Beyond Network Power: The Dynamics of Formal Economic Integration in Northeast Asia

Vinod K. Aggarwal and Min Gyo Koo

Pacific Review, 2005

At the turn of the new millennium, the traditional institutional equilibrium of East Asian economic integration—the embrace of the WTO at the multilateral level and a focus on market-driven, informal integration at the regional level—is under heavy strain. A growing number of Northeast and Southeast Asian countries are pursuing greater institutionalization at the sub-multilateral level, actively weaving a web of preferential trading arrangements. To examine this development, we focus on the likely new institutional equilibrium in Northeast Asia and its implications for East Asia and beyond. We first examine the various political and economic arguments that have been advanced to explain states’ desire to pursue “regionalism.” From our perspective, most conventional explanations fail to adequately differentiate various forms of trading arrangements, thereby impairing both theoretical and empirical analysis of trading arrangements. To remedy this lacuna, we develop a more fine-grained typology of different modes of trade management—unilateral, bilateral, minilateral, and multilateral. We then discuss an institutional bargaining game approach focusing on goods, countries’ individual situations, and the fit with existing arrangements. This approach is used to analyze how trade arrangements evolved in East Asia in the 1990s, particularly after the Asian financial crisis. We then explore several paths that might lead to formal economic integration in Northeast Asia. Finally, we consider other possible outcomes beyond Northeast Asia.

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