Modeling a Scenario of Asian Integration: An Economic Approach1

Economic regionalism has been broadly defined as a preferential trade agreement among a subset of nations (Bhagwati, 1992). The establishment of the European Free Trade Area in 1959 has ushered the initial stage of regional cooperation and integration. The second stage was brought about by the transformation of Western Europe into a single market along with the active participation of the United States in regionalism with the formation of the North America Free Trade Agreement (NAFTA). The Asia-Pacific soon caught up in 1992 with the formation of the ASEAN Free Trade Area (AFTA). However, there are major differences in these two of regionalism in terms of scope and focus. The first stage stressed on tariff reductions and preferential treatment of member countries while the second phase was focused on the outward-looking orientation beyond tariff reductions which has a deeper impact on regional integration (Austria, 2003). Over the years three major forces have been identified that facilitated the regional cooperation and integration in Southeast and East Asia: (1) market factors, (2) institutional factors, and (3) regional public goods. Market factors refer to the expansion of trade, capital, and human resources flows in the region, including the pressures of globalization toward