Synopses & Reviews
To recover from recession, the global economy must rely on the strong performance of developing Asian economies, and it has become clear not only in Asia that regional cooperation and integration is key to regional economic development. Heavily reliant on external demand as an impetus to growth and closely linked to global financial markets, Asian economies are becoming closely integrated through trade, investment, and financial transactions. But how closely integrated are they, and what are the real benefits of integration?
In line with its goal to foster economic growth and cooperation in the region, the Asian Development Bank, with Robert J. Barro and Jong-Wha Lee, have collected a formidable group of scholars to tackle the issues related to these questions. Costs and Benefits of Economic Integration in Asia offers quantifiable results from the field's top economists on cooperation and integration in the areas of trade, investment, and finance in Asia. Appealing to scholars, policymakers, and interested general readers, the book is an authoritative diagnosis of initiatives seeking to promote regional economic integration. It examines two broad divisions of cooperation and integration: monetary and financial, and trade and investment. Specific enquiries include such topics as comparisons to other regions such as Eastern Europe and Latin America, the effects of regional free trade agreements on overall trade and welfare, the distribution of benefits of unevenly distributed resource wealth among the region's economies, the possibility and desirability of an East Asian currency union, business cycle synchronization and its relationship with inflation targeting regime and trade, pre-World War I Asian monetary systems, the computation of the extent of foreign and domestic content in a country's exports, and many more.
After financial disaster, the world's economy is changing drastically, and Asia will play a pivotal role in how these changes occur. Costs and Benefits of Economic Integration in Asia is an essential reference on the controversy and consensus on economic integration, and how it will influence individual Asian countries, the region as a whole, and the world, for decades to come.
Synopsis
The recent global financial crisis caused alarming concerns that the world would move toward protectionism and isolationism. One fear was that tariffs and other barriers to international trade would increase, thereby reducing exports and imports of goods and services. Another was that restrictions on international financial flows might grow, thereby lowering cross-border asset holdings and amounts of foreign direct investment. Increased protectionism clearly poses threats to Asian economies, which rely heavily on external demand as an impetus to growth and are closely linked to global financial markets.
To study these and related issues, this volume brings together essays that deal with time patterns in trade barriers, volumes of trade, cross-border asset holdings and flows, foreign direct investment, currency regimes, and production structures between countries. The essays emphasize developments in Asia since the early 1990s, but parts of the analysis relate to longer-term Asian history. Also, by looking back to the 1997-98 Asian financial crisis and subsequent reactions, even if it was more localized, the book provides useful information about likely responses in Asia and elsewhere to the recent crisis.
Costs and Benefits of Economic Integration in Asia is an essential reference on current consensus and controversy in the debate on economic integration, particularly as applied to Asia. It is geared not only towards academics, but government officials and other policy makers, as well, as it is an authoritative analysis of important initiatives that seek to promote regional economic integration in Asia.
About the Author
Robert J. Barro is Paul M. Warburg Professor of Economics at Harvard University, a senior fellow of the Hoover Institution of Stanford University, and a research associate of the National Bureau of Economic Research. His recent books include
Macroeconomics: A Modern Approach, Economic Growth, Nothing Is Sacred: Economic Ideas for the New Millennium, and Determinants of Economic Growth. Jong-Wha Lee is former Chief Economist and Head of the Office of Regional Economic Integration of the Asian Development Bank, and currently Professor at the Economics Department of Korea University. He has worked as an economist at the International Monetary Fund, taught at Harvard University as a visiting professor, and served as a consultant to various institutions such as the Harvard Institute for International Development, the Inter-American Development Bank, the United Nations Development Programme, and the World Bank.
Table of Contents
Foreword
Acknowledgements
Contributors
Acronyms
I. Introductory Essay
Robert J. Barro and Jong-Wha Lee
II. East Asian Currency Union
Jong-Wha Lee and Robert J. Barro
1. Introduction
2. The Benefits and Costs of an East Asian Currency Union
2.1 Benefits and Costs of Currency Unions
2.2 Optimum Currency Area (OCA) Criteria
3. Which Currency Union for East Asia?
3.1 Data for East Asia Monetary Union Analysis
3.2 Is East Asia an OCA?
4. Welfare Effects of East Asian Currency Unions
4.1 The Effects of Currency Unions on Growth and Volatility
4.2 Rare Disasters and Currency Unions
4.3 Estimation of Welfare Effects of East Asian Currency Unions: An Illustration
5. Concluding Remarks
III. Asian Financial Integration: Trends and Interruptions
Eduardo Borensztein and Prakash Loungani
1. Introduction
2. Convergence in Interest Rates and Equity Premia
3. Portfolio Holdings and Home Bias
3.1 Portfolio Holdings: Summary Statistics
3.2 Portfolio Holdings: Gravity Model Estimates
3.3 Home Bias
4. Risk-Sharing and Financial Stability
4.1 Risk-Sharing
4.2 Financial Integration and Crises
4.3 Local vs. Foreign Investors: Recent Studies
4.4 Investor Behavior during the Subprime Crisis: Evidence from Brazil
5. Conclusions
IV. Understanding Business Cycle Synchronization: Is Inflation Targeting Paving the Way to Asian Monetary Union?
Andrew K. Rose
1. Motivation and Introduction
2. The Effect of Trade on Business Cycle Synchronization
3. Inflation Targeting and Business Cycle Synchronization: Theory and Literature
4. The Data Set
5. Decoupling
6. Business Cycle Synchronization and Inflation Targeting
7. Regression Analysis
8. Estimating Treatment Effects via Matching
9. Why?
10. Summary and Conclusion
V. Trading Silver for Gold: Nineteenth-Century Asian Exports and the Political Economy of Currency Unions
Kris James Mitchener and Hans-Joachim Voth
1. Introduction
2. Historical Background and Context
3. Data
4. Method and Results
4.1 Multilateral Resistance
4.2 Results for Sub-Periods
4.3 Discussion
5. Identifying the Effects of Currency Choice
6. The Political Economy of Currency Arrangements
7. Conclusion
VI. The ASEAN Free Trade Agreement: Impact on Trade Flows and External Trade Barriers
Hector Calvo-Pardo, Caroline Freund and Emanuel Ornelas
1. Introduction
2. Trade Creation, Trade Diversion, and Import Barriers on Outsiders
3. The ASEAN Free Trade Agreement
3.1 Data
3.2 Tariffs
3.3 Aggregate Trade
4. The Effect of Tariffs on Trade in ASEAN
5. Preferences and External Tariffs in ASEAN
6. Conclusion
VII. Economic Integration in Remote Resource-Rich Regions
Anthony J. Venables
1. Introduction
2. Regional Characteristics
3. Trade Policy for Remote-Rich Economies
3.1 Low Supply Response of External Exports
3.2 The Distribution of Natural Resources
3.3 Regionally and Globally Traded Goods
4. A Benchmark Model
5. Trade Liberalizations
5.1 Trade Policy and the Intra-Regional Terms of Trade
5.2 Trade Policy: General Equilibrium Outcomes
5.3 Non-Resource Income and Within Country Income Distribution
5.4 Trade Creation and Trade Diversion
6. Policy Implications
7. Concluding Comments
VIII. Regional Trade Integration and Multinational Firm Strategies
Pol Antr