The Shift from "Market-led" to "Institution-led" Regional Economic Integration in East Asia in the late 1990s

Author Name URATA Shujiro  (Faculty Fellow)
Creation Date/NO. February 2004 04-E-012
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The paper identifies the changes in the nature of regional economic integration in East Asia from "market-led" to "institution-led" integration in the late 1990s. Before the late 1990s active foreign trade and foreign direct investment (FDI) mainly resulting from trade and FDI liberalization led to greater intra-regional dependence among the countries in East Asia. Indeed, regional production systems have been developed in industries such as electronics, automobiles, and apparel, mainly by the initiatives of foreign companies. After the late 1990s East Asian countries started to show strong interest in regional institutions such as free trade agreements (FTAs) largely because of the outbreak of Asian crisis and growing interest in FTAs in other parts of the world. FTAs are likely to bring economic, political, social and other types of benefits to the region and the rest of the world, but there exist various obstacles to the formation of FTAs. Some serious obstacles are strong opposition to trade and FDI liberalization by non-competitive sectors and a lack of mutual understanding about historic, political, and other issues among East Asian countries. The paper makes several propositions such as increasing mutual exchange of people to overcome these obstacles.