Integration Strategies for ASEAN: Alone, Together, or Together with Neighbors

ASEAN has been deepening intra-regional integration at the same time that it has been forming various cooperative arrangements with its partners, and its Member Countries have been pursuing individual trade accords. Which would be the optimal configuration for ASEAN? In this paper, we evaluate various economic scenarios for the region in terms of real-sector, financial, and macroeconomic cooperation with a view to gauge the best unit of integration. We review the current evolution of trade and financial accords in the region and survey the literature on the economic viability of these accords, including some fresh CGE simulations on the correlation of business cycles and the economic effects of potential trade groupings being considered. In general, the paper suggests that the economic potential for closer economic integration is strong. In terms of trade, we note that there would be positive gains from ASEAN integration and the current wave of bilateral free-trade areas, but that these gains are much less significant for ASEAN than would be the case of other scenarios, such as the ASEAN+3 or the Free Trade Area of the Asia-Pacific. We also argue that the case for deepening financial and monetary integration in Asia is convincing, even though the political underpinnings of such an accord are not yet in place.