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ISSN : 1225-8504(Print)
ISSN : 2287-8165(Online)
Journal of the Korean Society of International Agriculture Vol.33 No.4 pp.330-337
DOI : https://doi.org/10.12719/KSIA.2021.33.4.330

# A Study on Enhancement of Sustainability for International Agricultural Development Cooperation between Korea and Myanmar

Moe Win Htay, Dae Seob Lee
Kangwon National University, Graduate School, Department of International Cooperation
Corresponding author (Phone) +82-33-250-8275 (E-mail) ldaeseob@kangwon.ac.kr
July 19, 2021 September 23, 2021 September 24, 2021

## Abstract

This study aimed to analyze the contribution and the impact of agriculture official development assistance (ODA) on the Myanmar’s Agriculture Sector using secondary time-series data. The main objectives were to investigate the relationship between agricultural ODA and agricultural GDP growth by applying Auto-regressive Distributed Lag (ARDL), and to analyze the effects of Korea agriculture ODA to focus areas in Myanmar, utilizing Ordinary Least Squares (OLS). The results showed that Korea agriculture ODA to rural development had positive and significant effects on Myanmar’s agricultural GDP. The rest, such as Korea ODA to production and marketing, did not show a significant effect, but had a positive relationship. The study suggests that, to ensure positive and significant outputs, a short-term, medium-term, or long-term approach should be considered depending on the development needs and the nature of activities in these areas. There should also be continual updates and reforms of the agricultural policies in line with the country's development agenda, and effectiveness and maintenance of systematic agricultural ODA within the agricultural sector would ensure an increase in agricultural growth.

# 한국-미얀마의 국제농업개발협력의 지속가능성 강화 방안 연구

모윈테이, 이대섭
강원대학교 대학원 국제협력학과

## INTRODUCTION

M-yanmar is historically an agricultural country, and the agricultural sector is the backbone of its economy. The agricultural sector includes crops, livestock, and fishery sub-sectors which contribute 25.6% of GDP, 24.4% of total export earnings and 61.2% of the nation’s employment in 2018 (MoALI, 2019).

The government has laid down twelve economic policies of which two are related to agriculture: “establishing an economic model that balances agriculture and industry, and supports the holistic development of the agriculture, livestock and industrial sectors, so as to enable rounded development, food security and increased exports” and “achieving financial stability through a finance system that can support the sustainable long-term development of households, farmers and businesses” (Myanmar Agriculture in Brief, 2019). Therefore, capital and human investment in the agriculture sector should be crucial to the country’s economic growth. Hence, the agriculture sector is utilizing not only government funding but also the international community’s financial and technical supports as an essential vehicle to effect a dramatic change in the Myanmar’s agriculture sector.

In recent years1), Myanmar continues to struggle with its low agricultural productivity. The structural weaknesses in Myanmar’s agriculture are caused by dawdling foreign and domestic investments. The government expenditure on agriculture has declined from 10.3% in 2000 to 6.3% in 2014 (Puka-Beals, 2018). Hence it is very important to overcome the various challenges by utilizing agricultural official development assistance (ODA).

Myanmar’s parliament in recent years passed a set of laws aimed at strengthening private sector participation in seed production through incentives and intellectual property protections to limit trade coordination by the central government (Puka-Beals, 2018). After Myanmar’s dramatic resolution to alter its development course in the past few years, the growth in trade and investment has enhanced average economic growth. Rahardja (2016) claimed that growth has hit over 7% per annum. Exploiting its substantial natural and agricultural resources, along with the relative advantages of its resources, lack of labor and geographical location, Myanmar has boundless potential. Currently, the most important thing is to exploit this potential in achieving transformational development benefits through agricultural development strategies that will improve the livelihoods of its citizens. The development is projected to help by reducing poverty, enhancing wealth distribution, and assisting in the reduction of social and ethnic tensions within the country of ethnic diversity. All of these opportunities are within Myanmar’s grip in case the country can grab the chance to design and implement suitable policies to motivate trade and economic openness.

