Manufacturing Convergence of ASEAN: Too Good to Be True?

Abstract

Manufacturing sector was one of the main drivers of economic growth at ASEAN and it is expected to expand. Although ASEAN is said to be the monetary area with various types of financial improvements and experiencing financial development, majority of the ASEAN countries are classified as a lower centre wage nation. The study uses the non-linear time varying factor approach on finding structural convergence of value added of manufacturing sectors in ASEAN. Alternatively, if the result shows there are convergence among the country, it could be an indicator of possible deeper economic integration and perhaps feasibility of monetary union. Countries that converges with other countries show that the ability of its to catch up with the higher one despite having different magnitude to converge. As stated in the ASEAN Economic Community (AEC), as a member the country must have the equitable of its economic growth and full integrated region in the global economic. The results indicate that there is no structural convergence in manufacturing sector in ASEAN, however, there are subgroup that converges to three club convergence with core group consist of Philippines and Singapore. The study concludes that manufacturing sector in ASEAN experiences strong similarity in its manufacturing sector and better prospect for convergence in the future. Keyword: Manufacturing Convergence, Non-Linear Factor Model, Transition Path Introduction ASEAN has encountered the high financial development for a couple of decades in monetary exercises, for example, producing area, mining part, development division and horticulture segment. Yet, at that point, the areas are expanding and having changed commitment to GDP since there are numerous difficulties that organizations must face. For instance, its division has confronted an expanding in return rates, expansion, monetary standards, and decrease in resource cost. It s thoroughly influencing the financial segments through their sources of info, assets, capitals, exchanges and imports sends out in every nation. In any case, financial coordination could consolidate to create chances to ASEAN nations. It could likewise make challenges, to be specific International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 14, Contemporary Business and Humanities Landscape Towards Sustainability. 2021, E-ISSN: 2222-6990 © 2021 HRMARS 213 higher costs identified with executing monetary combination over such as financial and social assorted variety nations. ASEAN is a monetary area, which has various types of financial improvement. Each nation has their methodologies and example to keep their nation ascend and creating. Besides, the vast majority of the ASEAN countries are classified as lower centre wage nations, though a couple are set in a superior economy. In this way, the current wage had a disparity hole between a portion of the ASEAN nations may wind up addressing from nation that face the lower one even they had set up more extensive district ASEAN Economic Community reconciliation and have coordinated effort between each other. The ASEAN Economic Community (AEC) was built up on 31 December 2015. However, the full association of the AEC vision was exhibited in 2007 will take additional time. The ASEAN origination of what provincial joining implies are expansive. However, that does not mean it is exceeding. Furthermore, the AEC economies have all things considered become quicker than some other Asian economy has spared China since the beginning of the century. The principle goals of the AEC have fivefold. There is a grasp incorporation, intensity, upgrade network and sectoral collaboration, impartial results, and worldwide commitment. The AEC is following brief comment is coming to be known as the four flexibilities with regards to European incorporation, opportunity of development of products, capital, administrations and work. In spite of the fact that there are numerous preferences and accomplishment since the ASEAN built up, the nation advancement and monetary improvement are recognized among every nation. Every nation has fluctuation accomplishment and positions that influence their monetary improvement in their nation. Figure 1: Manufacturing in ASEAN Source: Oxford Economics (2020) Over the last decade, ASEAN has been growing its manufacturing output steadily and expanding its sector vastly, reporting a sturdy compound annual growth of 5.5% and accounting for 4% share of the global manufacturing output. The manufacturing sector was one of the main drivers of economic growth at ASEAN. The area is already a global manufacturing hub and is expected to expand between 2016 and 2020 at a compound annual growth rate (CAGR) of 6.6 per cent. Major driver of demand in this sector is a 640 million strong region wide customer base with growing segment of middle income. Rising revenues which switch trends in consumption have also contributed to growth in this sector. In fact, the region s economies have low operating costs which International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 14, Contemporary Business and Humanities Landscape Towards Sustainability. 