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Economic Corridors

October 9, 2013

  • 16 min read

Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.

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Introduction

Economic corridors are meant to attract investment and generate economic activities within a contiguous region, on the foundation of an efficient transportation system. They are meant to provide two important inputs for competitiveness: lower distribution costs and high-quality real estate. The corridor approach for industrial development primarily takes advantage of the existence of proven, inherent and underutilized economic development potential within the region.

Apart from the development of infrastructure, long-term advantages to business and industry along the corridor include benefits arising from smooth access to the industrial production units, decreased transportation and communications costs, improved delivery time and reduction in inventory cost. The strategy of an industrial corridor is thus intended to develop a sound industrial base, served by competitive infrastructure as a prerequisite for attracting investments into export oriented industries and manufacturing.  Table 1 provides a categorization of corridors in terms of their scope and economic impact. The most comprehensive form, the economic corridor integrates infrastructure development with the trade, investment, and other economic potentials of a set of specific geographical areas, while at the same time undertaking efforts to address social, environmental, and other potentially adverse impacts of increased connectivity.

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Establishing an economic corridor, then, is a holistic strategy that improves and enhances investments in transport, energy, and telecommunications in the region. A highly efficient transport system means goods and people move around the region without excessive cost or delay. This improvement promotes further economic growth and regional development, thus contributing to poverty reduction. (ADB 2008)

The Economic Corridor Development Model: International Examples

The Greater Mekong Subregion:

The GMS comprises Cambodia, Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam, as well as Yunnan Province and Guangxi Zhuang Autonomous Region of the People’s Republic of China (PRC). In 1992, with the Asian Development Bank’s (ADB) assistance, the six countries entered into a program of subregional economic cooperation, designed to enhance economic relations among the countries. The Greater Mekong Subregion (GMS) Transport Sector Strategy (2006–2015) identified nine road corridors that will form the subregion’s network of transport links. They form the base for the development of economic corridors.

The GMS (Greater Mekong Sub-region) countries formed an Economic Corridors Forum (ECF) in 2008 to bolster efforts in transforming GMS transport corridors into economic corridors. It is designed to enhance collaboration among areas along the corridors and among GMS sector working groups, and will act as a single body focusing on economic corridor development. This will help improve interaction between the public and private sectors, and between central and local governments.

ADB supports the development of the GMS economic corridors through a regional technical assistance on the development study of the GMS Economic Corridors. This technical assistance has conducted various studies and has formulated strategies to develop the GMS economic corridors, in consultation with the member countries.

The assistance comes in many forms, particularly: preparing studies and master plans to help corridor development; Helping organize and maintain forums and working groups for cooperation/coordination, i.e., Subregional Transport Forum, Working Group on Agriculture; Providing technical assistance that result in feasibility and engineering studies, identification of required regulatory arrangements, packaging of possible private-public partnerships, among others; and assisting in mobilizing funds through direct coordination with development partners and the private sector.

The GMS is divided into three economic corridors:

The North-South Economic Corridor (NSEC) involves three routes along the north to south axis of the GMS geography:

  • The Western Subcorridor: Kunming (PRC) – Chiang Rai (Thailand) – Bangkok (Thailand) via LAO PDR or Myanmar
  • The Central Subcorridor: Kunming (PRC) – Ha Noi (Viet Nam) – Hai Phong (Viet Nam) which connects to the existing Highway No. 1 running from the northern to the southern part of Viet Nam
  • The Eastern Subcorridor: Nanning (PRC) – Ha Noi (Viet Nam) via the Youyi Pass or Fangchenggang (PRC) – Dongxing (PRC) – Mong Cai (Viet Nam) route.

The NSEC will play a critical role in providing Yunnan Province and northern Lao PDR access to important sea ports. Potential market coverage is extensive, given the existing road network from Singapore via Malaysia to Chiang Rai, and from Kunming to Beijing. The corridor is virtually complete, except for a bridge between Lao PDR and Thailand, which is to be constructed soon.

The East-West Economic Corridor (EWEC) runs from Da Nang Port in Viet Nam, through Lao PDR, Thailand, and to the Mawlamyine Port in Myanmar. It extends 1,320 kilometers as a continuous land route between the Indian Ocean (Andaman Sea) and the South China Sea, intersecting the North-South Economic Corridor at the provinces of Tak and Phitsanulok in Thailand.

