The Economic Integration of ASEAN+3

Kiki Verico
Working Paper LPEM FEB UI • January 2013 China • Japan • South Korea

Abstract

The ASEAN wide economic cooperation under the ‘ASEAN umbrella principle' is fitting the ASEAN's ‘open and soft regionalism' character. It helps ASEAN to achieve a comprehensive trade and investment integration in the short to medium-run and financial integration in the longrun. In Southeast Asia, this wide-regionalism has been reflected in the ASEAN Plus framework. Among one of them is the ASEAN+3, which covers ten ASEAN member states and three East Asian countries (China, Japan and South Korea). This paper attempts to analyze the stability and sustainability of economic integration of the ASEAN+3. It adopts the ‘inflation rate similarity among observed countries' as a proxy variable of regional economic integration and implements a time-series analysis of Stationarity Test to observe whether inflation rate similarity is the most appropriate variable for assessing the both short and long-run economic integration of the ASEAN+3. As for the short-run economic integration, this paper implements the ECM (Error Correction Mechanism) to identify whether pair inflation rate similarity among observed countries is stable and whether it is has dynamic or static relations. As for long-run economic integration, this paper implements Cointegration Test and its result has been utilized as the benchmark to select the observed countries for a further relation analysis between inflation and exchange rate. This relation is a proxy to describe long-run trade relations of the observed countries either they do compete or complement among each other.

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LPEM FEB UI

Institute for Economic and Social Research – Faculty of Economics and Business, University of Ind... see more