The Complementarities of Multi-Lateralism, Andregionalism and Income Convergence: ASEAN and SAARC
This paper proposes the hypothesis that multilateralism and regionalism are complementary, and that regional income convergence is likely with a like minded and committed regionalism that often has links geographically and culturally. The association between international trade, income per capita, and regional income convergence in founder members of ASEAN and SAARC, is explored by applying the Lumsdaine, and Papell approach. The causal relationships between the above variables are also studied in respective trade blocs by using Granger causality tests. The conclusion is that global reforms have had a greater impact on increasing trade for both trade blocs and induced convergence only in ASEAN-5 countries. The experience of ASEAN countries shows a two-way causal relationship between the flow from trade to regional income convergence, and vice versa. There is no evidence in SAARC countries for income convergence and causality.
[1] R. L. Lumsdaine, and D.H. Papell, "Multiple trend breaks and the Unit-
Root hypothesis", The Review of Economics and Statistics, 79 (2),
212-218, 1997.
[2] W. J. Ethier, "Regionalism in a multilateral world", The Journal of
Political Economy, 106 (6), 1214-1245, 1998.
[3] G. Koopmann, "Growing regionalism - a major challenge to the
multilateral trading system", Intereconomics, 38 (5), 237-241, 2003.
[4] E. Ornelas, "Trade creating free trade areas and the undermining of
multilateralism", European Economic Review, 49, pp.1717-1735,
2005.
[5] M. J. Slaughter, "Per-capita convergence and the role of international
trade", The American Economic Review, 87 (2), 194-199, 1997.
[6] J. J. Lewer, and H. Van den Berg, "How Large is International Trade-s
Effect on Economic Growth?", Journal of Economic Surveys, 17 (3):
pp. 363-396, 2003.
[7] D. Ben-David, "Trade and convergence among countries", Journal of
International Economics, 40, 279-298, 1996.
[8] A. K. Ghose, "Global inequality and international trade", Cambridge
Journal of Economics, 28 (2), 229 - 252, 2004.
[9] J. W. Dawson, and A. Sen, "New evidence on the convergence of
international income from a group of 29 countries", Empirical
Economics, 33, pp. 199-230, 2007.
[10] G. Carlino, and L. Mills, "Are U.S regional economies converging? a
time series analysis", Journal of Monetary Economics, 32, 335-346,
1993.
[11] P. Perron, "Further evidence on breaking trend functions in
macroeconomic variables", Journal of Econometrics, 80 (2), 355-
385, 1997.
[12] D.Ben-David, Income disparity among countries and the effects of freer
trade, in L.L. Pasinetti and R.M. Solow, eds., "Economic Growth
and the Structure of Long Run Development", 1994, London:
Macmillan, 45-64.
[13] D. Ben-David, "Equalizing exchange: Trade liberalization and income
convergence", Quarterly Journal of Economics, vol. 108, 653-679,
1993.
[14] L. Pritchett, "Divergence, big time", Journal of Economic Perspectives,
11 (3), 3-17, 1997.
[15] M. Baddeley, "Convergence or divergence? The impacts of
globalisation on growth and inequality in less-developed countries",
International Review of Applied Economics, 20 (3), 391-410, 2006.
[16] D. Chotikapanich, R. Valenzuela and P. D. S. Rao, "Global and
regional inequality in the distribution of income: estimation with
limited and incomplete data", Empirical Economics, 22 (4), pp. 533-
546, 1997.
[17] K. Jayanthakumaran, and E. Sanidas, "The complementarity hypothesis
of integration: regionalism, multilateralism and the ASEAN-5", The
Asia Pacific Journal of Economics and Business, 11 (1), 40-60,
2007.
[18] C. Freund, (2000) "Multilateralism and the endogenous formation of
preferential trade agreements", Journal of International Economics,
52, 359-376, 2000.
[19] A. Niebuhr, and F. Schlitte, "Convergence, trade and factor mobility in
the European Union - implications for enlargement and regional
policy", Intereconomics, 39 (3), 167 - 177, 2004.
