Comment on “ASEAN Economic Integration: Addressing Challenges and Embracing Opportunities”

Abstract

Over the past several decades, the economies of the Association of Southeast Asian Nations (ASEAN) have made significant progresses in terms of per capita income and living standards. This economic growth in ASEAN has been accompanied by a concurrent increase in cross-border exchanges and a deepening of trade and investment within the region. The interconnectedness was supported by a strong trend of firms building supply chains to cater to both Asian and global markets.

Park (2024) explores the macroeconomic and developmental policies necessary to stimulate economic integration and growth within ASEAN while also discussing the current outlook and risks facing the region. The paper offers insights into economic transformation and integration through trade and investment in ASEAN, serving as a useful reference for readers seeking to comprehend the status and future challenges of ASEAN economies.

I have a few comments.

Section 3 of Park (2024) provides valuable data and insights into ASEAN's economic integration via trade and investment, emphasizing the significant role of China in the region's trade. ASEAN's merchandise trade with China accounted for 18.6% of total ASEAN trade, comparable to its trade among ASEAN members at 22.3% in 2022.

This section also analyzes the progress of global value chains (GVC) and regional value chains (RVC) in ASEAN. The GVC participation rate, defined as the share of value-added contents in ASEAN's gross exports exported for further processing overseas, reached 78.2% in 2022. Meanwhile, the ASEAN-to-ASEAN gross RVC participation rate, defined as “the share of ASEAN's merchandise exports that involves production in at least two economies using cross-border production networks to total gross exports with linkages all within the ASEAN region” (ADB, 2023), reached 54.8%. Therefore, ASEAN's RVC intensity is much lower than ASEAN's GVC intensity. This low RVC intensity must be associated with the important role of other Asian economies, notably China, in the global and regional production networks of ASEAN, as well as the industry and trade structure of ASEAN economies. We expect that ASEAN will continue to emerge as one of the most important regional hubs for GVC as the region experiences strong growth and develops more technologically intensive industries. The region may also witness a heightened intensity of RVC with deeper intraregional trade integration and industry upgrading.

Section 3 also emphasizes that foreign direct investment (FDI) has played a pivotal role in driving economic growth and transformation within the ASEAN region. It is important to highlight that the strong economic connections between ASEAN and East Asian economies, particularly with China, played a significant role in attracting FDI to the region. Historically, the USA, European Union (EU), and Japan have been the primary sources of inbound FDI for ASEAN. However, with the expansion of regional supply chains, investments from other Asian economies have seen significant growth. China has emerged as a critical assembly hub for the region's production sharing networks. However, China's role within GVC has been undergoing changes due to escalating labor costs and the repercussions of recent trade conflicts with the USA. Park suggests that these shifts may create fresh opportunities and challenges for ASEAN, as multinational corporations might explore alternative regional production bases. These critical points merit a more comprehensive exploration within the paper, which would substantially enhance its contribution to the expanding literature on this topic.

Recent studies have examined the impacts of the US-China trade and technology disputes on trade and FDI reallocation in global markets. The International Monetary Fund (2023a, 2023b) shows US outbound FDI and capital flows to China have significantly declined. The USA and the EU have implemented policies directed at strengthening domestic production in strategic sectors and reducing the vulnerability from unaligned foreign suppliers, especially China. Freund et al. (2023) demonstrate that while the USA has experienced a rapid decline in imports from China, particularly in strategic sectors, its imports from certain ASEAN countries closely linked to China through RVC have increased. It is crucial to analyze the potential for geo-economic fragmentation and the resulting changes in global and regional value chains in Asia. Moreover, readers would benefit from a discussion of financial integration in ASEAN, particularly in relation to China's influence.

I find the discussion of policy recommendations for sustaining the region's growth momentum and integration in Park's (2024) section 4 is concise and valuable. As highlighted by Park, key tasks for ASEAN countries should include infrastructure development, digitalization, liberalization of services trade, fostering a flexible labor market, and promoting FDI. Additionally, the paper could explore how ASEAN countries can address external challenges posed by current geopolitical fragmentation and geo-economic threats. It is also left as future research to identify empirically the critical growth drivers of ASEAN economies and the prospects of economic and political convergence among ASEAN member states.