The study focuses on the agricultural development initiative in the Korea-Myanmar partnership programme to foster agricultural growth and economic development in Myanmar through donor funding on agro-based projects. The main objective of the study is to analyze the impact of Korean ODA to Myanmar, concentrating on Korea agricultural ODA on Myanmar’s agricultural development.

### Development Cooperation between Korea and Myanmar

The development cooperation to Myanmar had been restricted because the country was ruled by a military regime. Multi-development institutions such as World Bank (WB) and Asian Development Bank (ADB) had suspended their supports since. The suspension became harder after the government open fire on Yangon University students and public in 1988. Since then, however, a number of bilateral assistances have been into the country as humanitarian purposes.

Korea is one of the major countries that provide ODA to Myanmar. Korea started providing ODA in mid-1980s and it has increased since then. Myanmar is one of the main recipients of Korean ODA but the amount is smaller than that of other East Asian countries due to the worsening political and economic conditions in Myanmar.

From the early 2010s, Korea has boosted its ODA to Myanmar and previous researches have explored the economic benefits of ODA to both Korea and Myanmar (Kim, 2018). Nevertheless, the political incentives of Korea’s ODA strategy with Myanmar have been given less attention. The importance of political fundamental to Korea’s ODA to Myanmar within the last decade should be mentioned for both countries’ benefits. Regarding national security and political incentives, the purposes of ODA legislators guided by the head of state, have been vital drivers of Korea’s ODA to Myanmar to increase the public attention (Kim, 2018). In assessing the role played by domestic legislation, the K-town project in Myanmar might be a guide to successful project in a sense of politics.

### Development cooperation in Myanmar

In addition, modern elections of Myanmar in 2010 emanated from more than two decades of transformation that can be taken as 2nd step of Myanmar economy as market economy already adopted since 1989 (Ko Ko, 2013). Considering tools, financial support is what Myanmar would be collaborating with international development organizations on the course of change. Myanmar is enhancing relations with the international community to access knowledge, experience and resources to accelerate its development progress. Foreign direct investment (FDI) is the largest international resource, followed by ODA. The top ten donors of gross ODA for Myanmar’s economy in a hierarchical order include Japan, International Development Association, United Kingdom, United States, Global Fund, EU, Korea, Australia, Germany and Switzerland (OECD, 2018). ODA contributes to different sectors of Myanmar’s economy, among them humanitarian assistance is the largest sector, followed by the agriculture and food security sector (Heo and Cho, 2021).

Despite ODA support, the agricultural GDP has been increasing but not significantly. This may be due to the lack of systematic and comprehensive planning for ODA. Thus, it is necessary to identify what is lacking to improve the effectiveness and sustainablilty of ODA. With the Development Assistance Policy (DAP) since January 2018, the DAP would serve as policy guideline to ensure that ODA is used effectively to the challenges facing Myanmar’s agriculture and largely for the benefit of the people.

To enhance the agriculture sector, ODA support ought to be effectively managed to deliver on targets. Ministry of Agriculture, Livestock, and Irrigation’s (MoALI) priority of the sector plans in the DAP, aligned with the Myanmar Economic Policy and the SDGs, can be guiding frameworks to ensure effective and efficient management of development assistance far more sufficiently stronger than in previous years in order to fulfill the development and sustainability of the Myanmar agriculture sector.

In the early 1990s, roughly 50 billion USD were transferred from donor to recipient countries every year in the form of ODA, making bilateral and multilateral agencies very important actors in international relations and the national politics of many developing countries. Although ODA constituted on average only one-third of a percent of the gross national product (GNP) of the member countries of the OECD, the relative importance of the ODA contributions on the recipient side was very significant (Hyden and Mukandala, 1999). Agriculture in most of the recipient countries has been the main stage of their economies. Therefore, the linkage of ODA to agricultural development in such countries like Myanmar is of paramount significance. Bessey et al. (2016) also argued that the rationale for foreign assistance in general and in agriculture rests on humanitarian, political, and economic grounds. ODA to agriculture is a portion of total ODA and includes such diverse components as agricultural research and extension, irrigation projects, rural roads, agricultural education and training, flood control projects, health improvement pro- grams, integrated rural development projects, and agricultural policy assistance. The structure of ODA flow on agricultural GDP growth in Myanmar is shown in the Figure 2. That includes production, rural development, agroindustries, marketing and tech transformation.

