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Economic Implications of Deeper South Asian–Southeast Asian Integration : A CGE Approach

Author

Listed:
  • Ganeshan Wignaraja

    (Asian Development Bank Institute (ADBI))

  • Peter Morgan
  • Michael Plummer
  • Fan Zhai

Abstract

South and Southeast Asian economic integration via increased trade flows has been increasing significantly over the past 2 decades, but the level of trade continues to be relatively low. This underperformance has been due to both policy-related variables—relatively high tariff and non-tariff barriers—and high trade costs due to inefficient “hard†and “soft†infrastructure (costly transport links and problems related to trade facilitation). The goal of this study is to estimate the potential gains from South Asian–Southeast Asian economic integration using an advanced computable general equilibrium (CGE) model. The paper estimates the potential gains to be large, particularly for South Asia, assuming that the policy- and infrastructure-related variables that increase trade costs are reduced via economic cooperation and investment in connectivity. As Myanmar is a key inter-regional bridge and has recently launched ambitious, outward-oriented policy reforms, the prospects for making progress in these areas are strong. If the two regions succeed in dropping inter-regional tariffs, reducing non-tariff barriers by 50%, and decreasing South Asian–Southeast Asian trade costs by 15%—which this paper suggests is ambitious but attainable—welfare in South Asia and Southeast Asia would rise by 8.9% and 6.4% of gross domestic product, respectively, by 2030 relative to the baseline. These gains would be driven by rising exports and competitiveness, particularly for South Asia, whose exports would rise by two thirds (64% relative to the baseline). Hence, the paper concludes that improvements in connectivity would justify a high level of investment. Moreover, it supports a two-track approach to integration in South Asia, i.e., deepening intra-regional cooperation together with building links to Southeast Asia.

Suggested Citation

  • Ganeshan Wignaraja & Peter Morgan & Michael Plummer & Fan Zhai, 2014. "Economic Implications of Deeper South Asian–Southeast Asian Integration : A CGE Approach," Trade Working Papers 24421, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:tradew:24421
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    Cited by:

    1. Bhattacharyay, Biswa Nath & Mukhopadhyay, Kakali, 2015. "A comprehensive economic partnership between India and Japan: Impact, prospects and challenges," Journal of Asian Economics, Elsevier, vol. 39(C), pages 94-107.

    More about this item

    Keywords

    South Asian–Southeast Asian Integration; CGE approach; intra-regional cooperation; South Asia; Southeast Asia;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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