South Asia Regional Integration in Global Production Networks as Effective Response to the Economic Crisis

Abstract

The recent economic downturn in South Asia in the wake of the global financial crisis lowers the economic growth potential and leads to additional economic and social hardship. In response to these challenges, this paper advocates structural change as the inclusive new source of growth. Structural change is reflected in (labor and transaction) productivity growth, which in turn is based on dynamics of product space. A literature based review of prospective dynamics of product space relates to the way forward and how to induce structural change in South Asia. For instance, the role of regional integration is assessed for induced structural change. There exist conceptual representations of change in economic structure that, while being sufficiently simple to be understood, remain sufficiently representative of reality and yield significant power to make a big difference to regional economic development in South Asia when compared to other, less useful representations. This paper compares representations of structural change and argues advantages and disadvantages. For instance, what is important to be explained in dynamic socio-economic systems is the structural change in terms of degree of heterogeneity of agent populations (in conceptual space), the modularity and hierarchy of a system, and similar aspects of composite structural existence. Traditional microeconomic models of regional economic development assume away structural change with the assumption of completeness of network connections among agents in the system, thereby imposing a simplifying homogeneity on economic agents that significantly reduces explanatory power.