Prospects of Regional Cooperation in Trade, Investment and Finance in Asia: An Empirical Analysis on Bimstec Countries and Japan

Abstract

The seven-nation Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC), comprising Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand is emerging as one of the major subregional groups in Asia. Japan is the second largest trading partner for BIMSTEC countries. The paper discusses prospects for strengthening BIMSTEC countries and Japan’s cooperation and integration in trade, investment, and finance. It analyzes the trends and patterns of bilateral and subregional economic cooperation in Asia as well as BIMSTEC-Japan trade. It examines empirically whether BIMSTEC-Japan economic cooperation will increase intraregional trade using a gravity model. Japan-BIMSTEC cooperation will increase intraregional trade but not uniformly for all countries. The potential losses on trade for some countries will be compensated by gains in other areas, such as, stepped up resource transfer, foreign direct investment flows, technology transfer, and market access to services. The paper also presents the need for and possible areas of economic cooperation and integration in investment and finance.