The Economics of East Asian Integration
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The Economics of East Asian Integration

A Comprehensive Introduction to Regional Issues

Edited by Masahisa Fujita, Ikuo Kuroiwa and Satoru Kumagai

This study is intended to be the most comprehensive textbook on economic integration in East Asia. It introduces the reader to various issues related to the topic such as institutional building of FTAs; production networks and the location choice of MNEs; R & D and innovation; infrastructure development and transport costs; international migration and service trade; monetary integration; regional disparity and poverty. It also deals with critical energy, environmental and agricultural concerns. Each chapter contains ample data and rigorous analyses, complemented by illustrative box articles.
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Chapter 3: Analytical Framework for East Asian Integration (2): Evolution of Industrial Location and Regional Disparity

Koji Nishikimi and Ikuo Kuroiwa


Koji Nishikimi and Ikuo Kuroiwa 3.1 INTRODUCTION As discussed in the preceding chapter, industrial firms are always affected by both agglomeration and dispersion forces. Under the influence of substantial agglomeration force, the circular causations of agglomeration economies may create a huge magnification effect, such that a slight difference in the initial condition among countries can grow into an immense inequality in the subsequent development performance. Under such circumstances, the long-term progress of industrialization and cluster formation can be triggered by the success of a short-term or temporary policy program to invite a critical magnitude of IRS industries. The government of each country can therefore play a crucial role in achieving economic development. The magnification effect, on the other hand, may enlarge the economic disparities among countries that are endowed with different initial conditions. If progress in terms of economic integration brings unacceptable levels of inequality for some member countries, the integration process may hit a snag even if it promises greater benefits to the integrated region as a whole. We must thus devote sufficient care to the spatial disparity effects of economic integration. The remainder of this chapter is organized as follows. In Section 3.2, we consider the evolutionary process from agglomeration to concentrated dispersion in detail, which was briefly described in the preceding chapter, and discuss its policy implications for East Asian economic integration. How ‘concentrated dispersing’ industries could be lured into a particular country is probably the greatest concern for many developing countries. However, due to the attributes...

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