Regional connectivity in continental ASEAN

This chapter examines the issue on Mekong region’s connectivity on quantitative base through the analysis of the gravity trade model and its modified fragmentation model. The main findings are as follows: First, the evolution of international production networks (IPNs) between Thailand and Vietnam as well as the other advanced ASEAN could be identified in terms of their two-way trade integration of machinery parts and components beyond the gravity trade standard. Second, the trade intensity of machinery parts and components, in particular, the one between Thailand and Vietnam, could be partly explained by the fragmentation factors, i.e. their gaps in per capita GDP and the relatively lower service-link costs in Vietnam, through the fragmentation-model estimation. Third, the trade disintegration of machinery parts and components between Thailand and Mekong latecomers, such as Cambodia and Myanmar, could be explained by their higher service-link costs also through the fragmentation-model estimation. This chapter also investigates the border area development in Mekong region, which is a crucial issue for the connectivity in a continental area. Since the border areas have their own area-advantages called “border bonuses”: “complementary factor endowment” and “cross-border infrastructure services”, the areas might be the real gateways for IPN penetration across the countries in Mekong region, if their development were carefully designed. This was proved by the success stories of forerunners: the Maquila case at US-Mexico border and the Savannakhet SEZ at Thai-Lao PDR border. Considering their lessons, the strategies for border area development should be careful designing of institutional frameworks for Special Economic, enhancing outer-link connectivity from borders to central cities, and securing labor forces with skill developments.