Economic Crisis and Regional Integration: Evidence From ASEAN
Journal Title: Journal of Business Thought - Year 2016, Vol 6, Issue
Abstract
Inthispaper,theobjectiveistoevaluatetheroleofRegionalTradeAgreements(RTAs)amongdevelopingcountriesinthecontextofeconomiccrisis.ThispaperattemptstoexaminewhetherRTAsactually leadto fasterregional spread ofcrisis(within RTAorin non-membercountry) orwhethersucharrangementsmayactassafeguardsformembersagainstsuchcrisis.Forthispurpose,westudytheresponseoftheregionalintegrationintheAssociationofSouthEastAsianNations(ASEAN)regiontothecrisisinsideandoutsidetheregion.Wedevelopananalyticalframeworkthatanalysesthepossiblechannelsofresponseofregionalintegrationtotheoccurrenceofcrisisinsidetheregionoroutsidetheregion.Tocapturethepossibilityofcontagioneffectofacrisisinsideoroutsidetheregion,wecomputeunconditionalprobabilityandconditionalprobabilityofthreetypesofeconomiccrisis-currency,stockandbankingcrisis-inthemajorASEANeconomies.Tocapturethepossibilityofsafeguardroleofregionalintegrationinaneventofeconomiccrisis,wecomputetheprobabilityofepisodeofcrisis(insideoroutsidethe ASEANregion)beingfollowedbypositivegrowthrateinintraregionaltrades.Weobtainnon-zeroprobabilitiesinboththecases-contagionandsafeguard-indicatingpossibilityofboththeresponsestoacrisisinsideoroutsidearegionandthefinaloutcomedependsonthenetimpactofboththeeffects.However,oneimportantpolicyimplicationtobedrawnfromthisanalysisistostrengthentheregionalintegrationandsubstituteitfortradelinkswithexternaltradingpartnerstocurbtheeffectsofaneconomiccrisisinanoutsidecountry,therebystrengtheningtheinsulationeffectsofregionalintegration.
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