The Rise of China and Regional Integration in East Asia

Abstract

Over the past decades, East Asia has achieved one of the most profound economic transformations in recorded history, and has become the most dynamic economic region and one of the most integrated areas in the world. However, regional and economic integration in East Asia is a relatively new phenomenon and cooperation is lightly institutionalized (ADB, 2008). Largely reflecting the diversity of the economies, the East Asian regionalism follows a markedly different pattern from that in Europe and other regions. In the absence of a formal institutional framework, the regional integration in East Asia has been driven by market forces and by the development of increasingly sophisticated production sharing and intra‐regional network trade, in which China's rapid growth has been instrumental. It is the international firms that are creating linkages across borders in their search for profitable opportunities through trade, foreign direct investment (FDI), and other arrangements in accordance with changes in comparative advantage, industrial upgrading, and unilateral liberalization of goods and capital markets in the region (Dobson, 1997; Zhang, 2003; De Grauwe and Zhang, 2012). Policies such as preferential trading arrangements have traditionally not played much of a role in the integration of the region.