Catalog

The role of intraregional trade

It was shown above that East and Southeast Asia (excluding Japan) experienced more rapid growth in trade (both imports and exports) than the world economy over 1995-2004. Intra-Asian trade has grown at the same pace as trade with the world between 1995 and 2004 implying that it also has been highly dynamic. The emergence of the PRC has proven the most dynamic element in intraregional trade growth in 1995-2004. The PRC's growth has been both as an importer and an exporter. The PRC growth in trade with Japan, the NIEs, and ASEAN-5 was 14% per year over the period 1995 to 2004 (Table 1.6.4) implying a more than tripling in the value of trade between the PRC and the other countries in the region (Table 1.6.5) from $199 billion in 1995 to $655 billion in 2004. Moreover, the PRC has imported more than it exports within the region, implying that its global trade is dependent on access to world markets outside the region, given its overall trade surplus. This pattern of rapid expansion of intraregional trade based on the PRC as an assembly point for final products destined for the markets of Europe and the Americas (and elsewhere outside the region) indicates that far from decoupling from globalization, the region is becoming more oriented toward the global economy than ever before.

Intraregional trade doubled in value between 1995 and 2004 from $651 billion to $1,296 billion. Intraregional trade shares (over 60%) in both years in East and Southeast Asia including Japan (Table 1.6.6) are as high as in the EU despite the relatively limited institutional basis for regional integration in Asia. Apart from the ASEAN free trade agreement, other regional and bilateral initiatives have only recently been negotiated within the region and are still quite limited in their impact on the direction of trade. Hence, the growth in intra-Asian trade and its trade growth with the world have been largely driven by market forces rather than by discriminatory trade agreements.

If the growth of intraregional trade has been very rapid, does this provide a case for the view that greater regional integration efforts will enable Asia to break its dependence on final demand in industrial countries? Or is it the case that intraregional trade is being driven by global integration with final demand for exports of East and Southeast Asia largely lying outside the region for the key manufacturing sectors?

One way to address these issues is to simply compare the share of East and Southeast Asia in world imports and world exports to verify that markets outside the immediate region are still essential in providing the demand growth for the region's overall exports. Recall that world exports and imports are identical in the database. This implies that a region with export shares greater than import shares in its world trade has a global trade surplus.

Furthermore, by definition intraregional trade, like world trade, when summed up must balance (imports and exports within the region or the world are equal when summed across members). Then it follows that extraregional trade of a region with a global trade surplus must be in surplus and that external demand from outside the region is important in final demand for the region's global exports. For example in HS 61-63 (apparel), the region's imports from the world were $39.2 billion ($17.4 billion if Japan is excluded) with a world share of 19% in 1995 but exports to the world were $84.6 billion ($83.6 billion excluding Japan) or 42% of the world total. This implies that exports were largely dependent on external demand.

In 2004 the region's share of imports of HS 61-63 amounted to less than 17% of the world total ($56.5 billion; $29.2 billion excluding Japan) while exports rose to $146.7 billion ($145.3 billion excluding Japan) or 43% of world total-implying that final demand outside the region was the driving force in the expansion of exports. In the case of HS 85 (electrical machinery) the share of East and Southeast Asia in world imports increased from 34% to 39% yet the region's export share in the world increased by more, from 48% to 54%, so even on the margin it was external final demand outside the region that was most important for growth. Similarly in nonelectrical machinery (HS 84) the import share rose moderately from 23% to 24% over the period but the share in world exports rose sharply from 31% to 35%. For each of these sectors, external final demand had to be relied upon for export expansion between 1995 and 2004.