Regional connectivity in continental ASEAN

Taguchi, Hiroyuki and Nozaki, Kenji (2014): Regional connectivity in continental ASEAN. Published in: Chapter IV, Report on the potentials of the Asian economic zones (March 2014): pp. 44-88.

Abstract

This chapter examines the issue on Mekong region’s connectivity on quantitative base through the analysis of the gravity trade model and its modified fragmentation model. The main findings are as follows: First, the evolution of international production networks (IPNs) between Thailand and Vietnam as well as the other advanced ASEAN could be identified in terms of their two-way trade integration of machinery parts and components beyond the gravity trade standard. Second, the trade intensity of machinery parts and components, in particular, the one between Thailand and Vietnam, could be partly explained by the fragmentation factors, i.e. their gaps in per capita GDP and the relatively lower service-link costs in Vietnam, through the fragmentation-model estimation. Third, the trade disintegration of machinery parts and components between Thailand and Mekong latecomers, such as Cambodia and Myanmar, could be explained by their higher service-link costs also through the fragmentation-model estimation. This chapter also investigates the border area development in Mekong region, which is a crucial issue for the connectivity in a continental area. Since the border areas have their own area-advantages called “border bonuses”: “complementary factor endowment” and “cross-border infrastructure services”, the areas might be the real gateways for IPN penetration across the countries in Mekong region, if their development were carefully designed. This was proved by the success stories of forerunners: the Maquila case at US-Mexico border and the Savannakhet SEZ at Thai-Lao PDR border. Considering their lessons, the strategies for border area development should be careful designing of institutional frameworks for Special Economic, enhancing outer-link connectivity from borders to central cities, and securing labor forces with skill developments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Regional connectivity, ASEAN, Mekong region gravity trade model, border area development
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

References

Anderson, J.E., 1979. A Theoretical Foundation for the Gravity Equation, American Economic Review, Vol.69, No.1, pp.106 - 116.

Anderson, J.E. and Wincoop, E.van, 2003. Gravity with gravitas: A solution to the border puzzle, American Economic Review, Vol.93, No.1, pp.170-192. Baz, A.G., 2007. What is a maquiladora. http://www.bancomext-mtl.com/invest /vox128.htm.

Bergstrand, J., 1989. The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade, The Review of Economics and Statistics, Vol.71, pp.143-153.

Canas, J., Coronade, R.A., Gilmer, R.W., and Saucedo, E., 2011. The Impact of the Maquiladora Industry on U.S. Border Cities, Working Paper 1107, Federal Reserve Bank of Dallas.

Canas, J. and Gilmer, R.W., 2007. Maquiladora Recovery: Lessons for the Future, Southwest Economy, Federal Reserve Bank of Dallas, March/ April.

Canas, J. and Gilmer, R.W., 2009. The Maquiladora’s Changing Geography, Southwest Economy, Federal Reserve Bank of Dallas, Second Quarter.

Carrillo, J. and Lara, A., 2005. Mexican Maquiladoras: New Capabilities of Coordination and the Emergence of New Generation of Companies, Innovation and Economic Development, Vol.7, No.2/3, pp. 256–273.

Deardorff, A.V., 1998. Determinants of bilateral trade: does gravity work in a classical world. In: Frankel, J., (ed.) The Regionalization of the World Economy, pp. 7-22, University of Chicago Press, Chicago.

Edmonds, C. and Fujimura, M., 2008. Impact of cross-border infrastructure on trade and investment in the Greater Mekong Subregion, Integration and Trade, Vol.28, pp. 267-296.

Feenstra, R., 2002. Border effects and the gravity equation: Consistent methods for estimation, Scottish Journal of Political Economy, Vol.49, No.5, pp.491-506.

Frankel, J.A., Stein, E. and Wei, S.J., 1995. Trading blocs and the Americas: The natural, the unnatural, and the super-natural, Journal of Development Economics, Vol.47, pp. 61-95.

Gorjidooz, J. and Vasigh, B., 2009. The Maquiladora Industry: Recent Downturn And Future Prospects, International Business & Economics Research Journal, Vol.8, No. 3, pp.47-57.

Hanson, G., 2001. US-Mexico integration and regional economics: Evidence from border-city pair, Journal of Urban Economics, Vol. 50, pp. 259-287.

Helpman, E. and Krugman, P., 1985. Market Structure and Foreign Trade, MIT Press, Cambridge.

Ishida, M., 2013. Cross Border Transportation Agreement (CBTA) and Trade Facilitation, Chapter 2 in Ishida, M. (Ed), Border Economies in the Greater Mekong Subregion, Palgrave Macmillan IDE-JETRO Series.

Kimura, F., Takahashi, Y. and Hayakawa, K., 2007. Fragmentation and Parts and Components Trade: Comparison between East Asia and Europe, North American Journal of Economics and Finance, Vol.18, pp. 23-40.

Kimura, F. and Obashi, A., 2010. International Production Networks in Machinery Industries: Structure and Its Evolution, Economic Research Institute for ASEAN and East Asia DP-2010-09.

Kudo, T., 2009. Border Area Development in the GMS: Turning the Periphery into the Center of Growth, ERIA Discussion Paper Series, Economic Research Institute for ASEAN and East Asia DP-2009-15.

Nozaki, K., 2009. Consideration on the Effectiveness of the Special Economic Zone Policy in Savannakhet, Laos, Economic Science (Nagoya University), Vol. 57, No. 3, pp.1-15 (in Japanese).

Nozaki, K., 2014. Regional Disparity and Economic Linkage in the Greater Mekong Sub-region, International Journal of Development Issues, forthcoming.

Poncet, S., 2006. Economic Integration of Yunnan with the Greater Mekong Subregion, Asian Economic Journal, Vol.20, No.3, pp. 303-317.

Stack, M.M., 2009. Regional Integration and Trade: Controlling for Varying Degrees of Heterogeneity in the Gravity Model, The World Economy, Vol.32, No.5, pp. 772-789.

Taguchi, H. and Nattawoot, T., 2013. The “Maquila” Lesson and Its Implications to Thai-Myanmar Border, forthcoming.

Taguchi, H. and Ni Lar., 2013. International Production Networks in Mekong Region: An Assessment by Gravity Trade Model, The Singapore Economic Review, forthcoming.

Vandenbussche, H. and Zanardi, M., 2010. The chilling trade effects of antidumping proliferation. European Economic Review, Vol.54, No.6, pp.760-777.

Watkins, R., 2002. U.S. International Trade Commission, ―Mexico Versus China: Factors Affecting Export and Investment Competition, Industry Trade and Technology Review, USITC, pub. 3534, pp. 11-26.