2021, E-ISSN: 2222-6990 © 2021 HRMARS 214 attract businesses from larger production bases. Recently, China has experienced rising wages and tighter regulations which have resulted in increased operating costs as it shifts towards higher value production. Therefore, to replace Chin’s once hold position, companies are looking to the ASEAN region for lower priced production networks that have also been largely integrated in to global value chains for manufacturing. The participation of ASEAN in intraregional trade has strengthened its status as global hub for development such as the ASEAN Economic Community (AEC) envisages ASEAN as a framework for both single market and development. In a nutshell, even though all the country in a same association such AEC, their economic growth and national income differs. The creation of AEC is to achieve the same goals with the same strategies and plans, though one can stand by himself, alone. This is because their capability, skills, management, resources and technologies are varied each of the countries. So, does the lower country can catch up with the higher one as formed in the AEC? Literature Review Lie and Ahmad (2007) exhibit that the information creating procedure of wage differentials amongst Japan and all East Asian economies are nonlinear. Subsequently, the suitable testing technique within the sight of nonlinear pay differentials is by utilizing the nonlinear unit root test proposed by Kapetanios, Shin and Snell (2003; KSS, from this point forward). He discovered that 27 Korea, Hong Kong, and Taiwan and Singapore see merging with Japan. While China, Malaysia, Indonesia, Thailand and the Philippines showing dissimilarity. Then again, by adjusting the KSS test with the consideration of nonlinear pattern in the unit root testing strategy, the examination discovered that Hong Kong, Korea and Singapore are demonstrating long-run joining with Japan, while Taiwan is indicating making up for lost time with Japan. Other than that, Zhang (2003) has been inspected whether East Asian economies can make up for lost time with Japan. He discovered that there is solid proof of the presence of different joining harmony over the ASEAN5, Korea, China, Hong Kong and Taiwan economies in the years 1960 to 1997. Zhang discovered two club merging which are rich club involving 28 Japan, Hong Kong, Malaysia, Singapore, Taiwan and Philippines. The poor club comprises of China, Korea, Indonesia and Thailand. Therefore, he utilized the model of nonlinear capacity to test for meeting between Korea, Japan and Taiwan for the period 1900s to 1992. Hsiao and Hsiao (2004) demonstrate that genuine GDP per capita of Taiwan and Korea are merging to that of Japan and the United States. Likewise, Japan s GDP per capita additionally meets to that of the United States. Hway and Habibullah (2008); Parhoon et al (2014) inspected a proof of progressing genuine macroeconomic meeting of the establishing individuals from ASEAN to be specific, Indonesia, Malaysia, Singapore, Philippines and Thailand. They quantified utilizing genuine total national output (GDP) for the long run macroeconomics relationship towards ASEAN-5. At that point the progressing union of ASEAN-5 is inspected. The outcome demonstrates that the observational 29 discoveries recommend that there is for some time run macroeconomic linkages and the progressing meeting among ASEAN-5. Thus, ASEAN-5 is viewed as good, yet ASEAN endeavours of re-sorting out its supporting foundations will further improve the compatibility of their members. However, besides outstanding macroeconomic performance, there has a realization of a serious economic union would International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 14, Contemporary Business and Humanities Landscape Towards Sustainability. 2021, E-ISSN: 2222-6990 © 2021 HRMARS 215 also depend on political stability and the sincerity of political leaders. On the other hand, Gouyette and Perelman (1997) expressed the productivity performances of 13 OECD countries’ service and manufacturing sectors were estimated for the years 1970 to 1987. They found that convergence is not found in the manufacturing sector, while convergence was found in productivity levels in the services sector. Muller (2000) studied the presence of sectoral convergence of labour productivity among 14 OECD countries. His study suggests that there is a strong sectoral convergence within most service sectors while the evidence of convergence for manufacturing as well as for communication sectors is rather weak. Affizzah (2011) also investigated the sectoral convergence between 15 OECD countries from 1970 to 1985 (ten sectors are distinguished) in a study on regional convergence in Euroland. The ma