Infrastructure as a Catalyst for regional Integration, Growth, and economic Convergence: scenario Analysis for Asia

Recent research at the Asian Development Bank (ADB) on Asian regional integration has highlighted the importance of structural barriers to trade (Brooks et al., 2005). Indeed, it now appears that overcoming geographic and institutional obstacles that increase trade and transport margins is a very important constraint to regional trade expansion and sustained growth. In their 2005 study of infrastructure requirements for Asia, Connecting East Asia: A New Framework for Infrastructure, ADB, the Japan Bank for International Cooperation, and the World Bank, present a comprehensive review of the region’s infrastructure needs. These needs are substantial and particularly so in relative terms, i.e., the need is relatively most acute in the poorest countries. In a region that enjoys unprecedented external and domestic savings reserves, and at a time when real interest rates are as low as they have been in generations, it is surely an auspicious time to consider how large-scale regional investment could help Asia more fully realize its vast economic potential. The goal of the present chapter is to link the two elements, using rigorous empirical methods to show how a more determined commitment to creating regional infrastructure can act as a catalyst for Asian integration, facilitating more sustained and comprehensive economic growth. In a vast literature on trade facilitation, it is doubly unfortunate that investment in infrastructure has received only scant attention. Infrastructure is one of the oldest and most decisive determinants of trade patterns. Public infrastructure also confers some of the most desirable benefits of trade facilitation, including open market access and pro-poor growth and 4