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Fiscal Policy Coordination in Asia : East Asian Infrastructure Investment Fund

  • Mahani Zainal Abidin

    (Asian Development Bank Institute)

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    East Asian countries were seriously affected by the 2008 global crisis through a steep fall in exports. This experience exposed the vulnerability of the East Asian growth model and emphasized the importance of generating regional growth by expanding domestic demand and enlarging intra-regional trade. A key factor to achieving higher regional economic growth and enlarging intra-regional trade is the better connectivity of infrastructure such as roads, ports, airports, and rail links. Although some East Asian countries have made large investments in improving their infrastructures, others still lag behind. In response to the global crisis, East Asian countries have allocated a significant proportion of their stimulus packages to infrastructure development. While these investments have improved national facilities, East Asian countries will only be well connected when there are good cross-border infrastructures in place. This requires a large amount of funding, and funds from both within and outside the region could be mobilized to fulfill these huge financing needs. Hence, an East Asian Infrastructure Investment Fund (EAIIF) is proposed to provide a mechanism to organize this funding and to be a platform for deciding on cross-border infrastructure projects. The EAIIF would be anchored to the existing Association of Southeast Asian Nations+3 mechanism with the leaders summit being the apex of the decision making process. A four-level mechanism is proposed, consisting of cooperation amongst political leadership; a steering committee and secretariat for executing the decisions of the leaders; fund mobilization; and the implementation and monitoring of projects. Projects chosen could be those with a high rate of commercial returns or those with the highest social benefits. The EAIIF would invite the private sector to participate by setting a framework for the sharing of risks between the public and private sectors. Likewise, there would also be a sharing of risks between countries.

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    File URL: http://130.56.61.71/node/21870
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    Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 21870.

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    Date of creation: Jan 2010
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    Handle: RePEc:eab:macroe:21870
    Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
    Web page: http://www.eaber.org

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    1. Neill, Jon R., 1996. "Fueling the engine of growth with investment in infrastructure: A lesson from neoclassical growth theory," Journal of Macroeconomics, Elsevier, vol. 18(3), pages 521-529.
    2. Estache, Antonio, 2004. "Emerging infrastructure policy issues in developing countries - a survey of the recent economic literature," Policy Research Working Paper Series 3442, The World Bank.
    3. Joshua Aizenman, 2008. "Large Hoarding Of International Reserves And The Emerging Global Economic Architecture," Manchester School, University of Manchester, vol. 76(5), pages 487-503, 09.
    4. Pau Rabanal, 2004. "Monetary Policy Rules and the U.S. Business Cycle; Evidence and Implications," IMF Working Papers 04/164, International Monetary Fund.
    5. Fay, Marianne & Yepes, Tito, 2003. "Investing in infrastructure : what is needed from 2000 to 2010?," Policy Research Working Paper Series 3102, The World Bank.
    6. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
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