Journal of Greater Mekong Subregion Development Studies: December 2010

By Zanxin Wang, Xianming Yang, Ying Chen and 12 more

The Journal of GMS Development Studies is a multidisciplinary peer-reviewed publication that seeks to promote a better understanding of a broad range of development issues of the Greater Mekong Subregion (GMS). This journal is published by the Asian Development Bank (ADB) under the framework of the Phnom Penh Plan for Development Management (PPP), a region-wide capacity building program that supports knowledge products and services. It is directed at GMS planners, policy makers, academics, and researchers who, in their unique capacities, continue to search for solutions to the many complex challenges of the subregion. By disseminating knowledge about the GMS, the Journal hopes to stimulate further thinking and debate on GMS issues, thus contributing to informed policy choices, responsive advocacy, and meticulous scholarship.

• Language: English
• Publisher: Asian Development Bank
• Release date: Dec 1, 2010
• ISBN: 9789290924661

Book preview

Journal of

Greater Mekong Subregion Development Studies

The Journal of GMS Development Studies is a multidisciplinary peer-reviewed publication that seeks to promote a better understanding of a broad range of development issues of the Greater Mekong Subregion (GMS). One volume is published each year by the Asian Development Bank (ADB) under the framework of the Phnom Penh Plan for Development Management (PPP), a region-wide capacity building program that supports knowledge products and services. The Journal is directed at GMS planners, policy makers, academics, and researchers who, in their unique capacities, continue to search for solutions to the many complex challenges of the subregion. By disseminating knowledge about the GMS, the Journal hopes to stimulate further thinking and debate on GMS issues, thus contributing to informed policy choices, responsive advocacy, and meticulous scholarship.

The Journal complements other components of the PPP. The PPP, which was initiated by the GMS countries in 2002 during the First GMS Summit in Phnom Penh, delivers several learning programs each year for senior- and middle-level development practitioners in the GMS. In 2009, the PPP initiated a Research Program to enhance capacity among GMS research institutions in developing knowledge base for policy choices. As a repository of scholarly works on the GMS, the Journal serves as a valuable resource for the PPP learning programs. It also serves as a platform for publishing research works by GMS research institutions, universities, and think tanks that are recipients of grants under the recently launched PPP research program. Other activities of the PPP include fellowship awards, learning resource centers, and institutional networking and development. The program is funded by ADB and the governments of the People’s Republic of China, France, the Republic of Korea, and New Zealand.

The PPP was initiated under the framework of the GMS Program, wherein six countries that share the Mekong River—Cambodia, the People’s Republic of China, the Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam—started a program of regional cooperation in 1992. The areas of cooperation under the program include agriculture, energy, environment, investment, telecommunications, tourism, trade, transport, and human resources development.

The Journal invites original contributions from scholars, researchers, and practitioners dealing with GMS issues. The articles should have a strong emphasis on the policy implications flowing from the analysis. Analytical book reviews will also be considered for publication. Articles submitted for publication will be peer-reviewed.

Manuscripts may be sent by e-mail to [e-mail] or by mail to The Editor, Journal of GMS Development Studies, c/o Southeast Asia Regional Department, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines.

Guidelines for the authors are available online at www.adb.org/gms/phnom-penh-plan, where journal issues are also published. Authors can also be guided by observing the style used in published articles in the Journal.

The opinions and interpretations expressed in this Journal are those of the contributors and do not necessarily reflect the views or the policies of ADB. Mention of company names and commercial products does not imply the endorsement of ADB. Use of the term country does not imply judgment by the authors or ADB as to the legal or other status of any territorial entity.

Volume 5 December 2010

Journal of

Greater Mekong Subregion Development Studies

© 2011 Asian Development Bank

All rights reserved. Published 2011.

Printed in the Philippines.

ISBN 978-92-9092-466-1

Publication Stock No. JRN113302

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB.

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Journal of Greater Mekong Subregion Development Studies

Volume 5

December 2010

Foreword

This issue of the Greater Mekong Subregion (GMS) Journal of Development Studies features the outputs of four research projects funded by grants under the Research Program of the Phnom Penh Plan for Development Management (PPP). These research outputs represent the successful culmination of the PPP’s pilot initiative to expand its outreach to research institutions as part of its capacity development mandate. The past 7 years of the PPP have focused on the delivery of learning programs, consistent with the program’s vision of building a core of highly capable civil servants who would play a key role in shaping policy choices. But as GMS countries continued to face increasingly complex economic development challenges, the knowledge base required to inform policy choices has become increasingly important. Learning courses provided the tools but not the empirical basis for designing policy. Moreover, the differential impacts of policies among various groups needed to be better understood to assess the appropriate tradeoffs. This policy–knowledge gap is more apparent in the less developed GMS countries where research institutions have limited capacities and resources to conduct policy-based research. Recognizing this, and in an effort to bring its capacity-building goal onto a higher plane, the PPP Research Program was launched in March 2009 to help promote a more effective link between knowledge generation and policy formulation.

The four articles in this volume investigate in-depth four issues that have emerged in the GMS border areas as a result of increased connectivity and economic interaction in the subregion. These issues deal with (i) the implications of contract farming arrangements on the benefits received by the farmers, (ii) the design of incentive policies for cross-border economic zones, (iii) the impact of border economic zones (BEZs) on the quality of female labor, and (iv) the role of financial services in trade facilitation.

