Cultivate
Knowledge
Based
Rule & Standard
based
Innovations
Knowledge based
Development
Culture
3
Dr. Sorayod Kumbunlue
Instruments
- EU
- NATO
- etc.
Material and
Structural Supports
INNOVATION
-Infrastructure
-Communication
- Technologies
- Systems, Health etc.
13-Jul-17
- Security
- Prosperity
- Sustainable
development
- Immunity
against external
threats
Culture
Nature and
Environment
Human and
Social
Development
4
Dr. Sorayod Kumbunlue
13-Jul-17
EU’s Sustainable Development Strategy 2007
•
•
•
•
•
•
•
•
•
•
Research and Development
Sustainable Transport
Financing and Economic Instruments
Sustainable Consumption and Production
Climate Change and Clean Energy
Conservation and Management of Natural resources
Education and Training
Public Health
Social Inclusion, Demography and Migration
Global poverty
5
Dr. Sorayod Kumbunlue
13-Jul-17
EU
ASEAN Resilience
Musyawarah (discussion),
Community Method
Mufakat (consensus)”, and
“Gotong Royong (collective)
• Contractual Society
• Consensual Society
• Binding
• Consultative
• Dogmatic
• Pragmatic
• Exclusionary
• Pluralistic Security
Community
• Flexible
• Cooperative Security
6
Dr. Sorayod Kumbunlue
13-Jul-17
Characteristics of the Emergence of
EU and ASEAN
EU
• Idea of Integration
since 1920
• Excessive
Nationalism
• Division of Europe
• Cold War
ASEAN
• Decolonization
• Influence of
dominant Powers
• Communism
• Cold War
7
Dr. Sorayod Kumbunlue
13-Jul-17
Adhering to the principles of DEMOCRACY, the RULE
of LAW and GOOD GOVERNANCE, respect for and
protection of HUMAN RIGHTS and
FUNDAMENTAL
FREEDOM
(Preamble of
The ASEAN CHARTER)
8
Dr. Sorayod Kumbunlue
13-Jul-17
Economic Cooperation/Integration
Solving the
problems of
sensitive
sectors and
hub and
spokes
bilateralism
Economic
convergence
and
sustainable
growth
Convergence
and
augmentation
of human
capital income
and livingstandard
Convergence and
development of
technologies among
economies
Reduction of the
costs of subsistence
consumption and
the costs of
education
Convergence and
augmentation of
wage rates and
income
Direct and Indirect support via
government interference
9
Dr. Sorayod Kumbunlue
13-Jul-17
Production Relations
Yt = (K t)α(AtHt)(1-α)
with α є [0, 1] Ht, Kt and At> 0
• Ht = efficiency unit of labor
• Kt = aggregate capital input
• At = productivity parameter of technology (over the period t)
• The output per worker yt, produced at time t is
yt = (kt)α(Atht)(1-α)= y (kt, ht, At)
where yk (kt, ht, At)>0 and yh (kt, ht, At)>0 for all (kt, ht)>0
10
Dr. Sorayod Kumbunlue
13-Jul-17
• It is assumed that the economy is small and open to the world
capital market. The capital market equilibrium condition
implies that
(δYt/δKt)= α(Kt/AtHt) (1-α) = r
• In a competitive labor market, each worker receives
wage rate w, which is equal to the marginal product of
labor:
(δYt/δHt)= α(Kt/AtHt) α = w
11
Dr. Sorayod Kumbunlue
13-Jul-17
Production Relations under Inequality
between Labour Groups
Yt = (K ht)α(AhtHht)(1-α)+(Klt)α(AltHlt)(1-α)
with α є [0, 1] Hjt, Kjt and Ajt> 0, with j=h,l
• Sector h : white-collar workers with higher quality and working with higher
technology
• Sector l : blue-collar workers with lower quality and working with lower
technology
Capital is perfectly mobile between sectors. Hence, in a competitive
equilibrium, the marginal product of capital must be identical in each sector
(δYt/δKht)= (δYt/δKlt)
α(Kht/AhtHht) (1-α) =α(Klt/AltHlt) (1-α)=r
Kht/AhtHht = Klt/AltHlt
12
Dr. Sorayod Kumbunlue
13-Jul-17
It is assumed that competitive labor is only mobile within each
economy. In a competitive labor market, the wage rate w, received
by each group of workers is equal to the marginal product of labor in
the respective sector
• sector h
δYt/δHht =(1-α)Aht(Kht/AhtHht)α=wht
• sector l
δYt/δHlt =(1-α)Alt(Klt/AltHlt)α=wlt
13
Dr. Sorayod Kumbunlue
13-Jul-17
Modeling of Short-term Strategy
Uit=(cit) (1-γ)(wit+1hit+1+si(1+r) withit)γ
with
hit+1= hit(1+ei)
• The utility of each member of the working generation t, is defined over
consumption in the first work period cit, and over obtained assets in the second
period, which comprise second period income and savings. Each person is
endowed with one unit usage of time which is allocated between labor force
participation, savings and investment in education.
