From Trade to Technology: World Bank Sets Out a New Development Playbook for ASEAN Growth

World Bank research finds that ASEAN economies can achieve far greater income gains by combining lower trade costs with stronger productivity, technology, skills and domestic business capabilities. For governments, development partners and businesses, the priority is “qualified openness”—better logistics, customs and certification alongside investment in productive firms, skilled workers and higher-value industries.

Middle-income economies across Southeast Asia may need to rethink how they use trade and industrial reforms to reach high-income status, with new World Bank research showing that the strongest economic gains come when countries reduce trade barriers while simultaneously improving domestic productivity. The study by Erhan Artuc, Ileana Cristina Neagu and Daria Taglioni of the World Bank's Development Economics Research Group examines Thailand and other ASEAN economies and finds that simply participating in global markets is not enough. Countries also need productive companies, skilled workers, reliable suppliers, better technology and efficient institutions to turn trade opportunities into higher incomes.

Thailand's Trade Success Masks an Upgrading Challenge

Thailand is already deeply connected to international production networks. Global value-chain activity accounts for 28.8 percent of its overall output and 46.9 percent of manufacturing output. Manufacturing GVC participation is even higher in Singapore at 53.1 percent and Viet Nam at 49.4 percent, while Malaysia stands at 36.9 percent. By comparison, the Philippines records 18.1 percent and Indonesia 15 percent.

But Thailand depends heavily on imported components. Its backward GVC participation in manufacturing stands at 10.6 percent, compared with forward participation of only 3.4 percent. This means foreign inputs are important for Thai factories, while the country has more limited participation in upstream, higher-value activities.

For policymakers, the finding challenges the assumption that imports mainly compete with domestic industry. In modern manufacturing, imported machinery, electronics and components often help domestic firms produce and export more competitive goods.

The study estimates that reducing Thailand's effective import costs could increase real income by 16.72 percent, compared with 12.51 percent from reducing export costs. Broader reductions in trade costs could generate a much larger 41.17 percent increase.

Customs, Certification and Standards Become the New Trade Barriers

The report finds that many obstacles facing businesses now lie beyond traditional tariffs. Around 39 percent of surveyed Thai firms identified customs and clearance time as a constraint, while about 33 percent reported problems with documentation and permits and 29 percent highlighted transport and logistics costs.

Thailand takes around 2.3 days for export clearance. That is faster than Viet Nam at 4.4 days, Indonesia at 4.9 days and the Philippines at 3.3 days, but slower than Malaysia at 1.6 days and Singapore at just 0.5 days.

Exporters face a similar problem. Average tariffs faced by Thai exporters are only around 0.4 percent in the United States, zero in the European Union and 1.1 percent in Japan. Yet accessing these markets increasingly depends on meeting standards, testing requirements and certification rules.

Around 37 percent of surveyed firms reported testing and certification delays or problems with recognition, while approximately 25 percent identified rules-of-origin requirements. In electric-vehicle-related industries, about 42 percent of firms said certification takes more than six weeks.

For governments and development partners, this means investments in ports and roads must be complemented by digital customs systems, accredited laboratories, efficient certification agencies, internationally recognized standards and simpler documentation.

Productivity Could Unlock Much Bigger Economic Gains

Improving domestic productivity could deliver even greater benefits. Thailand has established capabilities in electric vehicles, electronics, machinery, power electronics and related technologies, but remains weaker in upstream areas such as semiconductors. Higher-value services including engineering, testing, certification, industrial digital services and supply-chain management also remain important areas for expansion.

The World Bank model estimates that productivity improvements could increase Thailand's real income by 54.78 percent. When productivity gains are combined with broader reductions in trade costs, the estimated increase reaches 114.15 percent.

These figures are counterfactual model results rather than economic forecasts, but they demonstrate how strongly the two reforms can reinforce each other.

The potential gains differ significantly across ASEAN. Under the combined trade-cost and productivity scenario, real income increases by an estimated 215.04 percent in Viet Nam, 127.53 percent in Malaysia, 116.78 percent in Cambodia and 114.15 percent in Thailand. The corresponding estimates are 82.78 percent for Myanmar, 73.54 percent for Lao PDR, 72.26 percent for the Philippines and 62.82 percent for Indonesia.

The differences show why governments cannot simply copy the same industrial strategy. Economies deeply integrated into manufacturing networks may benefit most from better logistics and regulatory interoperability, while less-integrated economies may need greater emphasis on productivity, skills and supplier development.

A Twin Reform Agenda for Governments, Investors and Development Partners

The study recommends what it calls "qualified openness"—keeping economies connected to global markets while strengthening their ability to capture more value from those connections.

Governments should improve customs, logistics, transport and digital connectivity while reducing certification delays and simplifying trade documentation. At the same time, they need policies supporting technology adoption, skilled workers, better management, supplier development and access to finance.

For international development partners, the findings suggest that trade facilitation, private-sector development, digitalization, skills and industrial upgrading should be treated as interconnected priorities rather than separate programmes.

The private sector could also find new opportunities in logistics, engineering, testing, certification, industrial software, digital trade systems and supply-chain services. Domestic suppliers that meet international standards could move into higher-value segments of EVs, electronics and machinery.

But there are risks. Companies unable to improve technology, skills and compliance could lose ground as competition increasingly depends on quality, reliability and standards rather than cheap labor alone.

The larger message for ASEAN is clear: openness alone will not guarantee the next development leap. Countries seeking to escape the middle-income trap will need to make trade easier while simultaneously building productive firms, stronger suppliers, skilled workforces and institutions capable of helping businesses compete in increasingly complex global markets.