Economic Integration in East Asia

Economic Integration in East Asia

Perspectives from Spatial and Neoclassical Economics

Edited by Masahisa Fujita, Satoru Kumagai and Koji Nishikimi

Increasing numbers of free trade and economic partnership agreements have been concluded among many countries in East Asia, and economic integration has progressed rapidly on both a de facto and de jure basis. However, as the authors of this book argue, integration may intensify regional inequalities in East Asia and so this process has attracted much attention of late. Will it actually succeed in achieving greater economic growth or will it in fact cause growing regional disparity?

Chapter 11: The Home Market Effect in ASEAN Countries

Ikumo Isono

Subjects: asian studies, asian development, asian economics, development studies, development economics, economics and finance, asian economics, development economics, regional economics, geography, economic geography, urban and regional studies, regional economics

Extract

317 ASEAN, and today, many tariffs have been lowered to 0–5 percent in the ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) countries using the Common Effective Preferential Tariff (CEPT) scheme. China, Korea and Japan have also signed FTA agreements with ASEAN countries. The early harvest program of the China–ASEAN FTA started on January 2004, and tariff reductions for manufacturing products have been in place since July 2005. A Korea–ASEAN FTA was signed on May 2005 by Korea and the ASEAN countries except Thailand. Institutional economic integration, particularly in the form of FTAs, can be seen as a significant factor that reduces transport costs (broadly defined) among the integrated countries. Each firm makes location decisions for its factories based on its own circumstances. While the concentration of products and relocation of factories by firms may lead to substantial economic integration, economic integration also changes their circumstances and can induce further relocation. Some countries may hope to restrain the speed of economic integration to prevent the outflow of industries. China has a large market and hence is a significant production site in Asia. Ishida (2006) examines competition between the ASEAN-5 countries and China, and finds that ASEAN lost export share and export growth rate in labor-intensive industries from 1995 to 2000 and in machinery industries from 2000 to 2002. Foreign direct investments (FDI) into ASEAN countries have decreased since the Asian economic crisis of 1997. In 1997, China received nearly the...

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