The Asian crisis of 1997 had precipitated greater regional integration. A recent study by the Asian Development Bank (ADB) finds intra-regional trade and investment to have increased sharply following the crisis. Similar increases were observed in macroeconomic links, trade policy cooperation, intra-regional tourist flows and synchronisation among equity markets.
The study examines 16 key Asian economies. These include ten economies of South-East Asia (ie. Brunei, Cambodia, Laos, Myanmar Vietnam, Philippines, Indonesia, Malaysia, Singapore and Thailand). It also includes India, China, Japan, Korea, Hong Kong and Taiwan. The grouping comprises 87.3% of Asia?s population and 49% of the world population. At $116.3 billion, the grouping?s GDP is 96.3% of Asian GDP and 23% of world GDP. All the economies, except India, Indonesia and Japan, have trade-GDP ratios higher than 50%. There is no denying that the club of sixteen is a significant entity in world economy.
Why did the Asian crisis encourage regional integration? The study points to the regional complementarities as driving forces. The Asean pushed integration by emphasising on growth of supply chains within the region. This helped in efficient utilisation of varying comparative advantages arising from differential endowments of labour, capital, natural resources and technological capacities in the region.
In December 1997, Asean members agreed to increase intra-regional trade for strengthening national currencies and implementing Asean free trade and investment areas.
Can the current crisis deepen Asian regionalism? It can. First, the crisis has cut across-the-board and affected all regions. Asia is not an exception. However, Asia is not as heavily affected as North America and Europe. The latter are facing their worst recessions. Output is expected to contract by -1.6% and -2.0% respectively in US and Euro area in 2009. Similar contractions are expected in mature Asian economies (e.g. Singapore, Hong Kong, Taiwan) as well. Asian growth, however, albeit at a moderate level will be maintained by China, India and some Asean economies. Indeed, in 2010, mature Asian economies are expected to bounce back harder than US and Europe with other Asian economies continuing to perform well. This clearly underscores greater merit in closer economic engagement within the region.
Second, existing production structures in Asian economies offer considerable scope for development of regional production networks. Significant parts of trade between Asean and East Asian economies are intra-industry trade. These trades reflect fragmentation of production chains between different locations. Growth of these chains requires different processing and assembling capacities. Asian economies are at different levels of technological trajectories. Korea, Singapore and Japan are at top, followed by India and China. Thailand, Malaysia, and Indonesia are mid-way while Cambodia, Laos and Myanmar are much below. Indeed, complementarities can be enlarged by extending the production network to rest of South Asia. Third, despite assurances at the G-20 forums, there are possibilities of protectionism reviving.These will make access more difficult for Asian exporters in Western markets.
Finally, the emerging global economic order clearly emphasises a greater role for Asia. The G-20 is not only articulating Asia?s concerns effectively, but is also getting shaped by Asia?s views. China and India have increasingly begun assuming significant positions within the forum. It is important for Asian economies to work collectively for consolidating their strengths in the world economic order. The rest of the world also realises this. They have little option other than encouraging an Asian economic upsurge. That is inconceivable sans greater regional integration.
The author is a visiting research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views