The Southern Economic Corridor (SEC) comprises the following subcorridors and intercorridor link connecting major towns and cities in the southern part of GMS:

  • The Central Subcorridor: Bangkok-Phnom Penh-Ho Chi Minh City-Vung Tau;
  • The Northern Subcorridor: Bangkok-Siem Reap-Stung Treng-Rattanakiri-O Yadov-Pleiku-Quy Nhon;
  • The Southern Coastal Subcorridor: Bangkok-Trat-Koh Kong-Kampot-Ha Tien-Ca Mau City-Nam Can; and
  • The Intercorridor Link: Sihanoukville-Phnom Penh-Kratie-Stung Treng-Dong Kralor (Tra Pang Kriel)-Pakse-Savannakhet, which links the three SEC subcorridors with the East-West Economic Corridor. (ADB 2008)

Some Evaluations of the GMS Economic Corridors:

An ADB study conducted by Stone (2008) highlights clear gains, albeit with some drawbacks, from improvements in land transport costs and improved trade facilitation. Gains in regional trade reported are greater than those found in earlier ADB studies of approximately 40% (ADB, 2007). One of the policy implications arising from this study is the impact of focusing on improving the so-called ‘soft’ aspects of trade facilitation which improve transit times and trade service costs. The results presented show the gains to intra-regional trade, highlighting the potential markets within the GMS. The results, however, provide a static view of one-off gains from a conservative estimate in a reduction in transport costs and improvements in trade facilitation – they do not adequately capture the synergies developed by businesses starting along the economic corridors, the foreign investment likely to be attracted as facilities improve, or the spillovers from these types of investments throughout the economy. The study does, however, show clear gains from improvements in physical land transport and the more substantial gains from improved trade facilitation. The implications of these results are that physical infrastructure must be in place for trade to take place. However, once in place, attention should turn to soft aspects of trade facilitation. Based on the results presented here, once a sufficient physical system is in place, additional benefits are marginal compared with improvements in policy initiatives under the heading of trade facilitation.

Based on Banomyong’s (2010) empirical survey of the GMS corridors, there exist several administrative and transport-based complications to smooth and easy logistic development. For example, based on the empirical evidence collected on the route between Danang and Tak, it is noticed that nearly half of the total 41.3 hours transit time (18 hours, equivalent to 43.5 per cent) is in fact taken at customs or border crossings based on each country’s administrative formality. The non-synchronisation and complicated institutional framework are clearly hindering the smooth flow of goods across borders. From a cost perspective, 42.6 per cent of the door-to-door transport costs are collected at customs and border crossings, an amount almost equivalent to the cost of physical transportation. Banomyong finds that the physical route is currently completed but the supporting and administrative procedures are still lacking. The GMS infrastructure is more or less completed but many of the border facilities are still insufficient and inefficient. From the findings, trans-loading and border crossing still remain barriers to the seamless movement of freight, people and vehicles within the GMS. Banomyong asserts that this is because ADB-led trade and transport facilitation measures have yet to be fully implemented by the member countries. The weakest link in the various economic corridors still remains the border crossing.

Brahmawong et al,(2011) in their analysis, note that economic development by the corridors may increase the national income and per capita national income, but the society will face depletion of natural resources, degradation of environmental quality, and diminished livelihood, all of which are short-term and long-term determinants of the welfare of the population. Therefore, a comprehensive analysis of all benefits and costs is crucial in the decision making, if belated for the already-completed construction then for the utilization level. Indeed, Brahmawong notes that even if the analysis shows that the economic, social, and environmental benefits exceed the economic and social costs for the host countries, cautions must be made if the countries have a weak law-enforcing system or an inadequate cost-internalizing scheme. Megaprojects in the past (such as Mabtapud and Lampoon industrial estates, Laem Chabang deep sea port etc.) are testament of how ever-increasing economic activities due to the development projects and a lenient law enforcement allow economic actors to externalize costs by, for example, emitting pollutants, dumping hazardous wastes, or conducting socially-undesirable activities, with consequential degradation of the surrounding communities and the environment.