Uit=(withit(1-eiτ-si)) γ(wit+1 hit(1+ei) +si(1+r) withit) (1-γ)
• In the first work period, the consumption potential of the individuals is
dependent on their chosen amount of savings and expenses for their further
education.
withit(eiτ+si)+ cit ≤ withit
• The consumption needs to be above subsistence level cs .
14
Dr. Sorayod Kumbunlue
13-Jul-17
Optimization
s = s if zit > zb or = max [0, s] if zit ≤ zb
where saving rate is exogenous and zit (zit = withit) is the level of potential
income of an individual i at the period t and zb (zb = cs /(1-eiτ-s)) the level of
potential income at which the subsistence constraint is just binding
max ei Uit = max ei (withit(1-eiτ-s)) γ(wit+1 hit(1+ei) +s(1+r) withit) (1-γ)
s.t.
withit(1-eiτ-s) ≥ cs
Under the aforementioned assumption of an exogenous saving rate, an
individual i chooses the level of investment in education and therefore sets
his or her own consumption and future assets in such a way as to maximize
the utility function. Simultaneously, the individual i has to assure the level
of subsistence consumption.
15
Dr. Sorayod Kumbunlue
13-Jul-17
• Optimization with respect to ei implies
(δUit/δei)=0
This represents the following interior solution (if zit > zb)
ei*= (γ/τ) (1-s)-(1- γ)[1+s (1+r)(wit / wit+1)]
• For a sufficiently low level of income, the subsistence consumption
constraint is binding and there is a corner solution with respect to
the consumption level (if zit ≤ zb)
Subject to the budget constraint the corner solution is
ei*= (1/τ) (1-s-(cs / wit hit ))
16
Simulations
(Thailand without government interference)
Dr. Sorayod Kumbunlue
13-Jul-17
Occupati
on
Professio
nal and
technical
Manageri
al and
administ
rative
Proprieto
rs
Employe
es in
clerical,
sales and
service
jobs
Manufact
uring
workers
Transpor
tation
and
communi
cation
Miscellan
eous
Agricultu
re
Selfemployed
Agricultu
ral
laborers
ei *
0.34
(0.3405)
-
0.34
(0.3405)
0.34
(0.3405)
0.34
(0.3405)
-
0.21
(0.2065)
0.22
(0.2239)
0
hit ei*
0.59
(0.5857)
-
0.32
(0.3167)
0.27
(0.2724)
0.47
(0.4733)
-
0.19
(0.1879)
0.21
(0.2060)
0
hit+1
2.31
(2.3057)
-
1.25
(1.2467)
1.07
(1.0724)
1.86
(1.8633)
-
1.10
(1.0979)
1.13
(1.1260)
0.47
hit
1.72
-
0.93
0.80
1.39
-
0.91
0.92
0.47
hit
1.72
-
0.93
0.80
0.57
(0.5738)
-
0.38
(0.3757)
0.38
(0.3798)
0.19
(0.1940)
2.31
(2.3057)
-
1.25
(1.2467)
1.07
(1.0724)
0.77
(0.7692)
-
0.45
(0.4532)
0.47
(0.4648)
0.19
(0.1940)
comparable
hit+1
comparable
17
Dr. Sorayod Kumbunlue
13-Jul-17
Thailand with government interferance
η denotes the government support for education (in % of GDP)
Occupati
on
Professio
nal and
Technical
Manageri
al and
Administ
rative
Proprieto
rs
Manufac
turing
workers
(10%)
Employee
s in
clerical,
sales and
service
jobs(5%)
Transpor
tation
and
Commun
ication
Miscellan
eous
Agricultu
re
Selfemployed
Agricultu
ral
laborers
(0%)
(5%)
(0%)
(Income
tax rate
%)
(10%)
ei *
0.2467
-
0.2518
0.3085
0.3141
-
0.3431
0.2582
0
ei *
0.2567
-
0.2610
0.3179
0.3227
-
0.3239
0.2381
0
ei *
0.2659
-
0.2695
0.3267
0.3306
-
0.3059
0.2194
0
ei *
without
govern.
