Measuring Economic Integration in the Asia-Pacific Region: A Principal Components Approach

Bo Chen and Yuen Pau Woo
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Bo Chen: School of International Business Administration, Shanghai University of Finance and Economics, 777 Guoding Rd., Yangpu District, Shanghai, China 200433.
Yuen Pau Woo: Asia Pacific Foundation of Canada, Suite 220, 890 West Pender Street, Vancouver, BC, Canada V6C 1J9.

Asian Economic Papers, 2010, vol. 9, issue 2, 121-143

Abstract: This paper measures economic integration in the Asia-Pacific (AP) region using a composite index. The weights of the index are obtained from a two-stage principal component analysis. In the first stage, we obtain a convergence index to measure the extent of convergence among the main macroeconomic indicators of a sample of AP economies. In the second stage, we use indicators of trade, FDI, and tourism, as well as the convergence index, to compute the weights for the composite index. We found that economic convergence in the AP region increased until 1998 but has since fallen back. The integration of trade, investment, and people flows increased between 1990 and 2000, weakened slightly to 2003, and has since picked up again. Among the 17 sample economies, Singapore, Hong Kong, and Chinese Taipei are the most integrated with the AP region and Indonesia and China are the least integrated. (c) 2010 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2010
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