China-Pakistan Economic Corridor

The Pakistan-China economic Corridor, being promoted under an agreement between the two countries in the recent visit of Prime Minister Nawaz Sharif, is believed to be the key to bolstering trade through better links. Both sides have committed themselves to the ambitious long term project by connecting Kashgar in China with Gwadar in Pakistan through road and rail links, including building around 200 kilometer-long tunnels.

The long-term plan will mainly include areas of cooperation such as connectivity construction, economic and technical cooperation, people-to-people and cultural exchanges, and exchanges between local governments and organizations. Federal Minister for Planning and Development of Pakistan, Ahsan Iqbal, signed the pact from the Pakistani side while Chairman National Development and Reforms Commission of China, Xu Shao Shi signed from the Chinese side. During the meeting between Prime Minister Nawaz Sharif and Premier Li Keqiang, the two leaders agreed to start work on the long-term plan for China-Pakistan Economic Corridor on a speedy basis.

The Chinese Premier said that China has strategic interest in this Corridor. Both sides also agreed to set up the Joint Cooperation Committee on the Long-Term Plan for the China-Pakistan Economic Corridor, with the National Development and Reform Commission of China and the Planning and Development Ministry of Pakistan as leading ministries, and secretariats established in both ministries.

The two leaders agreed on the areas of cooperation in the near future under the framework of the Long-Term Plan for China-Pakistan Economic Corridor such as: start the China-Pakistan Cross-border Fiber Optic Cable project at an appropriate time, upgrade and realign the Karakoram Highway on a fast-track basis, explore cooperation on solar energy and biomass energy, explore construction of industrial parks along the Pakistan-China Economic Corridor, launch at an early date inter-governmental consultations to implement the Digital Television Terrestrial Multimedia Broadcasting (DTMB) in Pakistan, coordinate the commercial operation of TD-LTE in Pakistan, and enhance cooperation in the wireless broadband area.  (APP 2013)

The Delhi-Mumbai Economic Corridor

The Delhi-Mumbai Industrial Corridor is a mega infra-structure project of USD 90 billion (Rs. 4,23,000 crore) with financial & technical support from Japan, covering an overall length of 1483 KMs between the political capital and the business capital of India, i.e. Delhi and Mumbai. This project incorporates Nine Mega Industrial zones of about 200-250 sq. km., high speed freight line, three ports, and six airports, a six-lane intersection-free expressway connecting Mumbai & Delhi and a 4000 MW power plant. Several industrial estates, clusters and industrial hubs are planned to be developed along this corridor to attract more foreign investment. Funds for the projects are from the Indian government, Japanese loans, investment by Japanese firms and through Japan depository receipts issued by Indian companies. This high-speed connectivity between Delhi and Mumbai offers immense opportunities for development of an Industrial corridor along the alignment of the connecting infrastructure. A band of 150 km (Influence region) has been chosen on both sides of the Freight corridor to be developed as the Delhi-Mumbai Industrial Corridor.

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Industrial Development Scenario

Macro level analysis for industrial development scenario indicates that about 45% of country’s registered factories (129,704), catering to an employment of 3.36 Million sizes, are located in DMIC states. Moreover, about 1.234 Million registered small scale industries, constituting 46% of overall country, are located in DMIC states. It is analyzed that about 52% of registered factories and corresponding employees are based in Maharashtra and Gujarat states, indicating the extent of industrialization in these states. In terms of Gross Industrial Output and Export trends, DMIC states together constitute 56% of country’s industrial output (INR 12,874 billion) and 62% of country’s total exports (INR 4564 billion) in 2005-06. It is important to note that, Maharashtra and Gujarat together contribute 61% of gross industrial output and 72% of exports amongst the DMIC states.

