Connecting South Asia and Southeast Asia, by Asia Development Bank and the Asia Development Bank Institute

Abstract

Connecting South Asia and Southeast Asia. By Asia Development Bank and the Asia Development Bank Institute. Japan: ADBI, 2015. Pp. 294. Connecting South Asia and Southeast Asia, a joint study conducted by the Asian Development Bank (ADB) and the Asia Development Bank Institute (ADBI), is a succinct report on how to enhance the regional ties between the two neighbouring regions, with a particular focus on connectivity. Given the long history of ADB's involvement in both South Asia and Southeast Asia, it is ideally placed to discuss the myriad of issues that affect the economic ties between the countries in the respective regions. Myanmar's nascent but nevertheless optimistic democratic revival after decades on military rule provides the crucial land link that has been missing between the regions. Governments and policymakers can now contemplate closer ties by building unbroken road and rail networks stretching from India to Thailand and beyond. At the same time, India's government, led by Prime Minister Narendra Modi, has been talking about their Look East policy and engaging the ASEAN countries through ASEAN+1 Free Trade Agreements (FTAs) and the Regional Comprehensive Economic Partnership (RCEP) deal. With the Trans-Pacific Partnership (TPP) now looking like a distant dream after the United States under the Trump government withdrew, RCEP is the most likely multilateral agreement that the regions can sign up to. Given this political background, this book attempts to calculate whether countries in the respective regions would benefit significantly from co-operating on connectivity-linked issues, and minimize the associated downside. It also notes that in order to achieve that, there has to be significant investment in hard and soft infrastructure, and that is only possible if there are pools of financing available both from the public as well as the private sector. Private sector support is necessary as the fiscal constraints on governments limit the extent to which they can provide support. However, for sustainable private sector funding to emerge, there needs to be confidence around cross-border funding agreements. The book is organized to first provide readers with a detailed look at the current state of connectivity between the two regions. As the authors observe, there is some progress with trade growing substantially between 1990 and the present. However, a lot more has to be done, and the rest of the book explains this in detail. Chapters 3 and 4 describe the investment needed in cross-border transport infrastructure and energy infrastructure respectively. The following two chapters describe the financial requirements for these investments as well as the facilitation from a trade perspective that need to be put in place across the regions. Chapter 7 talks about the non-tariff barriers that hinder trade, and how effective FTAs can resolve them. Chapter 8 elaborates on some of the unintended consequences of connectivity, such as unequal distribution of the benefits and aggravation of social ills. Governments have to be cognizant of these issues and take adequate steps to minimize their impact. Finally, Chapter 9 tries to quantify the benefit that the regions will accrue if they were to undertake the various recommendations suggested in the book. Using a Computable General Equilibrium (CGE) model, even a conservative estimate shows that the gains can be substantial across all the countries in the South Asian and Southeast Asian regions. The authors see the development of production networks across Southeast Asia as a key reason for the success of some these countries over the past two decades. South Asia can benefit significantly from tapping into these networks. In addition, small and medium enterprises (SMEs) play a major role in the Southeast Asian economies, but are a much smaller force in South Asia. So, the development of an enabling environment for SMEs can raise economic growth in South Asia and can also lead to greater connectivity with Southeast Asia. …