Infrastructure’s Role in Lowering Asia’s Trade Costs. Building for Trade

Infrastructure's Role in Lowering Asia's Trade Costs

Author(s): Douglas H. Brooks, David Hummels

ISBN:          9781848441620

Publisher: Cheltenham, UK & Northampton, MA, USA: Asian Development Bank Institute

Year:          2009

Price:        £69,95

Reviewed by Dr. Alex Marshall, University of Glasgow

If the 21st century is to be the Asian century, it will demand expanded trade infrastructure for the countries of Southeast Asia to fully reach their potential. This edited volume of eight insightful essays offers an excellent immediate overview of the emerging dynamics within the region. With the vast majority of countries within the region now pursuing an export-dependent and FDI dependent economic model, issues of relative competitiveness now look set to have a wider and longer-term impact upon the broader regional geopolitical balance. In an overarching scenario where, with the exception of India and the Kyrgyz Republic, fellow Asian states remain the dominant import/export  relationship for Asian countries (India balances 31.6 per cent of her overall exports with Asia with 24.3 per cent with Europe), India and China are also emerging as clear regional economic hegemonic powers. Chinese exports (imports) grew at 15.4 (15.2) per cent per year for every year between 1995 and 2005, and India’s comparable figures stood at 10.4 and 13.6 per cent per year (pp.18-19). Without exports to China being taken into the equation meanwhile, Japan would over the same decade have had overall negative export growth. A growing sheer quantity of trade then has particular resource and infrastructure implications. Air cargo shipping has grown much faster in Asia than even it’s already exceptionally fast rate across the world as a whole, but remains closely related to weight-value ratios (the equation that affects the different relationship in regard to shipping costs between, for example, microchips and scrap metal, where the weight-value ratio of scrap metal is high, but the weight-value ratio of microchips is very low). Thus, US import data for example demonstrates wide regional differences in the relative intensity of use of air transport, with air shipping constituting just 14 per cent of Indonesia’s trade with the United States, but a whopping 71.6 per cent of Malaysia’s (p.25). Nonetheless in areas where time costs remain less important than direct transport costs, ocean transport clearly still has an enormous role to play in the transport of bulk commodities, and chapter three of this book conducts a useful comparative survey of Asian ports, measuring the relative costs of ports in Malaysia, India and China against the control sample of Tokyo (here again the data is based purely on US economic data, generating a minor yet automatic bias that could be levelled against many of the contributions in the book as a whole).

Chapter Three represents a thoughtful study of the ways in which specific infrastructure investments (new berths, cranes, or channel deepening) can affect port costs. It is argued that only the opening of new harbours or terminals or procuring new cranes reduces port costs in statistically significant ways (p.49), and that even here the gains are small in relative terms-with the investment of $1 million leading to a relatively small 0.03 per cent increase in efficiency (p.57). Thus investment in this field will only yield long-term gains rather than short term growth spikes. This assumes particular importance in the light of the immediately following chapter 4 by Prabir De, which argues that rising transport costs continues to impede trade in Asia, a consideration which also generates an argument in his own view for greater focus on reducing inland transportation costs (p.104). Here, growth has been considerable, but is also being increasingly savagely outstripped by demand. As chapter seven on China points out, China acquired more than 29,700 km of new rail road track between 1949 and 1979 and an additional 27, 300 km between 1978 and 2005, but focus has switched more recently to completing electrification of the existing network and expanding the number of double track lines. The weight of turnover remains impressive-with just 6 percent of the world’s total rail transport network, China achieves one quarter of the overall global turnover in freight transport (p.185). But this overstretched capacity, no matter how efficient, is nonetheless not meeting demand, and faces rising maintenance costs in terms of ageing tracks and infrastructure. Chinese ports are also now amongst the most congested in the world (p.189).

This book presents a fascinating overview of the manner in which capitalism continues to transform Southeast Asia’s transport infrastructure, in waves of ‘creative destruction’ undreamed of by previous generations. Nonetheless the study overall raises as many questions as it offers answers. Only touched upon in the wealth of economic data presented within the study are the labour costs of the region as a factor in relative trade costs-the sweatshops and barracks of the major trans-national corporations, in which millions now slave to feed global demand. Environmental impacts are also only fleetingly touched upon, as are broader questions about unbalanced development-an issue thrown into sharp relief by the global financial crisis of 2008, which threatened, amongst other things, to render large sections of the global economy’s ocean-going container transport fleet obsolete overnight. Nonetheless this study remains a fascinating and invaluable accumulation of data, which future historians and social scientists can turn back to and usefully employ when the history of the first part of the Asian twenty-first century is eventually being written.