2007-E-9
Modeling a Scenario of Asian Integration: An Economic Approach1
Tereso S. Tullao, Jr. Ph.D.
Professor of Economics
De La Salle University – Manila
February 2008

1

Paper read at the International Symposium on Asian Cooperation, Integration and Human Resources. Waseda
International Conference Hall, Waseda University, Tokyo, Japan. January 17 to 18, 2008. This paper was drawn
from a paper entitled “Economic, Social and Demographic Diversity in Southeast and East Asia: Hindrance orOpportunities for Regional Integration” prepared for the Yuchengco Center of De La Salle University. Research
assistance provided by Edward S. Tullao and John Paolo R. Rivera is greatly appreciated.

I. Concept of Economic Integration
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 withthe 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 theformation 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 acompetitive environment and the economic vibrancy of the region. Institutional factors referto the formation of mechanisms, organizations, and institutions within the region that makes
it possible for the constituent countries to cooperate. Regional public goods refer to crossborder concerns that have common impact and have to be resolved at the regional level(Tullao, 2007).
The literature on regional economic integration started with the seminar paper by
Viner (1950) analyzing the merits and costs of removing tariffs among member countries interms of trade creation and trade diversion effects. The removal of customs tariffs can lead toa trade creation effect by moving resources within the union where cost of production is mostefficient. On the other hand, a trade diversion effect is the displacement of the most efficient
producer which is not part of the regional trade accord.
There are certain conditions for maximizing the net benefits of a customs union
including the competitiveness of the products being traded, the level of tariffs before theintegration, the role of intra-regional trade, and the similarity of the level of development ofmember countries. Competitive products have greater trade creation effects thancomplementary products that are traded regionally because the former give rise to a wider
reallocation of resources based on spatial differences in production costs. In terms of thetariff criterion, if pre-integration tariffs are high, there would be greater net benefits fromregional trade liberalization than if pre-customs union tariffs are low since greater
reallocation of resources results from drastic changes in the cost as a consequence of wider
tariff reduction or elimination. Lastly, the more the economies in the region trade with eachother a customs union among these economies would lead to greater net benefits than if theirshare of global trade is higher than intra-regional trade. This is because any reallocation of
resources resulting from liberalization measures will be confined within the community andnot dissipated outside the region.

II. Economic, social and demographic differences: basis of East Asian integration
The East and Southeast Asian region is probably the most economically dynamic region in
the world today. It has a number of economies that has been significantly transformed in thelast three decades including Japan, South Korea, Singapore, Hong Kong and Taiwan. China,
on the other hand, has emerged from the lethargy of inward-looking economic policies of thepast and is considered one of the fastest growing economies in the world today. On the otherextreme, included in the region are some of the poorest nations in the world like Laos,
Myanmar, Cambodia, East Timor and North Korea.

In the middle of these extreme

economies are emerging economies including Thailand, Malaysia, Indonesia, Philippines,
and Vietnam with sustained economic growth, relatively stable macroeconomic fundamentals,
improving infrastructure that has attracted foreign direct investments. However, in spite of
the relative performance of these economies, a sizable portion of their population is still poor
(Tullao, 2007).
Table 1: ASEAN+3 per capita GDP in USD
Country
Brunei Darussalam(a)Cambodia(a)Indonesia(a)Lao PDR(a)Malaysia(a)Myanmar(a)Philippines(a)Singapore(a)Thailand(a)Vietnam(a)China(b)Japan(c)South Korea(b)Sources:
(a)
(b)
(c)

2001
12,121
288
790
326
3,689
162
924
20,918
1,837
415
26,149-2004
14,404
362
1,159
418
4,625
166
1,042
25,366
2,519
553
1,486
29,173
15,674

2005
16,882
404
1,275
623
5,001
106
1,160
26,821
2,726
635
1,742
16,644Asean Statiscal Pocketbook 2006
ADB Country statistical profile 2007
OECD country statistical profile of Japan

Because of the diversity of the socioeconomic and demographic make-up of theregion, regional cooperation and integration is being pursued along the complementarities
among the economies. In trade, because of the mixed level of economic development
countries the pattern of trade is not founded on the similarity of products but on productcomplementation as shown by the significant increase in intra-regional trade brought about
by intra-firm trade and the rise of the region as a hub for regional production networks (RPN).
Table 2: ASEAN Exports to Major Trading Partners for 1993 and 2006
(In Million USD)
Trading Partner
European Union1

