The relevance of broader regional economic integration in Asia recently received supporting evidence in its favour by an Asian Development Bank (ADB) study. The study, conducted by Douglas Brooks and Fan Zhai of ADB and David Roland-Holst of University of California-Berkeley, has come up with interesting findings and policy messages.

Using the familiar GTAP-6 database with a version of World Bank?s Linkage model, the study generates projections of income and trade up to 2025 for different scenarios, to examine the relative relevance of regional integration vis-a-vis global trade liberalisation.

The baseline scenario projects income and trade, keeping the status quo. While the other scenarios assume global trade liberalisation and regional trade liberalisation. The findings suggest ?regional trade and integration offer Asia great potential for rapid and sustained growth.? They find much of Asia?s benefits from global trade liberalisation can be realised by regional initiatives alone. Significantly, the study finds that combined gains from removing tariff and structural barriers to Asian trade far outweigh those of global tariff abolition. Hence, regionalism should be given high priority in Asia.

The ADB economists also find that regional integration can promote Asian economic convergence, raising average growth rates and benefiting poorer countries. Also, it will propagate commercial linkages and transfer the stimulus of Asia?s rapid growth economies, particularly China and India, to their neighbours. Asian economic integration, in turn, will increase trade and incomes for the rest of the world. Hence, it is a win-win for the region and the world.

These findings are timely, as currently there is a lot of interest and discussion on the relevance of regional economic integration in Asia. Initiatives in the region are taking shape in the form of regional and bilateral free trade arrangements, such as between Asean and its dialogue partners (viz. China, India, Japan, and Korea) and between different pairs of dialogue partners.

The ADB?s findings also corroborate earlier findings of an RIS study, using the GTAP data base in a CGE model, computing welfare gains from economic integration of major Asian economies, namely, Japan, Asean, China, India and Korea (Jacik). This study had found that economic integration in Jacik had the potential of generating welfare gains of up to $210 billion. The study had also found that the Jacik integration also increased the welfare of rest of the world and, hence, was a win-win for everyone.

Regional economic integration has a much bigger potential than what is captured by both the studies summarised above. The models employed by them typically tend to capture the welfare gains from trade liberalisation and facilitation. They fail to estimate the enormous potential of monetary and financial cooperation in the region. Asian countries today hold combined foreign exchange reserves of over $2 trillion. Most of these are invested in low-yielding US treasury bonds and other such securities. RIS studies show that even a moderate, say 5%, pooling of Asia?s foreign exchange reserves in an institutional framework could facilitate financing of regional public goods and become an additional engine of growth, besides providing exchange rate stability.

Hence, efforts to exploit the potential of regi-onal integration must be made. The ADB study points to the creation of an institutional framework for facilitating this, namely, an ?Asian OECD.? Discussions to launch broader regional groupings, such as an Asian economic community, as championed by Prime Minister Manmohan Singh, have also taken place. This should be evolved in a phased manner, with Jacik as the core.

An East Asian Summit is to be organised in December 2005 in Malaysia, to be attended by the Asean countries and their full dialogue partners, namely Japan, China, Korea and India. The Summit is likely to launch an East Asian Community (EAC). The proposed EAC, combining ASEAN+3+India, is expected to be close to Dr Singh?s vision of building an Asian Economic Community (AEC) with the Jacik countries. Eventually, the EAC can even evolve into a broader Asian Economic Community, combining other South Asian, West Asian and Central Asian countries, in a phased manner.

By expediting growth and economic convergence, regional economic integration will help in realisation of the Asian dream of re-emerging as the centre of gravity of the world economy. It is also likely to enhance Asia?s role in global governance. Although Asian countries hold two-thirds of the world?s foreign exchange reserves, the decision-making powers in the Bretton Woods institutions, for instance, is dominated by western countries. By forming credible schemes of regional economic integration, Asia will be able to seek its due place in global economic governance and contribute to building a more democratic and multipolar world economy.

It is for this reason that Dr Singh termed the Asian Economic Community as constituting an ?arc of advantage? in terms of prosperity, stability and closer economic integration. India and Japan had agreed to work together to promote the vision of an Asian Economic Community during the visit of Prime Minister Junichiro Koizumi to India this April. With this, the agenda of regional economic integration in Asia should move fast.

The writer is director-general, Research and Information System for Developing Countries (RIS). These are his personal views