Investments in agricultural production, rural development, value chain, market institutions, as well as productivity- enhancing technologies has huge impact on agricultural growth. Agricultural growth has long been recognized as vital instruments for poverty reduction in Myanmar whose livelihoods depend on the agricultural sector are typically poorer than those working in other economic sectors.

## ANALYTICAL FRAMEWORK

As mentioned earlier, Myanmar is a developing country and its agriculture is the backbone of its economy. It is also a beneficiary of development assistance. To see the effectiveness of development assistance on the Myanmar’s agriculture sector, this study used time-series data for investigating the relationship between agriculture ODA and agricultural GDP growth in Myanmar. It also focused on analyzing the effect of Korea ODA to agriculture on agricultural GDP growth. The methodological framework used for the analysis is seen in Figure 3.

The time series data (2001 to 2019) from different reliable data sources such as Myanmar’s MoALI, the Directorate of Investment and Company Administration (DICA), and OECD for different variables is used for the analysis. The data collected on different variables focused on main objectives. In time series analysis, this paper evaluates the relationship between the dependent variable and independent variables for the given period by treating agricultural GDP as a dependent variable and the independent variables being agriculture ODA, agriculture FDI and Korea ODA flows to particular areas. After calibration of the variables, Auto-Regressive Distributed Lag (ARDL) and Ordinary Least Squared (OLS) were used to determine the impact of ODA on the Myanmar’s agriculture sector.

## EMPIRICAL ANALYSIS

### Results and Discussions

It was observed that the mean value of agriculture GDP was US$6,280million. The standard deviation was US$ 3,870million and the value range was from US$1,030 million to US$ 10,700million (Table 1). This indicates that the share of the agriculture sector in total GDP is substantially increasing, especially in the relatively recent years. This can be a result of systematic public expenditures within the agricultural related sector and also a result of an upsurge in agricultural ODA inflow from US$0.11million to US$ 144million within the period. Within the period, emphasis on the agricultural economy has been more towards the export or international market.

According to the results of the unit root test, variables were stationary at the level and at first difference level as well. In using mixed variables, ARDL (1,2,2) model was applied to investigate the relationship between agriculture ODA and agricultural GDP growth. To estimate the performance of agriculture ODA and FDI on agriculture GDP, the following hypothesis test was analyzed; H0: Agriculture ODA and Agriculture FDI flow do not have a significant impact on agriculture GDP, H1: Agriculture ODA and Agriculture FDI flow have a significant impact on agriculture GDP.

According to the ARDL (1,2,2) lagged model in Table 2 with the hypothesis test, agriculture ODA flow was not statistically significant at lag (0) and lag (1) but they have positive relations, thus null hypothesis was not rejected. However, the coefficient value of lag (0) and lag (1) ODA indicated that a 1% increase in ODA, agriculture GDP will increase by 0.137% and 0.051% respectively. In two years lagged, ODA flow was positively significant at a 5% level that indicated that a 1% increase in ODA leads to a 0.192% increase in agriculture GDP. This is due to the dramatic increase in ODA inflows to the country in recent years. The government has actively sought international supports for the country’s development and modernization agenda. As a result, aid agencies have responded with massive aid commitments and debt forgiveness since 2011 (Carr, 2018). Although agricultural ODA has been growing, on an average, yearly basis recently, there has been no significant improvement in agriculture GDP at present. Considering this situation, relevant government ministries and all stakeholders should be positioned well to address agriculture ODA as an effective way to promote national ownership and sustainability of development assistance although there are policy reform and structural changes for development assistance at the moment.