1993 Exports
31,391.5% Share to Total
16.8

2006 Exports
94,471.8% Share to Total
12.6

JapanUnited States
ASEAN
Rest of the World
China
South Korea
Australia
India
CanadaRussiaNew ZealandPakistan

30,952.2
42,008.2
43,681.1

39,261.0

21.0

Total Selected Partner Countries / Regions

187,294.0
187,294.0

100
100

Others2
TOTAL

1

16.5
22.4
23.3

81,284.9
96,943.5
189,176.8

10.8
12.9
25.2

65,010.3
25,670.0
23,148.5
18,928.1
3,916.4
1,583.0
3,018.6
2,986.2
606,138.2
144,569.6
750,707.8

8.7
3.4
3.1
2.5
0.5
0.2
0.4
0.4
80.7
19.3
100

Includes Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and United Kingdom
2
Includes trade of all other countries and those that could not be attributed to specific countries
Some figures may not sum up to totals due to rounding off errors

Source: ASEAN Trade Database (compiled from data submission and/or websites of ASEAN
Member Countries’ national statistics offices and other relevant government agencies)

Intra-regional trade among East Asian countries has expanded significantly in recent
years. In the 1980s, only a third of the region’s total trade has been accounted by intraregional trade while this share has grown beyond 50 percent in 2006. One of the major
conditions for effective regional integration is the significant share of intra-regional trade.
The success of the European Union economic integration is largely due to intra-regional trade.
While the basis of European intra-regional trade is the production and demand for
differentiated products, the basis for intra-regional trade in Southeast and East Asia is productcomplementation.

Table 3: ASEAN Imports to Major Trading Partners for 1993 and 2006
(In Million USD)
Trading Partner
European Union1
Japan
United States
ASEAN
Rest of the World
China
South Korea
Australia
India
CanadaRussiaNew Zealand

1993 Imports
39,291.5
55,702.9
33,712.7
38,763.3

50,488.5% Share to Total
18.0
25.5
15.5
17.8

23.2

2006 Imports
66,118.1
80,495.6
64,252.5
163,594.5% Share to Total
10.1
12.3
9.8
25.0

74,950.9
26,849.7
13,262.8
9,774.6
2,970.3
2,841.1
1,531.2

11.5
4.1
2.0
1.5
0.5
0.4
0.2

Pakistan
Total Selected Partner Countries / Regions

Others2TOTAL

1

217,958.9
217,958.9

100
100

296.1
506,937.5
147,160.4
654,097.8

77.5
22.5
100

– Includes Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and United Kingdom
2– Includes trade of all other countries and those that could not be attributed to specific countries
Some figures may not sum up to totals due to rounding off errors

Source: ASEAN Trade Database (compiled from data submission and/or websites of
ASEAN Member Countries’ national statistics offices and other relevant government
agencies)
The significant rise in intra-regional trade has been attributed mainly to intra-firmtrade and the rise of the region as a hub for Global Production Networks (GPN). GPNs areinterconnected production plants where the component parts of a manufactured good are
produced in various localities based on the cost and location advantage of this site. To takeadvantage of the location edge of various countries in Southeast Asia, component parts ofautomobile of many branded Japanese cars have been produced in many capitals of the region.
Similarly various components of electronic machines and garments are produced in theregion and traded among firms which are parts of the network.
The surge of Regional Production Networks (RPN) in Southeast Asia was madepossible through rapid liberalization mechanisms in trade and investment of the receiving
countries, one hand, as well as the increasing production cost in Japan and South Korea, on
the other hand. The liberalization measures have brought about convergence in the tariff rates
as well as in the investment climate in the region. Likewise, availability of hard and soft
infrastructure in information and communication technology facilitated the growth of RPN in
the region. The combination of liberalization measures and information, communication
technology (ICT) infrastructure created competitive and strategic advantage for various
countries that made them popular destinations of FDI including GPN (Tullao, Conchada, andAguinaldo, 2005).
In the area of macroeconomics, the complementation is likewise shown on how thefunds from surplus countries are being channeled to funds-deficient countries. Because of theunevenness in the level of financial development in various countries, overseas development
assistance and foreign direct investments are being used as avenues for funds intermediation
instead of the capital market.
With the huge savings generated by countries like China, Japan, South Korea,
Singapore, Brunei and to some extent Malaysia, these funds could be channeled to the low
and middle income countries in the region that are in need of funds to finance various
development efforts. This is only possible if a system of financial intermediation in the region
is well developed. With the economic dynamism of the region and the availability of a largepool of savings, East Asia could support large and efficient regional bond markets that may
be as competitive as global bond markets.
However, the development of an efficient regional bond market is difficult to pursue
for various reasons. Although there are benefits to a regional bond market as a response to theasymmetry in resource mobilization, there are limitations as well in such regional effort
mainly arising from its efficiency and competitiveness relative with the global financial
market. Any informational advantage of a regional bond market over global financial market
can be dissipated by access to information due to disclosure, advancement in technology andimprovement in governance.
Moreover, the main weakness of the financial sector in the region is the diversity infinancial development among countries which in turn hampers the development of a regionalbond market. Because of the lack of financial sector convergence in the region the surplus
funds are not being channeled through the regional capital markets for use of countries andcompanies with deficient funds. Instead of using financial intermediaries the imbalances inregional funds are being addressed through the flows overseas development assistance(ODA) by the public sector and foreign direct investments (FDI) by the private sector. Thereis nothing wrong with ODA and FDI flows within the region but these flows are mainlydetermined by the motivations of the source countries. Unlike in an efficient regional capital
market, the regional flows of funds would be influenced by the needs of sectors and firms inboth fund-deficient and fund-surplus countries.
The movement of human resources across the region is likewise a respond primarily
to the regional labor and demographic asymmetries. The exhaustion of the labor reserves ofJapan, South Korea, Hong Kong and Taiwan is met by importing labor from neighboring
Southeast Asian countries with less dynamic economies but with abundant labor supply(Abella, 2004).
Table 4: Approximate Number of Legal and Illegal Migrants,
Approximate Share of Work Force (%), and Main Countries of Origin
For the year 2000
Migrant numbers (000)CountryJapan
Hong Kong
Singapore
TaiwanKorea
Peninsular Malaysia
Thailand

