Economic Implications of Deeper South Asianâ€“Southeast Asian Integration: A CGE Approach
Michael Plummer () and
Macroeconomics Working Papers from East Asian Bureau of Economic Research
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 variablesâ€”relatively high tariff and non-tariff barriersâ€”and high trade costs due to inefficient â€œhardâ€ and â€œsoftâ€ infrastructure (costly transport links and problems related to trade facilitation). The goal of this study is to estimate the potential gains from South Asianâ€“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 Asianâ€“Southeast Asian trade costs by 15%â€”which this paper suggests is ambitious but attainableâ€”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.
Keywords: South Asianâ€“Southeast Asian Integration; CGE approach; intra-regional cooperation; South Asia; Southeast Asia (search for similar items in EconPapers)
JEL-codes: C68 F12 F13 F15 F17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-int and nep-sea
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Working Paper: Economic Implications of Deeper South Asianâ€“Southeast Asian Integration: A CGE Approach (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eab:macroe:24421
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