0.34
(0.3405)
-
0.34
(0.3405)
0.34
(0.3405)
0.34
(0.3405)
-
0.21
(0.2065)
0.22
(0.2239)
0
(5%)
η=10%
η=25%
normal case
η=40%
18
Dr. Sorayod Kumbunlue
Occupati
on
Professio
nal and
Technical
Manageri
al and
Administ
rative
Proprieto
rs
Manufac
turing
workers
(10%)
Employee
s in
clerical,
sales and
service
jobs(5%)
Transpor
tation
and
communi
cation
13-Jul-17
Miscellan
eous
Agricultu
re
Selfemployed
Agricultu
ral
laborers
(5%)
(0%)
(5%)
(0%)
(Income
tax rate
%)
(10%)
Utility
730.2309
-
402.3034
369.1251
266.9490 -
189.0719
180.6372
100.3981
Utility
728.9960
-
400.6743
367.5219
264.1971 -
187.1234
178.5911
98.3569
Utility
727.8948
-
399.2005
366.0712
263.6089 -
185.3022
176.6766
96.4936
Utility
808.2400
-
439.1483
378.0248
269.7977 -
175.8663
177.9841
88.8612
η=10%
η=25%
normal case
η=40%
without
govern.
19
Dr. Sorayod Kumbunlue
Simulations for ASEAN (Short-term)
13-Jul-17
(data for Brunei and Myanmar are not completed)
Country
Av.
Income;
Saving rate
Indonesia
Malaysia
Philipp.
Singapore
Thailand
Cambodia
Laos
Vietnam
ei *
0.4548
0.1965
0.3626
0.0489
0.4733
0.0277
0.3999
0.3626
hit ei*
0.1501
0.2024
0.1559
1.1552
0.3171
0.0224
0.3839
0.4460
hit+1
0.4801
1.2324
0.5859
2.6640
0.9871
0.8324
1.3439
1.6760
hit
0.33
1.03
0.43
2.53
0.67
0.81
0.96
1.23
hit
0.33
1.03
0.43
2.53
0.67
0.1439
0.1706
0.2185
0.4801
1.2324
0.5859
2.6640
0.9871
0.1480
0.2388
0.2978
251.58;
16%
791.42;
30%
330.58;
21%
1946.33;
38%
515.83;
15%
110.50;
10%
131.33;
9%
167.17;
21%
comparable
hit+1
comparable
20
Increase of wage rate in the low income economies
Dr. Sorayod Kumbunlue
13-Jul-17
Country
Indonesia
Malaysia
Philipp.
Singapore
Thailand
Cambodia
Laos
Vietnam
ei*
0.4548
0.1965
0.3626
0.0489
0.4733
0.0277
0.1335 (5%)
0.2297 (10%)
0.3981 (20%)
0.3999
0.4892 (5%)
0.5704 (10%)
0.5840 (20%)
0.3626
hit ei*
0.1501
0.2024
0.1559
1.1552
0.3171
0.0224
0.1081 (5%)
0.1861 (10%)
0.3224 (20%)
0.3839
0.4696 (5%)
0.5477 (10%)
0.6839 (20%)
0.4460
hit+1
0.4801
1.2324
0.5859
2.6640
0.9871
0.8324
0.9181 (5%)
0.9961 (10%)
1.1324 (20%)
1.3439
1.4296 (5%)
1.5076 (10%)
1.6439 (20%)
1.6760
hit
0.33
1.03
0.43
2.53
0.67
0.81
0.96
1.23
hit
0.33
1.03
0.43
2.53
0.67
0.1439
0.1706
0.2185
0.4801
1.2324
0.5859
2.6640
0.9871
0.1480
0.1713 (5%)
0.1947 (10%)
0.2414 (20%)
0.2388
0.2667 (5%)
0.2946 (10%)
0.3505 (20%)
0.2978
0.3127 (5%)
0.3275 (10%)
0.3573 (20%)
comparable
hit+1
comparable
21
Dr. Sorayod Kumbunlue
13-Jul-17
Modeling of Long-term Strategy
(Overlapping Generation Model)
Uijt=(wijthijt(1-nt (τq +τeei)-s)) γ(wijt+1 hijt+1+s (1+r)wijthijt) (1-γ)
s.t.
