Against the background of the rapid integration of emerging Asia into the global economy, this paper investigates the role of domestic and external factors in driving individual emerging economies in Asia. We estimate Vector Autoregressive (VAR) models for 10 countries over the period 1979Q1 2003Q4, controlling for external factors, and use sign restrictions to identify structural domestic shocks. Variance decompositions indicate that Asian emerging economies are to a large part driven by external developments, and even more so employing a more recent sample. We analyze to what extent structural domestic shocks exhibit a regional dimension by comparing shocks across countries using correlation and principal component analysis. The extent of regional co-movement between structural shocks is relatively limited. While the principal components analysis indicates a moderate increase in co-movement over time, the correlation analysis finds a decline. This may reflect a broadening of regional integration at the expense of bilateral economic ties.
In recent decades, Asia has become increasingly integrated with the global economy. At the same time, economic integration within Asia has also progressed at an impressive speed. This is evidenced, for example, by the rapid increase in intra-regional trade flows, which partly reflect the increasing internationalization of the production process, with China emerging as a major assembly and processing centre. The associated structural changes are likely to have an important effect on the growth dynamics of the respective economies. In general, there are three geographical dimensions that are of considerable importance for macroeconomic performance in emerging Asia: global, regional and country-specific. Regarding the global dimension, the considerable strengthening of inter-regional linkages, reflecting to some extent outward-oriented growth strategies, is likely to have resulted in a stronger dependence of developments in individual countries in emerging Asia on developments outside the region.
|
