The Complementarities of Multi-Lateralism, Andregionalism and Income Convergence: ASEAN and SAARC

Authors: Kankesu Jayanthakumaran, Shao-Wei Lee

Abstract:

This paper proposes the hypothesis that multilateralism and regionalism are complementary, and that regional income convergence is likely with a like minded and committed regionalism that often has links geographically and culturally. The association between international trade, income per capita, and regional income convergence in founder members of ASEAN and SAARC, is explored by applying the Lumsdaine, and Papell approach. The causal relationships between the above variables are also studied in respective trade blocs by using Granger causality tests. The conclusion is that global reforms have had a greater impact on increasing trade for both trade blocs and induced convergence only in ASEAN-5 countries. The experience of ASEAN countries shows a two-way causal relationship between the flow from trade to regional income convergence, and vice versa. There is no evidence in SAARC countries for income convergence and causality.

Keywords: ASEAN-5, SAARC-5, trade liberalisation, incomeconvergence, structural breaks and causality.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1071160

References:

[1] R. L. Lumsdaine, and D.H. Papell, "Multiple trend breaks and the Unit- Root hypothesis", The Review of Economics and Statistics, 79 (2), 212-218, 1997.
[2] W. J. Ethier, "Regionalism in a multilateral world", The Journal of Political Economy, 106 (6), 1214-1245, 1998.
[3] G. Koopmann, "Growing regionalism - a major challenge to the multilateral trading system", Intereconomics, 38 (5), 237-241, 2003.
[4] E. Ornelas, "Trade creating free trade areas and the undermining of multilateralism", European Economic Review, 49, pp.1717-1735, 2005.
[5] M. J. Slaughter, "Per-capita convergence and the role of international trade", The American Economic Review, 87 (2), 194-199, 1997.
[6] J. J. Lewer, and H. Van den Berg, "How Large is International Trade-s Effect on Economic Growth?", Journal of Economic Surveys, 17 (3): pp. 363-396, 2003.
[7] D. Ben-David, "Trade and convergence among countries", Journal of International Economics, 40, 279-298, 1996.
[8] A. K. Ghose, "Global inequality and international trade", Cambridge Journal of Economics, 28 (2), 229 - 252, 2004.
[9] J. W. Dawson, and A. Sen, "New evidence on the convergence of international income from a group of 29 countries", Empirical Economics, 33, pp. 199-230, 2007.
[10] G. Carlino, and L. Mills, "Are U.S regional economies converging? a time series analysis", Journal of Monetary Economics, 32, 335-346, 1993.
[11] P. Perron, "Further evidence on breaking trend functions in macroeconomic variables", Journal of Econometrics, 80 (2), 355- 385, 1997.
[12] D.Ben-David, Income disparity among countries and the effects of freer trade, in L.L. Pasinetti and R.M. Solow, eds., "Economic Growth and the Structure of Long Run Development", 1994, London: Macmillan, 45-64.
[13] D. Ben-David, "Equalizing exchange: Trade liberalization and income convergence", Quarterly Journal of Economics, vol. 108, 653-679, 1993.
[14] L. Pritchett, "Divergence, big time", Journal of Economic Perspectives, 11 (3), 3-17, 1997.
[15] M. Baddeley, "Convergence or divergence? The impacts of globalisation on growth and inequality in less-developed countries", International Review of Applied Economics, 20 (3), 391-410, 2006.
[16] D. Chotikapanich, R. Valenzuela and P. D. S. Rao, "Global and regional inequality in the distribution of income: estimation with limited and incomplete data", Empirical Economics, 22 (4), pp. 533- 546, 1997.
[17] K. Jayanthakumaran, and E. Sanidas, "The complementarity hypothesis of integration: regionalism, multilateralism and the ASEAN-5", The Asia Pacific Journal of Economics and Business, 11 (1), 40-60, 2007.