wijthijt(1-nt (τq +τeei)-s) ≥ c ijt
with
ei ≥0, j=h,l
hit+1 = h(ei ,Tit+1)
and
Tit+1 =(At+1 -At)/ At
with
h(ei ,Tit+1) >0, he(ei ,Tit+1) >0, hee(ei ,Tit+1) <0, hT(ei ,Tit+1) < 0,
h TT(ei ,Tit+1) >0, heT(ei ,Tit+1) >0,
for all (ei ,Tit+1) ≥ 0
In the model, the function of the children’s level of human capital is defined by:
hit+1 = h(ei ,Tit+1)= hijt+1 (β+ ei a+ Tit+1 b+ ei cTit+1 d)
for simplicity, it is assumed that c=1 and d=1
max e Uit = max e (wijthijt(1-nt (τq +τeei)-s)) γ(wijt+1 hijt+1+s (1+r)wijthijt) (1-γ)
s.t.
wijthijt(1-nt (τq +τeei)-s) ≥ c ijt
i
i
22
Dr. Sorayod Kumbunlue
13-Jul-17
• Optimization with respect to ei implies
(δUit/δei)=0
This represents the following interior solution (if zit > zb) with
(zb = cs/(1-nt (τq +τeei)-s)):
[(1- γ)τe]/[1-nt (τq +τeei*)-s] = [γ(aei*(a-1)+ Tit+1 ) ]/[nt (β+ ei*a+ Tit+1 b+
ei*Tit+1 ) +s (1+r)(wit / wit+1)]
For a sufficiently low level of income, the subsistence consumption
constraint is binding and there is a corner solution with respect to the
consumption level (if zit ≤ zb)
Subject to the budget constraint the corner solution is
ei*= (1/ nt τe) (1-nt τq - s-(cs / wit hit ))
23
Dr. Sorayod Kumbunlue
Simulations for ASEAN
13-Jul-17
(Long-term)
Indonesia
251.58;
16%;
1.45
Malaysia
791.42;
30%;
1.80%
Philipp.
330.58;
21%;
1.84
Singapore
1946.33;
38%;
1.56
Thailand
515.83;
15%;
0.87
Cambodia
110.50;
10%;
1.81
Laos
131.33;
9%;
2.42
Vietnam
167.17;
21%;
1.04
ei *
0.0456
0.0133
0.0194
0.0134
0.1427
0
0
0.0419
hit+1
0.7030
2.0927
0.8840
5.1414
1.5388
1.5520
1.8394
2.6094
hit
0.33
1.03
0.43
2.53
0.67
0.81
0.96
1.23
hit
0.33
1.03
0.43
2.53
0.67
0.1439
0.1706
0.2185
0.7030
2.0927
0.8840
5.1414
1.5388
0.2757
0.3268
0.4636
Country
Av. Income;
Saving rate;
Pop. Growth
comparable
hit+1
comparable
24
Dr. Sorayod Kumbunlue
13-Jul-17
Conclusion
• Culture › Development › Innovation
• Human and Social vs Material and Structural
Supports vs Environment
• Promoting “opening and deepening regionalism”
and “strengthening economic structure”
Convergence vs Integration
•
•
•
•
•
•
Human-capital Enhancement and Convergence
Reducing cost of subsistence consumption
Supporting in Education
Technology Enhancement and Convergence
Integration
Research and Development