Market-Driven Regionalization in Asia

Abstract

Progressively liberalizing trade and FDI regime underpinned market-led profit-motivated regionalization in the high-performing Asian economies. The market expansion and regional integration that took place in Asia was both vertical and horizontal. First the NIAEs and then the other emerging-market economies of Asia developed tiers of complex trade and manufacturing hierarchies. This occurred in association with the large flows of intra-regional investment into Southeast Asia and China. Over the preceding quarter century, Japan, Taiwan and Korea provided massive amounts of FDI to Southeast Asian economies and China, and in the process increased their commitments in these markets. During the 1970s, a triangular production relationship had developed between Japan, the NIAEs and the US, bringing the former two sets of economies closer together. After the Plaza Accord in 1985, the currency value configuration changed. Changes in currency value configuration and economic complementaries buttressed regionalization. Gradually production locus shifted from the firms to networks of regional production. Asian firms skillfully sliced the value chain, consequently production networks soon became a significant force driving the process of economic integration further in the region. Private sector firms and TNCs played a proactive role in this endeavor.