[18] C. Freund, (2000) "Multilateralism and the endogenous formation of preferential trade agreements", Journal of International Economics, 52, 359-376, 2000.
[19] A. Niebuhr, and F. Schlitte, "Convergence, trade and factor mobility in the European Union - implications for enlargement and regional policy", Intereconomics, 39 (3), 167 - 177, 2004.
[20] W. Moon, "Income convergence across nations and regions in East Asia", Journal of International and Area Studies, 13 (2), 1-16, 2006.
[21] E. Lopez-Bazo, E. Vaya, and M. Artis, "Regional externalities and growth: evidence from European regions", Journal of Regional Science, 44 (1), 43-73, 2004.
[22] S. Yao, Z. Zhang, and G. Feng, "Rural-urban and regional inequality in output, income and consumption in China under economic reforms", Journal of Economic Studies, 32 (1), 4-24, 2005.
[23] J. A. Silva, and R. M. Leichenko, "Regional income inequality and international trade", Economic Geography, 80 (3), 261 - 286, 2004.
[24] M. O. Ravn, and E. Mazzenga, "International business cycles: the quantitative role of transportation costs", Journal of International Money and Finance, 23, pp. 645-671, 2004.
[25] M. A. Kose, "Explaining business cycles in small open economies ÔÇÿhow much do world prices matter?-", Journal of International Economics, 56 (2), pp. 299-327, 2002.
[26] D. K. Backus, and M. J. Crucini, "Oil prices and the terms of trade", Journal of International Economics, 50 (1), pp. 185-213, 2000.
[27] US-ASEAN Business Council. "The ASEAN Free Trade Area and other Areas of ASEAN Economic Cooperation", 2004. Available: www.us-asean.org/afta.asp
[accessed 14 February 2005].
[28] A. Panagariya, "Trade policy in South Asia: recent liberalisation and future agenda", The World Economy, 22 (3), 353-378, 1999.
[29] G. Tan, "ASEAN: Economic Development and Cooperation", 2004, Singapore: Eastern University Press.
[30] N. K. Paswan, "Agricultural trade in South Asia: potential and policy options", 2003, New Delhi: APH Publishing Corporation.
[31] T. N. Srinivasan, and S. D. Tendulkar, "Reintegrating India with the World Economy", 2003, Oxford: Oxford University Press.
[32] D. K. Das, "The South Asian Free Trade Agreement: Evolution and Challenges", MIT International Review (Spring, 2008), Available: http://web.mit.edu/mitir/2008/spring/south.html.
[33] World Bank, "World Development Indicators Database", 2008, Washington, DC.
[34] M. Ariff, "Open regionalism a la ASEAN", Journal of Asian Economics, 5 (1), pp. 99-117, 1994.
[35] P. Imada, "Production and trade effects of an ASEAN Free Trade Area", The Developing Economies, 31 (1), pp. 3-23, 1993.
[36] E. Kettunen, Economic integration of the ASEAN countries, in L.V. Grunsven, (Ed.), 1998, "Regional Change in Industrialising Asia". Sydney: Ashgate.
[37] U. R. Wagle, "Are economic liberalisation and equality compatible? Evidence from South Asia", World Development, 35 (11), pp. 1836- 1857, 2007.
[38] J. S. Bandara, and W. Yu, "How desirable is the South Asian Free Trade Area? A quantitative economic assessment", The World Economy, 26 (9), 1293-1323, 2003.
[39] E. Nissan, and G. Carter, "Income inequality across regions over time", Growth and Change, 24, 303-319, 1993.
[40] C. W. J. Granger, "Investigating causal relations by econometric models and cross-spectral methods", Econometrica, 37(3), 424-438, 1969.
[41] World Bank, "World Tables, DX Database", 2006, Washington, DC.
[42] K. Jayanthakumaran, R. Verma, "International trade and regional income convergence: the ASEAN-5 evidence", ASEAN Economic Bulletin, 25(2), 179-194, 2008.
[43] H. Theil, "World income inequality and its components", Economic letters, 2, 99-102, 1979.