Regional Disparity and Economic Linkage in the Greater Mekong Sub-region(Resume)Kenji NOZAKI (Surugadai University)
1. Introduction
Greater Mekong Sub-region (hereinafter referred to as GMS) is composed of five countries and two
Chinese districts. They are Thailand, Cambodia, Laos, Myanmar, Vietnam, plus the Guangxi AutonomousRegion (hereinafter, Guangxi) 1 and Yunnan Province of China.
There are two kinds of purpose of this paper. The first one is to clarify the level and trend of regional
disparity in the GMS. And another one is to clarify the progress of the economic integration in this region.
The author used the statistics of trade in order to measure the level of intra-regional trade. It will give somehints to know how deep the division of labor in the process of production is.
Under the fragmentation theory, vertical division of labor in one industry at separate production blocks
can occur due to the differences of factor prices and productivities if the cost of service links is low enough.
The author tries to find the situation of economic linkage among the GMS through the regional disparity andintra-regional trade, bearing the fragmentation theory in mind.
2. Existing literature and consideration
First, as for the theoretical analysis about economic linkage, fragmentation theory should be referred.
Jones and Kierzkowski (1990) introduced the idea of service links, which connect the different production
blocks, as separated production process is more efficient when the factor prices are different. Kimura,Takahashi and Hayakawa (2007) conducted a comparative survey between East Asia and Europe.
Fragmentation theory helps the experience of vertical division of labor in the process of manufacturing,
especially machinery and their parts and components, in East Asia, which is different from European
situation, where horizontal division of labor is well advanced. They explained that decrease of the cost ofservice links, mainly achieved through the cross-border infrastructure and arrangement of customs system,
urged the division of production process to be divided following the factor cost for divided each process.
There are many surveys which treat the disparity. As for regional disparity, some researches likeNozaki (2007) measured the regional disparity in one country. It calculated the regional GINI coefficientutilizing the GPP/GRP per capita weighted by the regional population. However, the example, whichanalyzed the regional disparity of the GMS quantitatively by time series, is not found so far. The author
believes that it is necessary to know the regional disparity of the GMS for long term trend and comparison
with other region quantitatively.
As for the intra-regional trade among the GMS, Fujimura (2008) conducted a detailed research.
Intra-regional trade is surveyed collecting the bilateral trade information by both Direction of Trade of IMF(hereinafter, DOT) and statistical yearbook of two Chinese districts. It compared two years, 2000 and 2006,
and led the result that the intra-regional trade was growing.

1 Guangxi became an official member of the GMS program in 2005.

1

3. Trend of regional disparity
3.1 Method of estimation of disparity and used data
In order to measure the level of the disparity of the GMS, the author calculated the GINI coefficient byusing per capita GDP and population. As for the exchange rate, the author adopted the purchasing power
parity (hereinafter, PPP) of the United Nations for conversion2.
3.2 Results of estimation

Regional disparity of the GMS was very large in early 1990s, and it has been shrinking gradually(Figure 1). From this calculation we should discuss about two points. One is the reasons of GINI decrease,and another point is how to understand the GINI figure of 0.34 in 2009 as an absolute level of disparity.

2 As for the Guangxi and Yunnan Province, PPP of China is used for both districts. And as for the PPP ofVietnam, the UN provides only figures since 1995. Therefore, the author extrapolated the PPP figures from1990 to 1994 by GDP deflator.
2To consider the first point, it is useful to draw a Lorenz curve (Figure 2). Although Thailand recorded
positive economic growth throughout the period, other members recorded higher growth. As a result, when
we observe the Lorenz curve, inclination of each country or district is steeper in 2009. Among them, rapid
economic growth of Vietnam and two Chinese Districts attracts attention, although other members such as
Myanmar, Cambodia and Laos also recorded the higher growth than Thailand.
With regard to the second point, the author calculated the regional GINI coefficient of ASEAN original
six members. The GINI coefficients in 1990, 2000 and 2009 are 0.28, 0.26 and 0.25, respectively. As far as
this comparison, we can point that regional disparity in the GMS is still left behind. It suggests that suchmoderate disparity of ASEAN keeps the vertical division of labor through the difference of the factor costs.
Furthermore, GINI of ASEAN six gives us a suggestion about the relationship between the level ofdisparity and the economic linkage. Although the disparity is still on the trend of shrinking slightly, we may
be able to say that disparity of ASEAN six in 1990 was substantially low. Around 1990, it was the time thatmany ASEAN six members are eager to introduce the foreign direct investment to promote export-orientedindustries, so that it was before the economic linkage in the region advanced. It is actually in 1992 that theSoutheast Asia free trade agreement (AFTA) was agreed officially. What should be learned here is that
improvement of the regional disparity is necessary condition to promote economic linkage, but it is not a
sufficient condition. As existing researches point out, economic policies or infrastructure building are
essential to cut the cost of service links.
4. Economic linkage
4.1 Intra-regional trade

