BAIC New Economy and APEC Report: Transformative Policies and Economic Growth (EN)

The New Economy and APEC, 2001

Asia-Pacific Economic Cooperation New Economy and APEC, 2001 APEC Economic Committee (EC) 2001

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The New Economy and APEC, 2001

THE NEW ECONOMY AND APEC - 1 -

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Table of Contents

Table of Contents I.

Executive Summary.....................................................................................1 Overview of the Project ...........................................................................................................1 From Brunei ….....................................................................................................................1 …to Shanghai.......................................................................................................................1 Summary Objectives of the Report and Basic Outline of Method ..........................................2 A New Emphasis on Transformation...................................................................................3 Summary of Analytical Conclusions:......................................................................................4 Spanning the four domains:..................................................................................................5 Within the domain of trade and cross-border investment:

...................................................6 Within the domain of banking and financial policies:..........................................................7 Within the domain of pro-competitive market policy and legal regime:.............................7 Within the domain of fiscal policy and fiscal activities of government:..............................8 II. The Fundamentals: Definition and Policy Underpinnings of the New Economy......................................................................................................10 What is the “New Economy”?

...............................................................................................10 The Knowledge-Based Economy and the New Economy.....................................................12 What Are the Policy Fundamentals?......................................................................................15 Fiscal Policy and Fiscal Activities:....................................................................................15 Banking and Financial Structure:.......................................................................................17 Trade and cross-border investment policies:......................................................................18 Competition policy and legal regimes:...............................................................................20 Synergies among policy domains:......................................................................................21 Conclusion .............................................................................................................................22 III.

The Evidence: Benefits and Challenges of the New Economy ...................23 Introduction............................................................................................................................23 Information and Transformation; Dot-Com Bust, But Not the New Economy.....................23 Evidence on Productivity Growth and the Use and Diffusion of ICTs .................................25 Review of the Literature:

The US experience precipitates research ….............................26 …and raises similar questions for other economies...........................................................27 ICTs are the fad now, but research on productivity growth goes back a long way............29 Aggregate and global benefits of the New Economy ............................................................30 Time-series analysis of efficiency gains:...........................................................................31 Broad analysis of policy reforms:.......................................................................................31 Economic gains through trade liberalization, particularly in services:..............................33 Sub-Regional Trading Arrangements .................................................................................36 IV.

Case Studies of the New Economy in APEC............................................38 Restructuring and Transformation.........................................................................................38 Conclusions About Transformation ...................................................................................49 Transformation and Policy.....................................................................................................49 - i -

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Table of Contents

Fiscal Policy .......................................................................................................................50 Financial Deepening...........................................................................................................52 Trade and Investment Policy..............................................................................................54 Competition and Legal.......................................................................................................54 The Place of Human Resource Policy....................................................................................56 National E-Commerce Promotion Strategies .........................................................................57 V.

Implications of New Economy Divergence:

Digital Divide ........................59 Introduction............................................................................................................................59 Initial conditions and Predisposition to Policy Reform.........................................................60 Productivity and Growth ....................................................................................................60 Digital Measures.................................................................................................................62 KBE Status Indicators ........................................................................................................64 Challenges to and Predisposition to Reform......................................................................65 Policy Conditions, Sectoral Transformation and Trade Competitiveness in the New Economy ................................................................................................................................66 Measuring Overall Policy Conditions in APEC Economies ..............................................67 Measuring Sectoral Transformation In the New Economy ................................................71 Putting These Together with Trade Patterns:

Competitive Pressures and Opportunities ..73 Other Aspects of Differential Progress..................................................................................79 Brain drain:.........................................................................................................................80 Reactions from civil society:..............................................................................................81 International relations and new alliances?..........................................................................81 VI. Analytical Conclusions............................................................................83 Challenge to Reforms:

Spanning the Four Policy Domains..................................................83 “Stove-pipe” government bureaucracy and public-private alliances: ................................83 Poor domestic and global economic and political environments:......................................84 Resource transfers and liberalization:

................................................................................84 Challenges for Trade and Cross-Border Investment Liberalization ......................................84 Absence of on-going multilateral trade round:...................................................................85 Incomplete fulfillment of existing commitments:..............................................................85 Challenges for Banking and Financial Market Policies.........................................................85 Poor Supervisory Oversight:..............................................................................................86 Lack of Financial Skills:.....................................................................................................86 Thin non-bank financial markets:.......................................................................................87 Challenges for Fiscal Policy and Reform of Fiscal Activities...............................................87 Redirecting internal operations and external activities:.....................................................88 Transforming inner workings of government:...................................................................88 Challenges for Pro-competitive Market Policies and Legal Regime.....................................89 Sophistication and rapid evolution of competitive environment:.......................................89 Difficulty of scope and nature of legal reforms:

................................................................89 Lack of a trusted environment:...........................................................................................89 Command and control will speed adjustments right now: .................................................90 A Final Word.........................................................................................................................90 - ii -

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