MANILA, PHILIPPINES – Shifting relations between Asian countries and the changing global economy mean that Asia needs to strengthen its economic cooperation, says the Asian Development Bank’s (ADB) Asian Economic Integration Monitor released today.

“Asia needs stronger cooperation now more than ever,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration. “Regional trade and financial integration have ratcheted up over the past decade and closer cooperation is needed to counter geopolitical risks while surveillance and financial safety nets can address contagion.”

Asia's intraregional trade share has risen to about 54% in recent years and into early 2013, with trade between subregions rising, particularly for Central Asia as well as the Pacific. Asia-Pacific’s trade share with other emerging markets outside the region continues to rise while the trade share with the US and Japan continues to decline.

Financial integration continues to deepen too, with an increase in cross-border equity and debt holdings and foreign direct investment. Intraregional bank credit flows – particularly from Japan and Australia to other Asian countries – is emerging as an important source of stable external financing.

Southeast Asian nations are attracting more foreign direct investment from within the region and from East Asia, strengthening production networks as the region gears up for the establishment of the ASEAN Economic Community at end 2015. For example, businesses from Japan, the biggest foreign investor in Southeast Asia, are increasingly shifting their production chains to the region.

The report shows that with the economy of the People’s Republic of China (PRC) growing and driven by domestic shocks, economic growth in Japan, the Republic of Korea, and ASEAN is increasingly correlated to the PRC.

As well as closer forms of economic cooperation, the region urgently needs to improve its insurance and other disaster risk financing to address the high human and economic toll of floods, droughts, and other increasingly common natural disasters that have cross-border impacts.

Asia and the Pacific is more vulnerable to natural hazards than any other region in the world, with financial costs alone totaling about $53 billion annually over the last 20 years. However, in 2013 only 7.6% of those economic losses were insured, so costs are threatening to outstrip governments’ ability to finance recovery. Long-term damage to infrastructure, businesses, farms, and homes can push many back into poverty.

Key priorities for developing disaster risk financing markets and strengthening financial resilience include business continuity planning, enhanced technical and institutional capabilities, and better coordination among public authorities.

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