Legal

Illegal1,300 - 1,500
240 - 250
530
300
90 - 100
700
110

250
10 - 20<10<20166
500 - 1,000
500 - 750

Approximate
share of theworkforce(%)
1-2
5-7
25 - 27
1-2
1
10 - 15
1-2

Main countries of origin
Korea, China, Philippine, IranPhilippines (± 60%), Indonesia, China
Malaysia (± 40%), Philippines, Thailand
Thailand (± 35%), Philippines, Indonesia
China, Philippines
Indonesia (±70%), Philippines, Bangladesh
Burmese (±70%), Cambodia, Laos

Source: Manning (2000)
The analysis of the movement of human resources stems from the responses ofindividuals and countries to regional economic and demographic asymmetries that produce
differential impact on the labor markets in various countries.
From the sending countries side, lethargic economic performance and rapid
population growth can create an excess supply of labor. To mitigate the growing internal
underutilization of labor, the international market and overseas employment can serve as avent for excess labor. From the receiving countries side, rapid economic growth, slow
population growth and other effects of the demographic dividend create an excess demand forlabor. One response to this critical labor market disequilibrium is sourcing labor fromoverseas (Tullao and Cortez, 2006).
In the provision of regional public goods (RPG), complementation surfaces again
because of differences in the valuation of regional public goods resulting from theunevenness in economic development among countries in the region.
Common concerns have pressured countries in Southeast and East Asia to cooperate.
Due to globalization and economic progress, the movements of goods, services, people,
capital, information, pollution, and even crimes across national borders have expanded.
Because the production and consumption of RPGs are not confined within the same national
territory, there are positive as well as negative externalities with these spillovers. On the one
hand, if the externalities are positive, there will be an underproduction of the good given thefeatures of non-exclusion and non-rivalry inherent in public goods. On the other hand,negative externalities may result in overproduction because the producer is unable tointernalize the entire cost of production. Given such an environment, there is a need forsupranational bodies that will regulate the provision of regional public goods to attain the
optimal level of regional public goods by maximizing the benefits from these cross-borderflows and mitigating their negative spillover effects (Tullao, 2007).
The financial crisis together with environmental concerns, the spread of avian flu andmore recently, cross-border crimes and international terrorism have emphasized the need tojoin forces and a have common stand on these cross-border issues and problems.
However, fostering cooperation among countries on the provision of regional public
goods is rather difficult because of a problem of valuation. Countries of different economic
development may value the benefits of cooperation and public goods differently, whichmakes it difficult to coordinate the production of these cross border goods (Ferroni, 2004).
Instead of treating RPG as common concerns and sharing the burden of cost, there isunevenness in the cost sharing resulting from the problem of valuation. If all the burden ofproviding regional public goods will be shouldered by the advanced countries, however, theproblem of a free rider may occur. On the other hand, if these developed countries would
insist on equality in cost sharing, it may result in the underproduction of regional public
goods.

