Asian Economies Now More Integrated, Says Report
Asia has become increasingly integrated over the past decade, led by growing trade and tourism and, most recently, as the region faced down the global financial crisis and subsequent eurozone crisis, according to a new integration index published in the Asian Development Bank’s (ADB) latest Asian Economic Integration Monitor.
“Going forward, greater integration will be harder won as the remaining areas of cooperation are more complex,” says Lei Lei Song, Principal Economist in ADB’s Office of Regional Economic Integration. “Asia needs to avoid complacency and continue to work together in this post-crisis period.”
The report warns that the struggles of the eurozone and the fear of the contagion that accompanies greater integration could give Asia’s policymakers pause as they assess the way forward for their region.
The index, which monitors foreign direct investment, capital markets, output correlations, trade, and tourism across Asia, shows the level of integration rising from a base level of 100.00 in 2001 to a peak of 233.27 in 2010, when the region was collectively bracing itself against the eurozone crises.
Preliminary data for 2011 shows the level of integration tapering off slightly to 192.22, still much higher than in 2007 when the global financial crisis was just beginning.
The biannual Asian Economic Integration Monitor notes that in addition to growing intraregional trade and tourism, capital markets have also become tighter knit.
During the crises, cooperation stepped up a notch: ASEAN+3 countries acted in concert to expand the Chiang Mai Initiative Multilateralization, their regional financial safety net; India offered to finance a South Asian equivalent; and several countries expanded bilateral currency swap arrangements.
However, financial integration and labor mobility have lagged. There is a huge need for more national and cross-border infrastructure. And even on trade, there is much work to be done to deepen integration.
Tariffs have come down but other barriers to trade, such as border administration, are significantly constraining greater integration. Intraregional trade in services also faces many impediments.
The impact of regional trade blocs such as the upcoming Trans Pacific Partnership and the Regional Comprehensive Economic Partnership is still unclear. They could compete or they may provide the building blocks for a global trade agreement.
The report’s theme chapter points to the need to unravel the profusion of overlapping free trade agreements. As of January 2013, Asia had 109 free trade agreements, up from only 36 in 2002, with another 148 in various stages of development. This plethora of agreements is both complex and costly for exporters to navigate and Asia should work to multilateralize the agreements to make the best bilateral agreements applicable to other trade partners.
More multilateralized agreements like the ASEAN Free Trade Area, which involves a growing number of countries in and outside of Asia, would increase global trade, and thus income gains, in the absence of a global trade deal, the report says.