The result of agriculture FDI showed that it did not have a statistically significant impact on agriculture GDP at any lagged level, although lag (0) had a positive relationship whereas lag (1) and lag (2) had a negative relationship on agriculture GDP. This suggests that the period seemed to protect local businesses in the agriculture sector previously and agro-processing partially were export-oriented. At that time, a foreigner was allowed to invest 40% while a domestic investor had the chance to invest 51%. However, in 2016, the restrictions were eased and the new consolidated investment law allows a lot more joint-venture businesses in the agriculture sector. Recently, a foreigner is allowed to invest up to 80% in the agriculture sector and expectation is to have increased value addition to agricultural products.

The empirical findings showed that although there was a lagged positive significant relationship between agriculture ODA and agriculture GDP growth while current agriculture FDI also had a positive relationship even though there is no significant effect. This suggests that in the agriculture sector, smallholder and commercial farming as well as an agro-processing investment are necessary and must receive maximum support to make not only for the country self-sufficiency but also for export-oriented growth. This can be done by implementing progressive policies and strategies that can effectively draw the benefits from financial, technical assistance and investments from international communities. This will guide the country to the long-term development path.

To analyze long-run causal relationship, the Error Correction Model (ECM) test was examined. The causality test can check as strength or evidence of validation for variables and the results are shown in Table 3.

When interpreting the results, it is important to be careful that the signs of the lagged adjustment coefficient (ADJ) must be reversed in the long-run. Long-run causal relationship was implied if the lagged adjustment term (ADJ) is significant. The result of the lagged adjustment coefficient was significant at a 1% level and had negative sign suggesting that the previous year’s deviation from a long-run equilibrium of the model can be corrected for within the current year at a convergence speed of 0.929%. When investigating the independent variables, agriculture ODA was statistically significant at 1% level while agriculture FDI was not. The results revealed that the Myanmar’s agriculture sector could have sustainable long-run causal relationship through agriculture ODA projects.

### Contribution of Korea Agricultural ODA to Myanmar’s Agricultural GDP

To estimate the performance of Korea agriculture ODA contribution to Myanmar’s agricultural GDP, the following hypothesis test was considered; H0: Korea agriculture ODA in focus areas do not have a statistically significant impact on the agricultural GDP, H1: Korea agriculture ODA in focus areas have a statistically significant impact on the agricultural GDP.

Table 4 shows how Korea’s ODA of agricultural and specific areas impacts on agricultural GDP in Myanmar. In particular, the results present the relationship between agriculture GDP and Korea ODA to agricultural production, rural development, agricultural value chain, marketing development, technical transfer, and agricultural ODA.

The results revealed that the coefficients were statistically significant at 5% level, except for production with a positive relationship, so that the null hypothesis was rejected. Among the statistically significant variables, technical transfer and value chain shows a negative relationship with agriculture GDP. This might be due to the lack of support. Korea’s agricultural ODA of technical transfer and value chain in recent years, on average, 154thousand USD and 60thousand USD, respectively. In addition, it may be a result of inadequate value addition to agricultural products, and low-level uptake of improved technologies, fund mismanagement or fund redirected for other purposes. In the meantime, Korea’s agricultural ODA to Myanmar turned out to be positive contributions in supporting to develop Myanmar’s rural areas and rural economy throughout the integrated rural development projects.

Although Korea agricultural ODA to Myanmar showed a significant and positive relationship with agriculture GDP, some specific area did not show the positive impacts. To ensure the significant and positive relationship, shortterm, medium-term or long-term relationship should be analyzed.

## CONCLUSION

Agriculture is a significant source of income and employment for Myanmar. The agricultural sector accounts for 25.6% of the gross domestic production, whereby 61.2% of employment is provided by agriculture. Sustainable agriculture relies on policy reforms directed towards agriculture in the country. The government of Myanmar has consigned to the ODA provided by the international communities and Korean government as well that will boost agricultural opportunities.