The ratio of total intra-regional trade was very low, almost negligible in early 1990s. Even in recent
years the ratio is single digit, but it continuously rose to 9% in 2010 (Figure 3).
When we see the individual member, some features are observed as follows (Table 1).
Thailand has many trade counterparts outside of the GMS. As for the ratio of export to the GMS, it was
below 1% in early 1990s. The ratio gradually rose but reached only to 6.5% in 2010. On the other hand,
import from the GMS member draws the same trend and much lower ratio of 3.1% in 2010. The ratio of
intra-regional trade of Vietnam is also low. But trade with Guangxi and Thailand are increasing and the3

intra-regional trade ratio is rising. As for other members of the GMS, the ratio is relatively high.

Table 1: Share of the intra-regional trade of ecch GMS member country/district199020002010

Myanmar
6.5
23.141.2

Cambodia
27.6
14.1
13.6

Laos62.9
63.3
64.6

Vietnam
2.0
6.4
10.0

Yunnan28.5
25.3

Guangxi
16.4
43.7

(%)
Thailand
0.7
2.2
4.8

(Note) 1. Each figure is the share of export plus import with GMS to the total export
plus with whole world.
2. Data sources are DOT of IMF and Yunnan and Guangxi Statistical Yearbook.

Thus, it can be said that the intra-regional trade within the GMS is gradually activated although thelevel is still low.
4.2 Bilateral trade of Thailand with the GMS members
In order to examine the depth of economic linkage within the GMS, the author analyzed the trade
items of Thailand with Vietnam, Laos and Myanmar. The Ministry of Commerce of Thailand releases thetop 20 items of bilateral trade with main trade partner countries. The author categorized each item into fourgroups: they are (a) food and products of primary industry, (b) energy and material, (c) manufactured
products and parts, and (d) others.
4.2.1 Thai trade with Vietnam
The amount of trade with Vietnam was very small in early 1990s. After that, with progress of theeconomic reform, both exports and imports increased and the ratio to total Thai trade rose. As a result, 46%of Thai export to the GMS, as well as 25% Thai import from the GMS were with Vietnam in 2010.

When we see export items, ‘manufactured goods and parts’ increased in 2011, after decline of the sharein 2006 (Figure 4-1). Contents of the ‘manufactured goods and items’ changed from previous years. Forexample, ‘spark-ignition reciprocating internal combustion piston’ and ‘motor cars, parts and accessories’
have appeared in an export item in recent years. Together with the increase of the amount of machinery andits parts, Thai export may support Vietnamese manufacture.
As for the import, items which support manufacturing activities in Thailand are being imported from4

Vietnam in these years.
4.2.2. Thai trade with Laos
About half of the export to Laos is ‘energy and material’. In particular, main item is refined fuel. As forthe manufactured products and parts, ‘motorcycle and parts’ is major item. In this regard, it is difficult to saythat Thai export strongly support the industrialization of Laos. However, industrialization related export
may start to increase in 2011.
As for the import, no specific features were observed, but in these years imports of metal ores areincreasing reflecting the development of mineral resources in Laos.
4.2.3 Thai Trade with Myanmar
Although no specific features were observed until mid-2000s, exports of refine fuel and motor cars,
together with machinery, increased in 2011. It may suggest that Myanmar economy started theindustrialization and that Thai products support it.
About import from Myanmar, The increase in the natural gas from around 2000 is characteristic.
5. Discussion
5.1 Consideration from the regional disparityThe fact that regional disparity is shrinking in spite of the continuous growth of Thailand means thatthe economic development of the late-coming countries are progressing. It may mean the condition is being
prepared to strengthen the economic linkage among the GMS.

