Advantages And Disadvantages Of Asean Economic Community – Leaders of the Association of Southeast Asian Nations (ASEAN) have adopted the ASEAN Vision 2020, hoping to consolidate the foundation for a prosperous and peaceful society in Southeast Asian countries and build a peaceful and mutually prosperous society. The goal of building a unified economy and society is to accelerate economic growth, promote regional trade development, and achieve freer flow of goods, services, skilled labor, and capital.
Approximately 600 million people across the ten ASEAN member states (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) will be affected by this regional partnership. It is therefore necessary to highlight some of the high-level opportunities and challenges posed by the coming economic integration.
Advantages And Disadvantages Of Asean Economic Community
The 1997 Asian financial crisis produced significant macroeconomic fundamentals, including the collapse of Asian stock markets, depreciation of local currencies, and falling asset prices across Asia. Many businesses closed, resulting in a drop in per capita income for millions of people in the region.
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Some experts believe that the Asian financial crisis exposed many problems such as unstable banking structures, weak financial infrastructure, lack of transparency, and poor governance and supervision of the banking industry. Others argue that moral hazard, information asymmetries, short-sighted government policies, weak institutions and ineffective regulation also make the region vulnerable to crisis.
In the years since the Asian financial crisis, ASEAN leaders have discussed developing economic policies that would both support growth and protect the region from future economic shocks. Therefore, the ASEAN Economic Community emerged as a vehicle to meet these needs.
As a region, ASEAN has grown GDP per capita far faster than the rest of the world since the late 1970s. Earnings growth has been strong since 2000, with annual real gains exceeding 5%. A McKinsey study shows that in 2000, 14% of the region’s population lived below the international income line of $1.25 a day (based on purchasing power parity), but by 2013, that number had just fallen. 3%.
Millions of households in ASEAN countries already have the income to help them make large purchases. This number could reach 125 million households by 2025, making ASEAN an important consumer market.
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There are many opportunities associated with AEC integration. For example, economic integration provides opportunities to promote economic stability in the region. Another benefit is that integration will make ASEAN a more competitive region in the global economy. A stronger regional economy will help reduce poverty and improve the living standards of ASEAN people through economic development.
ASEAN member states hope for greater economic cooperation in areas such as financial policy, trade and human capital. ASEAN Economic Community integration will also help promote goods and services, investment, labor mobilization and capital mobilization. The ASEAN region has the potential to become a highly competitive economic union that functions as a single market. ASEAN also aims to improve regional agricultural and industrial utilization, expand trade and improve transport and infrastructure.
Labor force expansion and productivity improvements have driven GDP growth in the ASEAN region. ASEAN has the third largest labor market in the world, after China and India. The ASEAN region is expected to become the world’s fourth largest economy by 2050.
Economic growth and trade expansion have brought great benefits to the people of Southeast Asia. In 2012, ASEAN’s per capita GDP reached US$3,748, more than double the US$1,172 in 2000. Poverty levels in the region have declined over the past decade. In Cambodia, Laos, Myanmar and Vietnam, the share of the population living on less than $1.25 a day was 16% in 2010, compared with 45% in 2000, The Nation reported. There are institutional differences among the 10 ASEAN member states, so there may be differences in the levels of economic growth and subsequent economic development in these countries.
Regional Economic Integration
Economic integration may create opportunities for ASEAN countries; however, it may also bring challenges, namely the high cost of implementing economic integration among these economically and culturally diverse countries.
ASEAN is an economic region with different economic development models. Most ASEAN countries are low- and middle-income countries, but there are a few countries with better economic conditions. Even after the integration of the ASEAN Economic Community, the current income inequality gap among some ASEAN countries is likely to widen.
Some ASEAN countries have higher inflation rates. This could lead to unequal price levels and purchasing power among ASEAN member states, giving some countries the opportunity to purchase more goods from another member state. Different levels of inflation also lead to different levels of investment. This could inadvertently lead to economic losses in some sectors and industries and lead some workers in less economically stable countries to consider emigrating to more economically prosperous member states. Many ASEAN economies are currently at very different stages of development, with huge differences between high-savings economies such as Brunei, Malaysia and Singapore, and low-savings economies such as Cambodia, Laos and the Philippines.
Levels of economic development, interest rates and exchange rates can vary significantly between member countries. Therefore, governments may face some challenges in stabilizing macroeconomic and financial conditions under a unified economic system.
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There is also a high degree of political and socio-cultural diversity among ASEAN countries, which makes economic integration difficult. ASEAN member states have different levels of capital market development and financial supervision. Some ASEAN member states lack the appropriate financial sector regulations and infrastructure required for a comprehensive integration process. We can foresee that issues will arise related to capital market development, financial services liberalization, capital account liberalization and ultimately ASEAN monetary cooperation.
The ASEAN Economic Community will also bear costs related to institutional strengthening, costs related to monitoring and evaluation of regional systems in the economic context, and costs related to the development and management of regional systems required for effective economic integration. Other costs are expected to increase, such as those associated with urbanization, as millions of citizens migrate from rural areas to cities in search of economic opportunities. As most ASEAN member states develop and expand economic activities, the costs associated with climate resilience and environmental sustainability will increase.
The ASEAN region is at the crossroads of global flows. With the implementation of the ASEAN Economic Community, intra-regional trade in goods is likely to increase, as will overall economic growth. To realize the full potential of the ASEAN Economic Community, structural and institutional changes need to be better managed, in addition to ensuring that economic gains lead to shared prosperity for the people. The success of ASEAN’s economic integration will depend on how it affects the labor market and, in turn, improves the quality of life of men and women in the region.
To take full advantage of economic growth, the region needs to develop human capital and workforce skills while addressing income and gender inequality. To make ASEAN more globally competitive across a wide range of sectors and industries, it needs to invest in institutions, infrastructure, education, on-the-job training and increase the participation of women in the regional economy.
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The ASEAN Economic Community faces opportunities and challenges, including managing labor migration, increasing productivity and wages, and improving job quality. These factors, in turn, influence labor skill development, wages and productivity, and labor migration. However, it is important to note that unless managed properly, the ASEAN Economic Community may not be able to take advantage of all anticipated economic opportunities and may instead witness an increase in income inequality across the region, which will inevitably affect the poor.
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