ADB urges greater regional integration

MANILA, Philippines — The Asian Development Bank (ADB) is urging greater regional integration in Asia and the Pacific, particularly in trade and investment, in response to uncertainties in the global economy.

In its Asian Economic Integration Report 2018 (AEIR), the multilateral bank said stronger regional cooperation is becoming increasingly necessary to enable the region to address challenges such as infrastructure gaps, trade connectivity, financial contagion and climate-resilience.

Specifically, the bank stressed the need to establish a system for public goods – goods, services, and policies – that are mutually beneficial across countries.

These can cover cross-border infrastructure, communicable disease control and disaster risk management, the report said.

“Enhanced regional cooperation and coordination can help countries manage regional issues, particularly if they complement national and global actions,” said ADB chief economist Yasuyuki Sawada.

“Multilateral development banks can help increase regional public goods by reducing knowledge and financing gaps as well as promoting regular policy dialogue for long-term cooperation among countries,” he added.

The report cites several efforts in Asia to put in place regional public goods among which was the 2014 pledge by 18 Asian leaders to eliminate malaria by 2030. Trade facilitation programs between countries in the Central Asia Regional Economic Cooperation region have also boosted intraregional trade, supporting growth.

In the report, ADB maintained that the Asia and Pacific region stands to grow by a healthy six percent this year and 5.8 percent by 2019. However, risks remain tilted to the downside because of the escalation of trade conflicts and financial vulnerabilities in the face of policy normalization in the US.

The report said growing trade and investment linkages in the region could blunt the ill effects of uncertainties in the global economy.

Regional integration in the region – as measured by ADB’s Asia-Pacific Regional Cooperation and Integration Index (ARCII) – has improved as seen in the score of 0.525 in 2015 to 0.530 in 2016. Positive impact was seen on economic growth and poverty reduction.

The index incorporates six sub-indexes that measure trade and investment, money and finance, the regional value chain, infrastructure and connectivity, movement of people, and institutional and social integration.

“Infrastructure and connectivity appear to be the most forceful and stable foundation for regional integration in Asia. Over time, trade and investment have strengthened as a major contributor to regional integration,” said the report.

An empirical exercise reveals that regional value chain, movement of people, and institutional and social integration have been significant drivers of economic growth, while overall regional integration helped reduce poverty,” it added.

The report also noted that despite a slowdown in inward foreign direct investment (FDI) to Asia, intraregional FDI continues to rise, creating more jobs in developing countries.

Global FDI into the region remains stable at $517.5 billion in 2017 from $519.9 billion in 2016. Intraregional FDI, meanwhile, increased slightly to $260 billion in 2017 from $254.7 billion in 2016. Greenfield investments created 667,000 jobs in 2017—mainly in India, the PRC, Vietnam, the Philippines and Singapore – in real estate, software and information technology (IT) services and electronic components, among others.