FDI (Foreign Direct Investments) in DMIC States

Analysis of the trends in foreign direct investment indicates that DMIC states cater to 52% of total FDI equity inflows in to the country. Mumbai and Delhi regions together constitute 92% of total FDI equity inflows amongst the project influence states. It is important to note that Mumbai and New Delhi regions have better infrastructure facilities in the country compared to other locations, which have helped realization of such mega investments. Accordingly, the vision for DMIC also envisages identification of ‘potential but under developed regions’ and provides world-class infrastructure to facilitate shift of focus areas for investments away from metropolitan areas to these new investment regions along the industrial corridor to contribute to the growth of economy of the country. (DMIC 2008)

The Mumbai-Bangalore Industrial Corridor: Initial Impressions

Sustained by rapid progress of the Delhi Mumbai Industrial Corridor (DMIC) project, Finance Minister P Chidambaram had announced in the 2013-14 budget that two more industrial corridors between Bangalore and Chennai and Bangalore and Mumbai would be constructed. Chidambaram also said the Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) were preparing a comprehensive plan for the Chennai-Bangalore Industrial Corridor. (PTI 2013)

As Britain seeks to recover from recession, Prime Minister David Cameron on the 18th of February made a pitch to help build the Mumbai-Bangalore industrial corridor which could generate investment projects worth up to $25 billion. “With me I’ve got architects, planners and finance experts who can work out the complete solution,” said Cameron, who was leading a more than 100-strong delegation of British business leaders to India on a three-day visit in February.

Cameron has said that British companies could help India develop new cities and districts along the 1,000-km corridor that would link the financial capital of Mumbai with the IT hub of Bangalore.  Pointing out that the India-UK business relationship was already strong, Cameron has spoken of investing in education, healthcare and rewriting rules on high level technology transfer.

“India is planning 40 million more places in universities and we will help you provide them. India is also planning to double its spending on health as share of GDP – we want to help you in manufacturing drugs, setting up hospitals and provide services,” said Cameron. With trade with India set to double to around Rs.1.67 trillion by 2015, Cameron has said he hopes for a reduction in trade barriers to create better opportunities for British companies.  (HT 2013)

In the Bangalore-Mumbai corridor, the industrial areas that would be covered include Vasanth Narasapura (Tumkur), Bharamasagara (Chitradurga), Shimoga, Savanur (Hubli), Haveri, Kushtagi-Gadag, Yelburga (Gadag), Belur (Dharwad), Hukeri (Belgaum), Navanagara (Bagalkot). Tumkur is where a national investment and manufacturing zone (NIMZ) has been planned. NIMZ would be an integrated industrial township spread over 5,000 hectres.

According to forecasts, 5.8% of India’s population growth would be in the corridor, contributing 11.8% of the country’s gross domestic product growth by 2020. By 2030, if realized, the project could generate close to half a million jobs, while indirect jobs could bring the total in the region to two million. British high commissioner to India, James Bevan said on the 5th of July that both India and UK would jointly finance a feasibility study on the proposed multi-crore Bangalore-Mumbai Economic corridor project.

Speaking to reporters after a meeting with chief minister of Karnataka, Siddaramaiah at his home-office, Bevan said the proposed 1,000 km project would propel the economic activities not only within India but also help various companies from UK to establish their set-ups in these two cities. (TOI 2013)

“We can provide expertise in infrastructure, architecture, construction, maintenance and energy,” said Bevan. “Once it takes off, the completion might take 20 years, or even say 30 years,” he said, adding that British companies would also bid for contracts for undertaking work related to construction or maintenance.

The first phase of this project is likely to involve investment in physical infrastructure like transport networks, telecommunications, and power generation. In a later stage, construction would concentrate on social infrastructure like welfare, healthcare, and education. Bangalore has joined New Delhi, Mumbai, Chennai and Hyderabad with the launch of the Bangalore chapter of the British Business Group, an association of expatriate British business people. “The [British Business Group] provides business contacts in India and Britain. It enables a company or an individual to understand the business landscape between the countries, develop business contacts and gain business opportunities,” British Deputy High Commissioner Ian Felton told a gathering of industry leaders in Bangalore. (Business Standard 2013)

Speaking at the launch function, Ian Felton also said that areas like aerospace and manufacturing are ones in which Britain and Bangalore can collaborate. “The USP of Bangalore is its skilled workforce, scalability, technical expertise, and eagerness to innovate,” added Bevan. The Bangalore chapter will allow businesses in the city to network and procure contracts, besides advising and establishing links with the UK government and businesses there. (DNA 2013)

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Photo Credits:- Mahin Fayaz

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