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GTAP Resource #1848

"Infrastructure as a Catalyst for Regional Integration, Growth, and Poverty Alleviation: Empirical Evidence from Asia"
by Zhai, Fan

In a vast literature on trade facilitation, it is doubly unfortunate that investment in infrastructure has received only scant attention. After human nature, infrastructure is one of the oldest and most decisive determinants of trade patterns. Secondly, public infrastructure confers some of the most desirable benefits of trade facilitation, including open market access and relatively progressive growth and income effects. By lowering costs of market participation in a relatively non-discriminatory manner, improvements in infrastructure broaden the basis for growth and directly contribute to its sustainability. By reducing trade and transport margins, infrastructure promises a neat reconciliation of private interests, increasing producer prices while reducing purchaser prices.

In the Asian context, dramatic parallel emergence by China and India portend dramatic change in the economic landscape. Because of geographic realities, however, the full growth potential of these large economies for the region and beyond will depend critically on infrastructure. Although their boundaries are proximate in some areas, the Himalayan plateau is unlikely to sustain more than a small fraction of their bilateral trade in the foreseeable future. A much more attractive bridge between the emerging giants is Southeast Asia, already a robust trading environment and one that could capture many of the indirect benefits of intensified Indian and Chinese trade linkages. For these reasons, nearly all the Asian economies have an important stake in expanded Southeast Asian trade infrastructure. This is particularly true of many of the region’s poorest economies, who would be directly in the path of the most logical new transport axes under consideration. Myanmar, Laos, Cambodia, and (to a lesser extent) Vietnam have long appeared to be on the geographic periphery of East and South Asian growth, yet they would become central pillars of any comprehensive bridging infrastructure between China and India.

CGE modelling has already established itself as the preferred tool for empirical research on trade policy, and is ideally suited in the present context to demonstrate how infrastructure changes neoclassical fundamentals (market access costs) to amplify gains from trade and accelerate growth. Because we are looking at one of the most dynamic multilateral trading regions of the world, this is also an ideal application of the GTAP dataset. Our preliminary results indicate that determined commitments to infrastructure investment can sharply expand economic participation and leverage the superior growth rates in Asia’s largest countries for the benefit of the entire region, with the largest proportionate gains for the poorest countries. In this way, integration will accelerate as regional supply chains are consolidated, and growth externalities can be substantial for all participants. In the absence of such commitments, trade will simply be intensified along established channels and its benefits dissipated over more distant trade routes to traditional markets.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Created: Zhai, F. (6/7/2005)
Updated: Batta, G. (6/21/2005)
Visits: 1,878
No keywords have been specified.

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