[20] W. Moon, "Income convergence across nations and regions in East
Asia", Journal of International and Area Studies, 13 (2), 1-16, 2006.
[21] E. Lopez-Bazo, E. Vaya, and M. Artis, "Regional externalities and
growth: evidence from European regions", Journal of Regional
Science, 44 (1), 43-73, 2004.
[22] S. Yao, Z. Zhang, and G. Feng, "Rural-urban and regional inequality in
output, income and consumption in China under economic reforms",
Journal of Economic Studies, 32 (1), 4-24, 2005.
[23] J. A. Silva, and R. M. Leichenko, "Regional income inequality and
international trade", Economic Geography, 80 (3), 261 - 286, 2004.
[24] M. O. Ravn, and E. Mazzenga, "International business cycles: the
quantitative role of transportation costs", Journal of International
Money and Finance, 23, pp. 645-671, 2004.
[25] M. A. Kose, "Explaining business cycles in small open economies ÔÇÿhow
much do world prices matter?-", Journal of International Economics,
56 (2), pp. 299-327, 2002.
[26] D. K. Backus, and M. J. Crucini, "Oil prices and the terms of trade",
Journal of International Economics, 50 (1), pp. 185-213, 2000.
[27] US-ASEAN Business Council. "The ASEAN Free Trade Area and other
Areas of ASEAN Economic Cooperation", 2004. Available:
www.us-asean.org/afta.asp [accessed 14 February 2005].
[28] A. Panagariya, "Trade policy in South Asia: recent liberalisation and
future agenda", The World Economy, 22 (3), 353-378, 1999.
[29] G. Tan, "ASEAN: Economic Development and Cooperation", 2004,
Singapore: Eastern University Press.
[30] N. K. Paswan, "Agricultural trade in South Asia: potential and policy
options", 2003, New Delhi: APH Publishing Corporation.
[31] T. N. Srinivasan, and S. D. Tendulkar, "Reintegrating India with the
World Economy", 2003, Oxford: Oxford University Press.
[32] D. K. Das, "The South Asian Free Trade Agreement: Evolution and
Challenges", MIT International Review (Spring, 2008), Available:
http://web.mit.edu/mitir/2008/spring/south.html.
[33] World Bank, "World Development Indicators Database", 2008,
Washington, DC.
[34] M. Ariff, "Open regionalism a la ASEAN", Journal of Asian
Economics, 5 (1), pp. 99-117, 1994.
[35] P. Imada, "Production and trade effects of an ASEAN Free Trade
Area", The Developing Economies, 31 (1), pp. 3-23, 1993.
[36] E. Kettunen, Economic integration of the ASEAN countries, in L.V.
Grunsven, (Ed.), 1998, "Regional Change in Industrialising Asia".
Sydney: Ashgate.
[37] U. R. Wagle, "Are economic liberalisation and equality compatible?
Evidence from South Asia", World Development, 35 (11), pp. 1836-
1857, 2007.
[38] J. S. Bandara, and W. Yu, "How desirable is the South Asian Free
Trade Area? A quantitative economic assessment", The World
Economy, 26 (9), 1293-1323, 2003.
[39] E. Nissan, and G. Carter, "Income inequality across regions over time",
Growth and Change, 24, 303-319, 1993.
[40] C. W. J. Granger, "Investigating causal relations by econometric models
and cross-spectral methods", Econometrica, 37(3), 424-438, 1969.
[41] World Bank, "World Tables, DX Database", 2006, Washington, DC.
[42] K. Jayanthakumaran, R. Verma, "International trade and regional
income convergence: the ASEAN-5 evidence", ASEAN Economic
Bulletin, 25(2), 179-194, 2008.
[43] H. Theil, "World income inequality and its components", Economic
letters, 2, 99-102, 1979.
[1] R. L. Lumsdaine, and D.H. Papell, "Multiple trend breaks and the Unit-
Root hypothesis", The Review of Economics and Statistics, 79 (2),
212-218, 1997.
