Economic Integration in East Asia
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Economic Integration in East Asia Perspectives from Spatial and Neoclassical Economics

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?
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Chapter 11: The Home Market Effect in ASEAN Countries

Ikumo Isono


11. The home market effect in ASEAN countries Ikumo Isono INTRODUCTION 11.1 This chapter looks at the HME in ASEAN countries and describes the characteristics of ASEAN industries. The following are the main two contributions of this chapter. First, we find tendencies toward the HME in a broad number of manufacturing industries in the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand). Second, we find a strong linkage between Malaysia and Singapore in machinery industries. The HME is an essential factor in spatial economics, which helps to determine whether economic activities in an industry will be agglomerated or dispersed. The concept of HME predicts that a large market will have a much larger share of industries and exports to other markets. In the world of spatial economics, which is characterized by increasing returns to scale and transport costs, a site with the largest demand for a product in a certain industry becomes the most suitable place to produce it. The product will be exported to other sites. By contrast, in the world of comparative advantage, characterized by constant or diminishing returns to scale, a site with a large demand will be an important import destination for the good. On this point, there is distinct difference between the worlds of new economic geography and comparative advantage. If an industry has a strong HME, large markets attract more firms and small markets lose them. Especially for small countries that want to prevent outflows of firms, it is valuable...

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