The research team led by Kanokwan Manorom from Ubon Ratchatani University studied the implications of contract farming arrangements in terms of the benefits accruing to the farmers. Through case studies of three crops—cabbage, maize, and sugarcane—in the Lao People’s Democratic Republic, the study observed that the benefits of contract farming vary according to the contract farming arrangements or models, and therefore, no single model can work best in all situations. Contract farming models arise to address certain production and marketing limitations that prevent the efficient functioning of industries and markets. The case studies were written by Singkhon Siharath of Champasak Agriculture and Forestry College, Lao People’s Democratic Republic; Xing Lu of Yunnan University, People’s Republic of China (PRC); Suchat Katima and Maria Theresa Medialdia of the Mekong Institute, Khon Kean University, Thailand; and David Hall of Ubon Ratchathani University.

The establishment of cross-border economic zones (CBEZ) in the border areas of the PRC and its neighboring GMS countries has recently emerged as a strategy for further promoting trade and investments in the subregion. While no CBEZ exists in the GMS, the establishment of this type of zone has recently been discussed for Hekou–Lao Cai along the North–South Economic Corridor border involving Yunnan Province in the PRC, and Lao Cai Province in Viet Nam. The design of incentive packages to be implemented in the CBEZ is thus a major challenge for policy makers. Xianming Yang and Zanxin Wang from Yunnan University led a team of researchers in determining the elements that should be considered in the design of CBEZ incentives by looking at the effect of (i) the factors that attract investments to the zones, and (ii) the effects of investment incentive policies on the performance of industries locating in these zones.

In another study of BEZs, Nguyen Manh Hung and Nguyen Thi Hong Nhung of the Institute of World Economics and Politics, and Tuan Quang Bui of the Vietnam Institute of Economics, investigated the factors that influence the earnings of female labor in Mong Cai, Cau Treo, and Moc Bai in Viet Nam. The study concluded that BEZs have successfully provided greater job opportunities, and the associated increase in earnings for female labor in the BEZs, as well as to inner provinces through the channel of migration. However, there are many constraints in converting the increase of female labor income into the improvement of female labor quality. These constraints include the complex and interrelated factors of investment in human capital, the pace of social progress, access to education, the structure of the labor market, and gender equality.

The fourth article featured in this journal is on the role of financial services in cross-border trade facilitation. While the focus on GMS trade facilitation has been on simplification and harmonization of customs, quarantine and immigration procedures, transport facilitation, and mobility of business people, the important role of financial services has been so far overlooked. Nguyen Hong Son and Dang Duc Son of the Viet Nam National University address this gap by (i) investigating how users and providers of financial services in the border-gate areas perceive the role of financial services in promoting trade, (ii) evaluating the different dimensions of financial service accessibility, and (iii) looking into the accessibility dimensions that affect customers’ decisions to use financial services in the border-gate areas.

We hope that this issue of the GMS Journal is able to shed light on the multifaceted issues confronting policy makers in striking a balance between the opportunities and challenges brought about by greater economic integration. The PPP Research Program has made a modest contribution to this end.

Alfredo Perdiguero

Editor

Factors Affecting Firm-Level Investment and Performance in Border Economic Zones and Implications for Developing Cross-Border Economic Zones between the People’s Republic of China and its Neighboring GMS Countries

Zanxin Wang, Xianming Yang, and Ying Chen*

Abstract

The establishment of cross-border economic zones (CBEZ) in the border areas of the People’s Republic of China (PRC) and its neighboring Greater Mekong Subregion countries has recently emerged as a strategy for further promoting trade and investments in the subregion. Unlike a border economic zone (BEZ), which is confined within the national territory, a CBEZ is an economic zone traversing a transnational area and requiring a unified set of policies and incentives in such areas as finance, taxation, investment, trade, and customs regulation. While no CBEZ currently exists in the GMS, the establishment of this type of zone has recently been initiated for Hekou–Lao Cai along the North–South Economic Corridor border involving Yunnan province in the PRC, and Lao Cai province in Viet Nam. The design of incentive packages to be implemented in the CBEZ is thus a major challenge for policy makers. To help inform the design of incentive policies in CBEZs, this research studied BEZs in selected border areas in Yunnan province, and in Lao Cai province, with the objective of assessing (i) the factors that attract investments to the zones, and (ii) the effects of investment incentive policies on the performance of firms locating in these zones. Using three types of investment motives (market-seeking, resource-seeking, and efficiency-seeking) as dependent variables, and applying parametric and nonparametric analysis, the study identified significant variables that affect the firms’ locational decisions and investment performance. The implications of these variables on the design of incentive policies were subsequently analyzed.

Background

Despite its vast land area, the western region of the People’s Republic of China (PRC)¹ is economically underdeveloped, far behind its eastern region in terms of gross domestic product (GDP) and income per capita. To narrow the gap between the eastern and western regions of the PRC, the central government adopted policy measures in 2000 for the development of western PRC, which was consistent with the overarching national goal of promoting equity and the well-being of the Chinese people across