International Trade, Structural Transformation and Economic Catch-Up: An Analysis of The Asean Experiences

Association of South East Asian Nations (ASEAN) features a mix of high- and low- income countries, thus, the success of ASEAN economic integration can be assessed by examining whether low-income countries catch up with the high- income countries of the ASEAN in terms of economic growth and development. To achieve sustainable growth, the lower income countries must transform from being agriculture dominant economy to being more industry-and services-oriented economy as economic convergence is tightly linked with convergence in economic structures. Extant studies have shown that countries that open to international trade experience rapid structural transformation. This study tries to empirically examine the role of trade in structural transformation across the ASEAN countries during 2000-2018 and whether it has also led to structural convergence. Augmented Chenery-Syrquin model for structural transformation in panel data framework is adopted for analysis. The results reveal that there is evidence of structural convergence, with trade acting as a significant driver. However, the process convergence is still incomplete as the lower income countries have not been able to take full advantage of trade openness, owing to their heavy dependence on agricultural sector. The decline in share of agriculture due to trade is greater for high-income countries as compared to that of low-income countries. Also, for the low-income countries, impact of trade in industrial sector is negligible.