Southeast Asian catch-up through the convergence of trade structures

ABSTRACT Regional trade agreements are vigorously debated, especially since the effects of trade on economic development is uncertain. Since East Asian trade occurs mostly within the region, we examine how trade structures might affect economic growth and provide directionality. The role of export composition is known to affect the rate of growth of emerging economies depending on trade structure similarity. This paper analyses the role of export baskets in the economic growth of developing countries in Southeast Asia, and tests the hypothesis that similarity of export structures leads to economic catch-up by providing directionality. The empirical analysis uses export data of East Asian countries to measure the bilateral similarities in export structures between the past and the present trade structures of Southeast Asian countries and comparing them withNortheast Asian countries that became wealthier earlier and Southeast Asian countries that tend to be latecomers. We find that the similarity of export structure provides directionality based on the overall competitiveness of a country's export sectors. This study fills the previous research gap of structural change from the perspectives of catch-up and directionality, by analysing the linkage between export structure convergence and economic catch-up, and linkage between export structure diversification and path-dependence.