Drivers and Draggers of Regional Economic Cooperation and Integration in Asia and the Pacific

Abstract

This paper examines the major drivers and draggers of regional economic cooperation and integration (RECI) in Asia and the Pacific (AP). Using both quantitative measures and qualitative evidence, it assesses the roles played by four key determinants of RECI across AP, its subregions, and countries: geography and connectivity; national economic policies; governance and rule of law; and institutions and geopolitics. The assessment suggests that East Asia has been fortunate to have been endowed with favorable geography. At the same time, its national economic policies and governance standards (in terms of government effectiveness, regulatory quality, rule of law, and control of corruption) have been key drivers of its cross-border economic integration, despite its much less democratic political regime. South Asia is almost the obverse image of East Asia – despite a reasonably favorable geography and decades of democratic political regime, its national economic policies and governance standards have been major draggers of cross-border integration. In many ways, Southeast Asia is somewhat closer to East Asia, while the Pacific is somewhat similar to South Asia (except that the Pacific had to content with an unfavorable geography that has been a major dragger of its cross-border integration). Central Asia presents a much more mixed case – it’s land-locked geography as well as somewhat poor governance parameters have acted as draggers on the subregion’s cross-border integration, even as its trade and investment policies have been relatively more open and hence integration-friendly. Political commitment – perhaps the overarching driver of RECI and its institutionalization – is lackluster almost across AP. That said, political commitment seems to be the highest in Southeast Asia and the least in South Asia, with other subregions falling somewhere in the middle of this spectrum.