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The new regionalism and Asia: impact and options

  • Jeffrey A. Frankel
  • Shang-Jin Wei

New regional initiatives abound, both outside Asia and within. Free Trade Areas in the West - notably NAFTA, its possible enlargement into an FTA of the Americas, and the European Union - have implications for Asia. Asian manufacturers will experience trade diversion, especially in textiles and apparel. Balancing such losses is the likelihood of gains from higher import demand caused by stronger economic growth in the Americas and Europe. ; New estimates of the gravity model of bilateral trade confirm the presence of implicit or de facto trade blocs in Asia and the Pacific, as in Europe and the Western Hemisphere. By testing concentric groupings at once, we ascertain that the right place to "draw the line" in describing existing patterns seems to be so as to include all of Asia. (There is also an independent Pacific effect, which can take the form either of an East Asia bloc or an APEC bloc). ASEAN does not function as an independent bloc, and South Asia is actually an anti-bloc: India and Pakistan trade much less with each other than would two otherwise-similarly situated countries. ; The strategic question, from the viewpoint of an individual Asian country, is whether to pursue unilateral, sub-regional, pan-regional, or multilateral routes to enhanced trade. Multilateral liberalization is much more advantageous than regional agreements. To the extent that domestic politics prevents unilateral liberalization and international politics prevents multilateral liberalization, however, regional arrangements may have some advantages. The advantages are particularly clear if the regional initiatives help to build political momentum, both domestically and internationally, for unilateral and multilateral liberalization. ; The last part of the paper reviews many political economy arguments: first those that suggest that regionalism undermines support for more generalized liberalization and then those that say that regional initiatives help build political momentum for global liberalization. We return to the gravity model for a verdict on which category of political economy forces appear to have been dominant among the trade blocs of 1970-1992. The conclusion is that regionalism has in the recent experiences been politically consistent with more general liberalization, particularly in the cases of East Asia and the European Community.

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Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 95-10.

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Date of creation: 1995
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Publication status: Published in The Global Trading System and Developing Asia (Asian Development Bank, Oxford University Press, 1997)
Handle: RePEc:fip:fedfpb:95-10
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