Infrastructure for ASEAN Connectivity and Integration

Abstract

I. Introduction The Association of Southeast Asian Nations (ASEAN) (1) has adopted the ASEAN Free Trade Area (AFTA) and ASEAN Vision 2020 for integrating its economies into a single production base, creating a regional market, and changing ASEAN into a stable, prosperous, and highly competitive region. The ASEAN Economic Community Blueprint, established to fast-track the ASEAN Economic Community (AEC) establishment by 2015, envisioned ASEAN as a highly competitive region, fully integrated into the global economy, possessing a single market production base, and characterized by equitable economic development (Goh 2008). Infrastructure development is essential to the realization of ASEAN's goal of economic integration and is indispensable to ASEAN's future success. In view of the ongoing global financial and economic crisis, now more than ever, the development of infrastructure needs to be accelerated to enhance physical connectivity and to encourage resource-sharing for rebalancing ASEAN growth towards increased intraregional trade and regional demand. To promote cross-border trade and investment, improve countries' productivity and competitiveness, and raise domestic output, it is important that ASEAN be connected through improved and integrated roads, railways, airways, ports and energy and tele-communication networks. This paper discusses the role of infrastructure development in ASEAN economic connectivity and integration and its associated issues and challenges. Section II presents the role of regional infrastructure cooperation in growth and integration. Section III provides an overview of ASEAN infrastructure and its importance for enhancing growth, trade, and investment; reducing the development gap; providing adequate basic needs; and achieving poverty reduction. Section IV examines issues and challenges in infrastructure development. Section V addresses infrastructure financing requirements, while section VI concludes. II. Regional Infrastructure Cooperation, Economic Growth, and Integration Infrastructure plays an important role in promoting rapid economic growth and making this growth more inclusive by sharing the benefits of growth with poorer groups and communities, particularly in remote and isolated areas and small and landlocked countries. Infrastructure facilitates the access of the poor to basic services and helps increase their income generating capacity. Physical connectivity through cross-border infrastructure (CBI) development is crucial for enhanced regional cooperation and economic integration (Kuroda 2006). Broadly defined, infrastructure can be categorized into hard and soft infrastructure. The former refers to physical structures or facilities that support the society and economy, such as transport, energy, telecommunications, and basic utilities. The latter refers to non-tangible aspects supporting the development and operation of hard infrastructure, such as policy, regulatory, governance, and institutional frameworks and mechanisms (Bhattacharyay 2008). Cross-border or regional infrastructure may be defined as infrastructure that connects two or more countries, as well as national infrastructure that has a significant cross-border impact. Therefore, a large portion of national infrastructure, such as airports, ports, roads, and railways, can be considered as CBI and is the building block for cross-border or regional connectivity. Empirical evidence indicates that infrastructure spending has a positive and statistically significant effect on long-run economic growth (World Bank 2002). Esfahani and Ramirez (2003) have found that if Africa had East Asia's growth rate in telephones per capita (10 per cent versus 5 per cent) and in electricity generation (6 per cent versus 2 per cent), its per capita GDP growth rate would have been at least 0.9 per cent higher. In East Asia, recent studies have indicated that greater stocks of infrastructure were indeed associated with higher growth (Seethepalli, Bramait, and Veredas 2008). …