ADBI series on Asian Economic Integration and Cooperation
Edited by Douglas H. Brooks and Susan F. Stone
Chapter 1: Regional Cooperation, Infrastructure and Trade Costs in Asia
Douglas H. Brooks INTRODUCTION 1.1 The remarkable growth of developing Asia in recent decades owes much to the expansion of its international trade, including intraregional trade. To capitalize on the benefits of international trade, cooperative efforts in the region to lower transaction costs of international (and especially intraregional) trade and thereby contribute to greater growth, integration and poverty alleviation have become more vigorous in recent years. Notably, international trade played an especially critical role as Asian countries pursued regional cooperation to ensure recovery from the 1997–98 financial crisis and prevention or mitigation of similar crises in the future. Infrastructure development has been a major factor in reducing Asia’s trade costs and thereby facilitating trade expansion (Brooks and Hummels 2009). Expansion or improvement in quality of infrastructure services lowers marginal costs, raising the minimum efficient scale of production, transportation or marketing. Lower costs and greater economies of scale raise the potential for increased or new sales in export markets, as well as domestically, as efforts to take advantage of economies of scale in production, procurement or marketing lead firms to look beyond national borders for both trade and investment opportunities. Promoting efficient financial intermediation, coordinating regional public goods, reducing macroeconomic vulnerability to shocks and strengthening security ties offer governments similar incentives to design, develop and manage regional infrastructure cooperation and integration. In this context, infrastructure is one of the ‘three I’s’, along with incentives and institutions, that are key determinants of overall growth and the magnitude and productivity of capital...
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