Table 2 Structure of the GDP/GRP of the Member of the GMS in 2009(%)
Myanmar Cambodia Laos
Vietnam Yunnan
Guangxi Thailand
Primary Industry
38.2
32.5
32.8
20.9
17.3
18.8
11.6
Secondary Industry
24.4
22.4
25.2
40.2
41.9
43.6
43.3
Tertiary Industry
37.4
45.1
42.0
38.8
40.8
37.645.1(Note) ADB Key Indicators of 2010, Yunnan Statistical Yearbook, Guangxi Statistical Yearbook.
Figure of Cambodia is in year 2008
Primary Industry is composed of agriculure and mining, while Secondary Industry iscomposed of manufacture, electricity, gas, water and construction.

However, regardless of the situation of regional disparity, it is necessary to note that the income level ofthe region as a whole is still low. Table 2 shows that lower income countries maintain the higher share ofagriculture and lower share of manufacture, while Thailand and two Chinese districts, attained higher shareof manufacture with small portion of agriculture. Vietnam positions the middle of these two groups. As
industrialization of the late-coming countries is immature, the existence of the moderate regional disparity
does not directly mean the vertical division of labor in the manufacturing process.
On the contrary, rich natural resources in the low income members of the GMS may push up theirincome to increase. If they accumulate the capital through the natural resources, industrialization willproceed and the regional disparity is expected to shrink less and less. It may give the condition to the region
activate vertical division of labor in the manufacturing process.
55.2 Consideration from the intra-regional trade
As far as the trade structure within the GMS is overviewed, it is difficult to say that intra-regional
trade is very active, but economic linkage has just started.
However, there are some points that became clear through this survey. First, the economic relation
between Thailand and Vietnam is developing. Vietnam is under industrialization utilizing the foreign direct
investment. As a result, wide ranged division of labor in the manufacturing process may be progressing.
Although division of labor with countries out of the GMS is big portion, division of labor with Thailand
should have already started.
Another point is that the trade of natural resources within the GMS members is observed. As thesenatural resources are necessary for manufacturing process, intra-regional trade of these items may mean theprogress of the vertical division of labor. Although it is not the fragmentation of the manufacturing process ofintra-industry, we should take note that increase of intra-regional trade includes such kind of transactions.
Thus, movements of economic linkage are activating at the various levels in the GMS, although current
situation is Thailand centered economic linkage.
Before closing this section, the author would like to mention the environment for the GMS members toincrease the intra-regional trade. It is infrastructure building and arrangements of the trading systems. As
for the infrastructure, improving the transportation is the key. As Fujimura (2008) already mentioned, AsianDevelopment Bank, together with international community like Japan, inputs its resource to transportation
projects. As for the trading system, new comers of ASEAN members have already joined the ASEAN Free
Trade Area (AFTA) and are scheduled to eliminate the tariffs with ASEAN members by 2015. In addition toit, Cross Border Trade Agreement (CBTA) was agreed among six GMS member countries in 2003. It
mitigates the burden of cross border trade. Although there seems to be some troubles, soft infrastructurebuilding will cut the cost of service links. Increase of the trade between Thailand and Vietnam is supportedby these kinds of institutional arrangements.
6. Conclusion
The regional disparity of the GMS has been gradually shrinking from serious level to moderate inrecent years, although it is still a larger level than the level of disparity of ASEAN original members. This
result is not surprising but is expected to be useful for other research and policy formulation. As cross borderpolicies are undertaken or being planned, this findings can be used for the estimation of policy impact.
Economic linkage measured by intra-regional trade shows the sign to be strengthening. Although thelevel of intra-regional trade is still low, it grows steadily. From the information of Thai bilateral trade, verticaldivision of labor in the manufacturing process is growing, although it is still in a primitive stage, while theintra-regional trade of items relating the natural resource plays an important role. We can expect that moredeepening economic linkage will be realized with further economic development of the whole GMS region.

6