Growth and Trade Horizons for Asia: Long-Term Forecasts for Regional Integration

By Roland-Holst, David; Verbiest, Jean-Pierre et al. | Asian Development Review, July 1, 2005 | Go to article overview

Growth and Trade Horizons for Asia: Long-Term Forecasts for Regional Integration


Roland-Holst, David, Verbiest, Jean-Pierre, Zhai, Fan, Asian Development Review


With the emergence of People's Republic of China (PRC) and India, the economic landscape of Asia and its relation to the global economy have changed. Using a new dynamic global model, we present forecasts for Asian expansion over 2025. These baseline growth forecasts elucidate shifting patterns of regional specialization and their consequences for growth and structural change in the Asian economies. The central role of trade is examined through analysis of a variety of hypothetical global and regional trade agreements. Our results indicate that trade within the Asian region is far from reaching its potential, and policies that facilitate integration and more efficient regional trade can accelerate growth, especially for lower-income Asia. A deeper and more inclusive Asian free trade area can achieve for its members large benefits. As an emerging growth bridge between the PRC and India, economies of the Association of Southeast Asian Nations have the most to gain from Asian economic integration.

I. INTRODUCTION

Economic emergence of the world's two most populous countries, People's Republic of China (PRC) and India, is transforming the economic landscape of East and South Asia, contributing to fundamental shifts in global economic relations. While Asia's traditional trade with members of the Organisation for Economic Co-operation and Development (OECD) continues to expand and intensify, intra-Asian trade is accelerating as the most dynamic economies provide growth leverage to their neighbors. This trend is facilitated by official efforts to liberalize trade, and private agency that propagates growth linkages over regional supply networks. Intensified Asian regional integration has the potential to raise incomes among a majority of the world's poor, yet policymakers cannot foresee how trade patterns and domestic adjustments will evolve in the medium and long term.

Using the new GTAP (version 6) database with a dynamic global model, we present forecasts for Asian expansion over the next two decades (2006-2025). These baseline growth forecasts elucidate shifting patterns of regional specialization and their consequences for domestic growth and structural change in the Asian economies. Regional differences in growth rates are then analyzed in terms of their fundamental determinants. In our examination of the central role of trade in regional growth, we provide detailed analysis of the impacts of a variety of hypothetical regional and global trade agreements.

Generally speaking, our results indicate that the sustainable growth potential of the region remains great, but policies facilitating both integration and adjustment will be needed to fulfill this potential. This is particularly the case with regard to poverty alleviation and differing growth experience. In the absence of more focused policy commitments, there are risks that real growth benefits may be very unevenly distributed across the region, both at the international and subnational level. Other salient issues that emerge in this analysis include:

(i) Trade within the Asian region is far from reaching its potential, and policies that facilitate integration and more efficient regional trade can accelerate growth and expand its basis, especially for lower-income Asia.

(ii) Tariff barriers are only part of the challenge to further economic integration and trade expansion in the region. If trade within the Asian region can be made more efficient, even by small but continuing improvements in reducing distribution costs, the gains would be much greater than those resulting from tariff or other trade policy reform. A deeper and more inclusive Asian Free Trade Area can achieve for its members larger benefits than that would arise from global trade liberalization along World Trade Organization (WTO) lines.

(iii) The economies of the Association of Southeast Asian Nations (ASEAN) have the most to gain (in domestic terms) from Asian economic integration, provided that this happens in a relatively uniform way. …

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