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The Challenge of Structural Change in APEC Economies - WP 07/06

1  Introduction

Improving New Zealand’s economic performance is one of the key outcomes driving the work of the New Zealand Treasury.[1] New Zealand’s international connections with the rest of the world, through trade and investment flows, the movement of people and ideas, contribute to our overall economic performance, and are particularly important because we are a small, open economy. Forums such as Asia-Pacific Economic Cooperation (APEC) help promote New Zealand’s connections with the Asia-Pacific region.[2]

The promotion of sustainable economic growth and improved living standards in the Asia-Pacific region through enhanced trade and economic integration lies at the heart of APEC’s mission. While APEC’s focus has traditionally been on trade and investment liberalisation and facilitation, it is increasingly turning its attention also to the role played by “behind-the-border” policies in enabling or impeding regional economic integration (also commonly referred to as “structural policies” or “structural barriers”). Behind-the-border barriers refer to domestic measures which can impede the efficient operation of markets and the capacity of businesses to operate. These can take the shape of domestic regulatory systems, competition frameworks and governance structures.

The Asia-Pacific region is economically important to New Zealand. The “Which Countries” work undertaken by the New Zealand Treasury, which focussed on the link between new growth theories and international integration, identified major economies along the Asia-Pacific Rim (most notably Australia, the United States, Japan, Korea and China) as the core group of economies with which New Zealand should deepen its economic relations (Rose and Stevens, 2004). The region is a major force of global economic growth. In its first decade, APEC member economies generated nearly 70 percent of global economic growth and the APEC region consistently outperformed the rest of the world, even during the 1997-98 Asian financial crisis.[3]

APEC provides New Zealand and other member economies with a forum to pursue measures promoting a stronger, more integrated and flexible regional economy. From a New Zealand perspective, APEC has the additional advantage of including a number of economies that are economically important to New Zealand.

APEC’s focus on trade and investment liberalisation and facilitation and on technical cooperation towards these ends are important, particularly given the significant tariff peaks remaining on some products in the food and primary production sectors that are economically important to New Zealand. However, there is a growing body of evidence which suggests that the APEC region is not realising the full benefits of regional economic integration due to barriers both at and behind the border.

Outward-orientation and strong growth performances have resulted in impressive economic growth in some low-income economies in recent years.[4] However, progress across the APEC region has been patchy and evidence suggests that convergence mechanisms may not be operating as well as expected in some economies due to barriers at and behind the border. Furthermore, recent thinking suggests that what it takes to achieve growth at lower income levels may be different from what it takes to sustain growth at higher levels of income, and over the long term. This raises the question of not only how to lift performance in the slower growing economies but also whether, and how, the recent impressive growth performances of some economies in the region can be sustained in the future. This paper focuses on behind-the-border structural policies, in light of their economic importance and the greater emphasis now being placed on them by APEC.

There are, of course, a number of international and regional organisations that promote structural policy change, such as the Organisation for Economic Cooperation and Development (OECD), and the World Bank. APEC aims to draw on the work of these other organisations, but it also “adds value” in a number of ways.[5] APEC’s cooperative, voluntary and informal manner of operations means that it is a good place to discuss economic policy challenges facing the Asia-Pacific region in an informal and non-adversarial environment.Because structural policies are behind the border they cannot easily be negotiated between economies. APEC has to date sought to promote improvements in an economy's domestic structural policies through policy dialogue. APEC promotes structural reform by providing a forum for senior officials across the region to discuss economic policy challenges, share experiences, discuss good practices and provide technical support where necessary.

The plan of the paper is that Section 2 will discuss the processes of economic growth and income convergence in the region. To do this, the paper draws on models of economic growth to provide a framework for thinking about how economic growth and income convergence takes place. Section 3 assesses where economic growth is occurring in the region and Section 4 discusses some possible impediments and future challenges to economic growth and the convergence of incomes, including structural policies. Section 5 looks at the role of APEC in promoting structural reform and providing members with the tools to manage it. The final section draws out some general lessons from the discussion.

Notes

  • [1]New Zealand Treasury Statement of Intent 2007-2010 http://www.treasury.govt.nz/soi/2007-10/
  • [2]APEC is a grouping of "economies" on the Asia-Pacific Rim. APEC currently has 21 members: Australia; Brunei Darussalam; Canada; Chile; People’s Republic of China; Hong Kong, China; Republic of Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; Republic of the Philippines; Russia; Singapore; Thailand; Chinese Taipei; United States; and Viet Nam.
  • [3]See APEC‘s Achievements and Benefits available from
  • [4]China has experienced rapid economic growth since the 1970s and Viet Nam has experienced strong growth since the early 1990s. Several other APEC economies have shown periods of rapid, but unsustained growth such as Korea in the mid-1980s to mid-1990s, Malaysia, Indonesia, Thailand, Singapore and Chile for periods in the 1990s, and Hong Kong China prior to the mid-1990s.
  • [5]APEC draws on the work of other organisations by, for example, collaboratively developing tools such as the “APEC-OECD Integrated Checklist on Regulatory Reform”, by inviting participation from the OECD and World Bank in APEC seminars and workshops, by drawing on the research these organisations have undertaken (such as the World Bank’s “Ease of Doing Business” indicators), and contracting research work from specialists from these organisations.
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