A Comprehensive Introduction to Regional Issues
Edited by Masahisa Fujita, Ikuo Kuroiwa and Satoru Kumagai
Masahisa Fujita, Ikuo Kuroiwa and Satoru Kumagai After encountering difficulties with import-substitution policies, East Asian economies endeavored to liberalize trade and investment, and progress was made toward economic integration in the region. In particular, de facto integration preceded de jure integration in exported-oriented industries, where import tariffs on intermediate inputs were eliminated on condition that all such outputs were exported abroad. At the same time, rapid progress in transport and communication technology – as well as in infrastructure improvement – significantly reduced trade and transport costs, and thus facilitated the dispersion of economic activities throughout the region, so that latecomer countries could join the production networks organized by multinational enterprises (MNEs). In a previous stage of industrial development, dense industrial agglomerations were created in advanced East Asian countries, such as Japan and the Asian Newly Industrializing Economies (NIEs). However, when companies were faced with rising wages and congestion in agglomerated areas, declining trade and transport costs facilitated relocation of labor-intensive industries to lower-wage countries, initially in Southeast Asia and then, after economic liberalization, to China and Vietnam. This catching-up process summarizes the industrial development of East Asia, where production networks have continuously expanded into less developed regions in tandem with newly created industrial agglomerations. It is often claimed that the regional economy of East Asia has been integrated through market forces, with little support from formal institutional arrangements. However, this situation began to change when the ASEAN Free Trade Area (AFTA) was launched in 1993 with the aim of removing trade barriers...