I. Introduction and Summary In January 2007 at the Cebu Summit, the Association of Asian Nations (ASEAN) committed to establish the ASEAN Economic Community (AEC) by 2015, five years earlier than envisaged. This stems from a consensus that there is a need to fashion for Asian firms and individuals larger domestic markets that will allow economies of scale to be harnessed to meet the development objectives of member countries. The AEC represents a response to what might be called the Southeast Asian middle-income country conundrum: modest growth--difficult enough to maintain--that is inadequate to meet political ambitions and needs. Malaysia, for instance, is targeting to be a fully developed economy by 2020, requiring higher growth than recently seen. Other Asian middle- and near middle-income countries (MNMIs) similarly need growth higher than experienced. Although growing faster than the MNMIs, the less developed Asian countries (Cambodia, Laos PDR, Myanmar, and Vietnam, or CLMV) start from such a low standard of living that even a sustained continuation of their recent growth would leave many people in poverty. Development prospects in Asia since the 1997 financial crisis have been affected by and will continue to be constrained by an absence of policy certainty, particularly in the areas of investment and trade. Policy certainty is important in the MNMIs where business spending has not recovered from the crisis. It is also critical in the CLMV countries where development prospects are often limited to specific sectors and regions. Considerable efforts can be seen within Asia towards encouraging investment and trade; however, Asian firms and foreign investors alike have thus far failed to respond to the changes to the extent needed to support higher growth rates. The establishment of the AEC, five years earlier than planned, represents an opportunity to dramatically affect investment and trade in the ASEAN economies. The commitment to the AEC, in the Asian political context, could fill a credibility gap by ameliorating policy uncertainty at a significant time, thus providing a tipping point for dramatically expanding trade and investment in Asia. Creating an AEC will demand continued progress on reducing tariff barriers within ASEAN. However, experience within mainland Asia suggests that barriers to trade exist as a result of a lack of trade facilitating infrastructure, particularly transport networks, that can provide for smooth and sure transit at national borders. Supporting trade facilitation can potentially be a powerful stimulant to regional trade creation. II. Economic Growth in ASEAN The ten Asian countries in ASEAN are widely different from each other: ranging from land-locked, poor, rural Lao PDR to the developed island city-state of Singapore. In 2006, the aggregate population was about 566 million growing at 1.8 per cent annually. (1) GDP for the region in 2006 was estimated at $1,059 billion, (2) so per capita GDP was $1,871. But that masked extreme variation from about $513 in Cambodia to roughly $30,000 in Brunei Darussalam and Singapore. With respect to development, they fall into three groupings as shown in Table 1. The wealthy states of Brunei Darussalam and Singapore contrast in terms of per capita GDP and the incidence of poverty with the large MNMIs (Indonesia, Malaysia, the Philippines, and Thailand) and a fortiori with the four poor states (Cambodia, Lao PDR, Myanmar, and Vietnam, or CLMV). (3) The poorer ASEAN countries are also those moving from command structures to market-based institutions. This paper will focus particularly on the MNMIs and CLMV countries. The different groups offer an important contrast: the MNMIs in recent years have tended to grow a bit slower than the poorer countries. Relatively small differences in growth rates can have an impact over long periods of time. …
Read full abstract
Apr 6, 2009
John R Baldwin + 2
Open Access