[2] W. J. Ethier, "Regionalism in a multilateral world", The Journal of
Political Economy, 106 (6), 1214-1245, 1998.
[3] G. Koopmann, "Growing regionalism - a major challenge to the
multilateral trading system", Intereconomics, 38 (5), 237-241, 2003.
[4] E. Ornelas, "Trade creating free trade areas and the undermining of
multilateralism", European Economic Review, 49, pp.1717-1735,
2005.
[5] M. J. Slaughter, "Per-capita convergence and the role of international
trade", The American Economic Review, 87 (2), 194-199, 1997.
[6] J. J. Lewer, and H. Van den Berg, "How Large is International Trade-s
Effect on Economic Growth?", Journal of Economic Surveys, 17 (3):
pp. 363-396, 2003.
[7] D. Ben-David, "Trade and convergence among countries", Journal of
International Economics, 40, 279-298, 1996.
[8] A. K. Ghose, "Global inequality and international trade", Cambridge
Journal of Economics, 28 (2), 229 - 252, 2004.
[9] J. W. Dawson, and A. Sen, "New evidence on the convergence of
international income from a group of 29 countries", Empirical
Economics, 33, pp. 199-230, 2007.
[10] G. Carlino, and L. Mills, "Are U.S regional economies converging? a
time series analysis", Journal of Monetary Economics, 32, 335-346,
1993.
[11] P. Perron, "Further evidence on breaking trend functions in
macroeconomic variables", Journal of Econometrics, 80 (2), 355-
385, 1997.
[12] D.Ben-David, Income disparity among countries and the effects of freer
trade, in L.L. Pasinetti and R.M. Solow, eds., "Economic Growth
and the Structure of Long Run Development", 1994, London:
Macmillan, 45-64.
[13] D. Ben-David, "Equalizing exchange: Trade liberalization and income
convergence", Quarterly Journal of Economics, vol. 108, 653-679,
1993.
[14] L. Pritchett, "Divergence, big time", Journal of Economic Perspectives,
11 (3), 3-17, 1997.
[15] M. Baddeley, "Convergence or divergence? The impacts of
globalisation on growth and inequality in less-developed countries",
International Review of Applied Economics, 20 (3), 391-410, 2006.
[16] D. Chotikapanich, R. Valenzuela and P. D. S. Rao, "Global and
regional inequality in the distribution of income: estimation with
limited and incomplete data", Empirical Economics, 22 (4), pp. 533-
546, 1997.
[17] K. Jayanthakumaran, and E. Sanidas, "The complementarity hypothesis
of integration: regionalism, multilateralism and the ASEAN-5", The
Asia Pacific Journal of Economics and Business, 11 (1), 40-60,
2007.
[18] C. Freund, (2000) "Multilateralism and the endogenous formation of
preferential trade agreements", Journal of International Economics,
52, 359-376, 2000.
[19] A. Niebuhr, and F. Schlitte, "Convergence, trade and factor mobility in
the European Union - implications for enlargement and regional
policy", Intereconomics, 39 (3), 167 - 177, 2004.
[20] W. Moon, "Income convergence across nations and regions in East
Asia", Journal of International and Area Studies, 13 (2), 1-16, 2006.
[21] E. Lopez-Bazo, E. Vaya, and M. Artis, "Regional externalities and
growth: evidence from European regions", Journal of Regional
Science, 44 (1), 43-73, 2004.
[22] S. Yao, Z. Zhang, and G. Feng, "Rural-urban and regional inequality in
output, income and consumption in China under economic reforms",
Journal of Economic Studies, 32 (1), 4-24, 2005.
[23] J. A. Silva, and R. M. Leichenko, "Regional income inequality and
international trade", Economic Geography, 80 (3), 261 - 286, 2004.
[24] M. O. Ravn, and E. Mazzenga, "International business cycles: the
quantitative role of transportation costs", Journal of International
Money and Finance, 23, pp. 645-671, 2004.
