Trade, Resources and Development: The Implications of Asian Integration

The increasing integration of Asian economies has fueled a period of sustained economic growth for the region as a whole relative to the rest of the world, and for individual Asian economies. This growth has been supported by three phenomena: global demand growth; elastic supplies of labor and other inputs, and substantially lower costs of international trade and business. The latter trend has accelerated a very specific form of economic integration, the vertical unbundling (or “fragmentation”) of production tasks (Jones 2000). Fragmentation has reduced total production costs by permitting the cost-minimizing allocation of tasks among regions, regardless of national boundaries and even of distance. At a global scale, fragmentation trade is associated with the “offshoring” of labor-intensive tasks from high-wage to low-wage countries (Grossman and Rossi-Hansberg 2006). Within developing Asia, it has led to the division of tasks among countries with similar factor endowments, based on the establishment of specialized niche industries with lower costs. This effect has been central to the integration of Asia’s economies: “parts and components” is the largest and the fastest-growing form of intraregional trade.

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Economy and Environment Program for Southeast Asia