Trade integration in Asia: Trends and determinants

Jeet Bahadur Sapkota,Mari Minowa,Chakra Pani Acharya,Pramila Neupane

doi:10.14254/2071-8330.2018/11-3/21

Jeet Bahadur Sapkota, Mari Minowa + Show 2 more

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https://doi.org/10.14254/2071-8330.2018/11-3/21

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Abstract

While economic nationalism is mounting over the globalization around the western world in recent years, Asia’s external trade and the economies overall is growing faster than in other regions shifting the center of gravity of the world economy from the West to the East. However, it is unclear how Asian economies are integrating within the region. Using the dynamic panel data approach, particularly the generalized method of moments (GMM) estimator, on the cross-country panel data of 34 Asian countries for the period of 1990-2015 this study examines the trend and the determinants of regional trade integration in Asia. The results show fast-growing intra-regional and overall trade for most of the countries in the region. It also finds a significant positive effect of economy’s size and access to mobile phone on the total trade and intra-regional trade volume. Similarly, mobile phone concentration and urbanization rates have a significant positive effect on both intra-Asian trade volume and its share in the total trade. However, the size of an economy has no significant effect on intra-regional trade share. The finding suggests that further liberalization of trade together with policies boosting domestic/regional demand are helpful for broader regional integration in Asia.

Highlights

As Asia is the biggest continent possessing high degree of social, economic and political diversity, regional integration here seems to be very challenging
Global and intraregional trade increased for Asian countries, the relative importance of regional trade versus global trade, measured by intra-regional trade intensity index (TII), was found to have decreased over the period
Dynamic panel-data estimation in two-step system generalized method of moments (GMM) showed that previous level of trade, size of economy, and access to mobile phone technology have significant and positive effects on both total and intra-regional trade

Summary

Introduction

As Asia is the biggest continent possessing high degree of social, economic and political diversity, regional integration here seems to be very challenging. Asian economy is growing faster than other regions and Asia wide comprehensive economic integration efforts are increasing in the recent years (Wignaraja, 2014). Especially in Europe and the United States of America, is increasing recently (Kobrin, 2017), openness in Asia is only moving forward rapidly (Pengestu & Armstrong, 2018; Sapkota, 2011), demonstrating some progress in regional integration at the subregional level and more debate, discussion, and dialogue at broader regional level. Efforts to make Asian integration more comprehensive would continue, if not increase, because Asian trade and investment volumes are increasing rapidly, while all involved countries are reducing trade and other barriers (Kimura & Obashi, 2016). Using panel data on all Asian countries (including the Pacific and Oceania, even though the data is limited on them) from 1990 to 2015, this article examines trends and determinants of total and intra-regional trade, and argues that the relative importance of the global market outside the region is increasing, it is important to boost regional demand and improve economic cooperation among the nations within the region

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