East Asian economic regionalism: progress and challenges

This paper demonstrates that the East Asian economies have achieved strong economic interdependence, particularly through external liberalization, domestic structural reforms and marketdriven integration with the global and regional economies. Expansion of foreign trade, direct investment and financial flows has created a "naturally'' integrated economic zone in East Asia. Reflecting the rising economic interdependence and in response to the traumatic financial crisis of 1997-1998, East Asia has embarked on various initiatives for economic regionalism. Such initiatives include the formation of several bilateral FTAs, the beginning of negotiations for sub-regional FTAs, the establishment of a regional surveillance mechanism, the introduction of a regional liquidity support system (CMI) and Asian bond market development. These essentially entail the formal institutionalization of de facto economic integration and interdependence in East Asia in a way that complements global frameworks of the WTO and the IMF. The paper identifies a number of challenges facing the region, including the need to begin negotiations on a region-wide FTA and to initiate exchange rate policy coordination. (C) 2005 Elsevier Inc. All rights reserved.