Strengthening economic linkages between South Asia and East Asia : the case for a second round of "look east" policies

• Main Authors: Rana, Pradumna B., Chia, Wai-Mun
• Other Authors: S. Rajaratnam School of International Studies
• Format: Working Paper
• Language: English
• Published: 2014
• Subjects: DRNTU::Social sciences
• Online Access: https://hdl.handle.net/10356/103892; http://hdl.handle.net/10220/20047
• Institution: Nanyang Technological University

This paper argues that South Asian countries need to embark on a second round of “Look East” Policies (LEP2) to (i) link themselves to production networks in East Asia and (ii) develop production networks in manufacturing and services within their region. Such policies would allow both regions to benefit mutually and in a shared manner not only from the static complementarities of the Hecksher-Ohlin type but also the dynamic complementarities based on augmented product fragmentation and new geography theories proposed by Jones and Kierzkowski (1990) and Kimura and Mitsuyo (2005). As in East Asia, economic integration between these two regions would increase and a virtuous cycle would be established between integration, economic growth and welfare. LEP2 would also poise South Asia to benefit from the gradual but encouraging opening of Myanmar, a node for South Asia–East Asia relations and connectivity. The key components of LEP2 in South Asia should comprise (i) completing the economic reform process that began in the early 1990s by focusing on the remaining microeconomic reforms (ii) lobbying and negotiating to participate in various on-going regional trade and financial cooperation efforts in East Asia (iii) creating a trade-friendly environment “at the border” and “behind the border” and (iv) improving “beyond the border” connectivity and logistics with East Asia to reduce trading costs between the two regions. Keywords: regional economic integration, production networks, South Asia, East Asia, international trade, foreign direct investment.