ADBI series on Asian Economic Integration and Cooperation
Edited by Masahiro Kawai, Peter J. Morgan and Shinji Takagi
Chapter 9: A Proposal for Exchange Rate Policy Coordination in East Asia
Masahiro Kawai and Shinji Takagi 9.1 INTRODUCTION This chapter considers issues of exchange rate policy coordination for East Asia, a region that is becoming increasingly integrated both regionally and globally. Following the Asian crisis of 1997–1998, the region has experienced deepening integration in the context of recovery and expansion. Within the broad East Asia region including the Association of Southeast Asian Nations (ASEAN) member countries; the People’s Republic of China (PRC); Japan; Republic of Korea (henceforth Korea); Hong Kong, China; and Taipei,China, for example, the share of intraregional trade – measured by an average of export and import shares – rose from 37 percent from 1980 to 1990 to a peak of 53 percent in 2004 (though it declined to 50 percent in 2009). Closely related is intraregional foreign direct investment (FDI), which in 2000–2004 accounted for as much as half of the region’s total FDI (Hattari and Rajan 2008). Direct investment in plants and equipment has created production networks in some industries that cut across national borders. With increasing intraregional trade and the formation of production networks across borders, macroeconomic interdependence has strengthened, both within the region and with the rest of the world (ADB 2008). In our earlier work (Kawai and Takagi 2005a), we presented evidence to show that East Asia in the early 2000s was no less integrated than Western Europe in terms of the share of intraregional trade in total trade, the share of trade in total output, the degree of trade intensity between regional...
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