The study determined the continuation of short-term, medium-term or long-term ODA between two countries to ensure additional GDP growth to the Myanmar's agriculture sector. The relationship between agriculture ODA and GDP shows that there is a positive impact. Increasing agriculture ODA will translate to an increase in the output in agriculture that will further lead to a higher contribution of the latter to GDP.

The study result showed that presently agricultural ODA has a positive impact, which signifies it is relevant. Hence, the government should seek international cooperation that will target the agriculture and also more efficient policies and strategies addressing the issues that should be in place to ensure sustainable agriculture development. Sustaining the contribution of agriculture to the country’s GDP, the sector should have a surplus that can be processed for local consumption and export as well. This could be one of the strategies that will impact on the agricultural sector. Besides, growth in the sector will require the implementation of technical knowledge that will attract investments from international communities.

The long-run result would be sustainability and development in agriculture. ECM tests also indicated that there is a long-run causal relationship of ODA which, in turn, will lead to an increase in agricultural GDP. Regarding Korea ODA share with the Myanmar’s agriculture sector, it was found to be statistically significant indicating that Korea agriculture ODA also shared substantially in the agriculture GDP. Among specific area of ODA contributions, rural development has the most significant impact. In the meantime, Korea ODA of Value chain and technical transfer was statistically significant but had negative relationships with agriculture GDP. That indicated that value addition processing and technical change in the agricultural sector leading to low output due to the lack of support.

All in all, the study indicates that sustainable support for specific areas should be reviewed by considering shortterm, medium-term and long-term outcomes. Effective and maintaining systematic agriculture ODA within the agricultural sub-sector will also ensure an increase in agriculture growth and as a result could trigger an enhancement and sustainability in the agriculture sector.

## 적 요

• 1. 본 연구는 한국-미얀마 농업분야 개발협력(ODA)의 지속 가능성 강화 방안을 분석하기 위해 2001~2017년 시계열(time series)자료를 토대로 자기회귀분포시차 모델(Autoregressive Distributed Lag, ARDL)방법과 최소자승법(Ordinary Least Square, OLS)을 사용하였다.

• 2. 분석결과 1) 미얀마 농업 개발에 지원된 국제사회의 ODA, 한국이 지원한 농업 분야 ODA, 농촌 개발에 대한 한 국 ODA 등의 변수가 미얀마의 농업 GDP에 긍정적으로 기 여한 반면, 2) 한국 ODA는 가치사슬 분야 및 기술전수 분야 에 미친 영향이 부정적으로 나타났다. 이는 이 분야의 지원 규모가 매우 작아 미얀마 농업발전에 미친 영향을 측정하기 어렵기 때문인 것으로 해석할 수 있다. 또한 한국이 미얀마에 제공한 농업 ODA 중 농산물 생산 및 유통 분야에 대한 지 원은 영향이 미미한 것으로 나타났으나 양(+)의 영향을 나타 내었다.

• 3. 분석 결과 한국의 미얀마 대상 농업 분야 ODA는 선택 과 집중을 토대로 미얀마 농업 발전에 긍정적인 영향을 미치 고 있는 농촌개발 분야에 장기적으로 지원을 확대할 필요성이 있음을 확인하였다.

## ACKNOWLEDGMENTS

This research is restructured from a part of M.S. thesis “A step forward to enhance sustainability of international development cooperation (ODA) in the agricultural sector between Korea and Myanmar” in the graduate school of Kangwon National University.

## Figure

Korea total ODA vs. agricultural ODA to Myanmar (million USD).

Structure of ODA contribution to agricultural development.

Process of Analysis.

## Table

Descriptive Statistics of Variables.

ARDL Regression Results.

ECM Test Results for the Long-run Causal Relationship.

Results of OLS Regression on Agricultural GDP in Myanmar.

## Reference

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