[25] M. A. Kose, "Explaining business cycles in small open economies ÔÇÿhow
much do world prices matter?-", Journal of International Economics,
56 (2), pp. 299-327, 2002.
[26] D. K. Backus, and M. J. Crucini, "Oil prices and the terms of trade",
Journal of International Economics, 50 (1), pp. 185-213, 2000.
[27] US-ASEAN Business Council. "The ASEAN Free Trade Area and other
Areas of ASEAN Economic Cooperation", 2004. Available:
www.us-asean.org/afta.asp [accessed 14 February 2005].
[28] A. Panagariya, "Trade policy in South Asia: recent liberalisation and
future agenda", The World Economy, 22 (3), 353-378, 1999.
[29] G. Tan, "ASEAN: Economic Development and Cooperation", 2004,
Singapore: Eastern University Press.
[30] N. K. Paswan, "Agricultural trade in South Asia: potential and policy
options", 2003, New Delhi: APH Publishing Corporation.
[31] T. N. Srinivasan, and S. D. Tendulkar, "Reintegrating India with the
World Economy", 2003, Oxford: Oxford University Press.
[32] D. K. Das, "The South Asian Free Trade Agreement: Evolution and
Challenges", MIT International Review (Spring, 2008), Available:
http://web.mit.edu/mitir/2008/spring/south.html.
[33] World Bank, "World Development Indicators Database", 2008,
Washington, DC.
[34] M. Ariff, "Open regionalism a la ASEAN", Journal of Asian
Economics, 5 (1), pp. 99-117, 1994.
[35] P. Imada, "Production and trade effects of an ASEAN Free Trade
Area", The Developing Economies, 31 (1), pp. 3-23, 1993.
[36] E. Kettunen, Economic integration of the ASEAN countries, in L.V.
Grunsven, (Ed.), 1998, "Regional Change in Industrialising Asia".
Sydney: Ashgate.
[37] U. R. Wagle, "Are economic liberalisation and equality compatible?
Evidence from South Asia", World Development, 35 (11), pp. 1836-
1857, 2007.
[38] J. S. Bandara, and W. Yu, "How desirable is the South Asian Free
Trade Area? A quantitative economic assessment", The World
Economy, 26 (9), 1293-1323, 2003.
[39] E. Nissan, and G. Carter, "Income inequality across regions over time",
Growth and Change, 24, 303-319, 1993.
[40] C. W. J. Granger, "Investigating causal relations by econometric models
and cross-spectral methods", Econometrica, 37(3), 424-438, 1969.
[41] World Bank, "World Tables, DX Database", 2006, Washington, DC.
[42] K. Jayanthakumaran, R. Verma, "International trade and regional
income convergence: the ASEAN-5 evidence", ASEAN Economic
Bulletin, 25(2), 179-194, 2008.
[43] H. Theil, "World income inequality and its components", Economic
letters, 2, 99-102, 1979.
@article{"International Journal of Business, Human and Social Sciences:57657", author = "Kankesu Jayanthakumaran and Shao-Wei Lee", title = "The Complementarities of Multi-Lateralism, Andregionalism and Income Convergence: ASEAN and SAARC", abstract = "This paper proposes the hypothesis that multilateralism and regionalism are complementary, and that regional income convergence is likely with a like minded and committed regionalism that often has links geographically and culturally. The association between international trade, income per capita, and regional income convergence in founder members of ASEAN and SAARC, is explored by applying the Lumsdaine, and Papell approach. The causal relationships between the above variables are also studied in respective trade blocs by using Granger causality tests. The conclusion is that global reforms have had a greater impact on increasing trade for both trade blocs and induced convergence only in ASEAN-5 countries. The experience of ASEAN countries shows a two-way causal relationship between the flow from trade to regional income convergence, and vice versa. There is no evidence in SAARC countries for income convergence and causality.
", keywords = "ASEAN-5, SAARC-5, trade liberalisation, incomeconvergence, structural breaks and causality.", volume = "2", number = "12", pages = "1261-10", }
