Setting and Purpose of Study

East and South Asia include some of the world's most dynamic open economies as well as several least developed countries. This study examines the diverse experience of regional integration of a sample of South and East Asian economies. Using a set of country cases based on a similar framework, the study addresses an important policy question: how can each country's integration with its neighbors and more distant regional economies be improved? Of the eight country studies, five are from South Asia (India, Pakistan, Bangladesh, Nepal, and Sri Lanka) and three are from East Asia (the People's Republic of China [PRC], Thailand, and Singapore). The country cases–which differ by per capita income, economic growth rate, country size, and location–provide fascinating insights into the relationship between regional economic performance and strategies for regional integration at country level. The study also offers lessons for other countries and subregions which are interested in developing national strategies to foster pan-Asian integration. As the next section shows, relations between South and East Asian economies have evolved considerably since pre-colonial times. The country cases focus on the period since 1990, as this period marks the beginning of strengthening integration between South and East Asian economies. The global economic crisis is expected to have a temporary, short-term negative impact on the process of South Asia-East Asia integration. Once global economic recovery commences, the pace of South Asia-East Asia integration is expected to pick up.

Introduction

There is little doubt that globalisation has a profound impact on the economic prosperity of the world's smallest economies. Much of the recent policy and academic literature has tried to show that small states do face specific problems and that their small size can constrain economic development in a global world economy. Several studies highlight the existence of an inverse relationship between country size and susceptibility to economic, political and environmental risks and threats (Commonwealth Consultative Group, 1985; Commonwealth Secretariat, 1997; Streeten, 1993; Briguglio, 1995; Atkins et al., 2001; Grynberg, 2001; Winters and Martins, 2003). This literature concludes that small states are more vulnerable than larger economies because of higher exposure to external shocks from higher trade openness and single primary commodity dependence; have less access to international financial markets and aid due to limited creditworthiness; face higher transport costs due to remoteness; and are more exposed to environmental risks due to their geographical location.

These arguments have fuelled calls by small states' representatives in international fora for increased foreign aid and trade preferences to facilitate economic adjustment to globalisation. However, the success of such efforts to date, and the prospect for future success, is at best limited, and even if it were to improve significantly the underlying trends of globalisation are unlikely to change. Realistically, small states will increasingly have to compete on world markets for exports and foreign investment, and will receive less in aid and special treatment.