will be the benefits of an Asian Economic Community?
of an Asian Economic Community
is a growing recognition of the importance of intensive economic
integration at the pan-Asian level in the region and that the opportunity
cost of not going in for intensive economic integration are substantial.
There is the realisation that stimulus for future growth in the
region has to come from within, given the trend of formation of
regional trading blocs in rest of the world. Substantial complementarities
exist between Asian economies that remain to be exploited for their
mutual common benefit. For instance, while the region has economies
that are surplus in capital resources, there are also economies,
which have inadequate domestic savings for rapid development. The
region is similarly characterised by complementarities in the demand
and supply of other resources such as technology, and skilled manpower.
Over the last five years, the region’s dependence on outside
regions in terms of trade, investment, and banking finance has increased.
The excessive dependence on countries outside the region has brought
in vulnerabilities. The East Asian economies that were recovering
from the Crisis of 1997 in 2000 again got into the slowdown due
to the US economic recession between 2001-02. The global economic
outlook is highly volatile and currently faces downside risks arising
from exchange rate re-alignments, rising oil prices, rising protectionism,
among other factors. There is also substantial under-utilised capacity
in engineering and construction industries in Japan and Korea and
the lost output because of under-utilisation of capacity could be
of the order of 10-15 per cent of the GDP of the region or about
a trillion dollars a year. A more intensive cooperation for matching
the under-utilised capacity in some countries of the region with
unmet demand in others, could go a long way in putting the region
on a high growth trajectory and help Asia to re-emerge as a centre
of gravity in the world economy.
sub-regional attempts at regional cooperation that have been initiated,
such as those under the framework of ASEAN and SAARC are unlikely
to exploit the full potential of the regional economic integration
in Asia. This is because the extent of complementarities is limited
at the subregional levels. It is clear from the fact that trade
of South Asian countries with the East Asian countries is much larger
than the intra-regional trade. The same is the case with ASEAN.
At the pan-Asian level, the diversities in the levels of economic
development and capabilities are quite wide, thus, providing for
more extensive and mutually beneficial linkages. The diversity in
economic structure provides its own indigenous capacity and markets
for dynamic industrial restructuring within the region on the basis
of ‘flying geese’ patterns. It is for this reason that
the success achieved so far, from the current subregional attempts
at cooperation or from the ‘truncated regionalism’ as
it has been termed, have been meagre.
Asian region comprises some of the fastest growing economies in
the world. Together, they form a huge market that is growing faster
than any other region in the world and could form a vibrant regional
grouping that would be roughly of the size of the EU in terms of
GDP, will have larger magnitude of trade than NAFTA and international
reserves bigger than those of EU and NAFTA put together. The formation
of an Asian Economic Community (AEC) will also help the region to
play a more effective role in shaping a world trading and financial
system that is more responsive to its needs.