III. The need for regional efforts towards socio-economic convergence
Southeast Asia together with East Asia is an extremely diverse region in terms of income
levels, living standards, cultures, governments, and overall socio-economic conditions.
Although these various socio-economic, cultural and demographic asymmetries are being
utilized currently for regional interaction these same differences are restricting the region inmaximizing the potential gains it could reap from regional integration and cooperation.
Problems besetting current regional cooperation have contributed to the sub-optimal
gains from regional integration. In stabilizing the macro-economy, coordination of monetary
policies are making it more difficult to attain because of the diversity of the policy goals
extending beyond economic stability being pursued by many low and middle income
countries. In addition, the reluctance of low income countries to trade liberalization may stemfrom their apprehension on the employment, income dislocation and other structuraladjustment costs of key economic sectors that would result from a more open and liberal
trading regime. In the promotion of public goods particularly environment, it may be difficult
to convince developing countries in the region to actively pursue and participate in achieving
regional goals since the level of economic development dictates to a great extent the countries
preference for these long-term and cross border goals.
Given that complementary relations among nations shapes the current direction forregional cooperation and integration, there is need to address socio-economic disparities andmove towards regional convergence since uneven economic development has the potential of
impeding regional integration and cooperation. To deepen regional cooperation andintegration the countries in East and Southeast Asia should go beyond exploiting theopportunities of various socio-economic and demographic asymmetries and focus theirefforts towards socio-economic convergence.
In the area of trade and investment particularly regional production networks, if
regional integration will proceed along existing asymmetry in production cost, poorer andmiddle countries may become prone to vulnerability as production sites may shift because ofchanges in location advantages. To prevent such vulnerability, local suppliers and subcontractors should be given a chance to graduate from being mere assemblers based on low
labor cost to high-tiered local suppliers and subsequently become contract manufacturers
based on highly specialized human capital. This can only occur if the brand leaders in theseregional production networks will transfer technology to the local sub-contractors in middle
income countries.
However, there are two major issues on the diffusion of knowledge from the global
flagship to local suppliers. Brand leaders in the network are reluctant to freely transfer
technology and improve the technical capacity of the local supplier on the fear that these
local suppliers once they attain a certain degree of technical competence may transfer to othernetworks. The second issue is the capacity of the local suppliers to absorb the technology
being transferred. More often, the local manufacturers do not have the capacity to absorb thetechnology being transferred because of limited human capital base in countries participatingin the regional production networks.
Thus, a successful mechanism for regional integration along this line will require amove towards regional human resource cooperation meant towards convergence in the leveland quality of human capital. At the macro level, there is a need for the more advanced

countries in the region to support the development of education and other human capitalenhancing programs in the developing countries of the region. In particular, the leading
universities in the region should assist the developing countries in the region to make themestablish at least two research universities. These research universities in each country canserve as links between the global research universities in the region and the other institutionsof higher learning in the country. Massive cooperation not only in human resource upgrading
but also in improving the research capacity of these institutions is required. With a massive
human resource development at the national level, it will be easier for flagships in the region
to transfer technology to the local suppliers since their absorptive capacity has been enhanced
through cooperative measures in higher education.
In addressing macro-economic stability, there is a need to develop the financial
system and institutions as well as the regulatory framework and institutions in poorer
countries so that they can easily participate in regional undertakings in stabilizing the
economy and the establishment of an efficient regional capital market. Low-income countries
must strengthen the structural, institutional foundations of their economic systems throughbuilding both hard infrastructure such as transportation and telecommunications facilities andsoft infrastructure such as legal, judicial and governance systems and develop skilled humanresources (Kawai and Wignaraja, 2007).
With such institutions developed, then a more efficient resource mobilization within
the region can occur. Instead of relying on ODA and FDI flows, firms in the funds deficientcountries can have wider options to choose from while the development needs of thesecountries are being addressed. We know that overseas development assistance (ODA),
although transferring funds regionally, is meant primarily to answer the political, economic
and strategic interests of the donor countries. In addition, it may not be efficient in identifying
the projects and activities that may usher the development of the recipient country. There arealso criticisms on the impact of ODA in enhancing consumption rather savings and inpromoting governments that are reluctant to undertake major structural changes.
Another route for the regional flows of funds is made possible through foreign direct
investment (FDI). However, FDI flows are likewise influenced by the interests of firms in thesource countries. These funds move across the region and establish commercial presence
primarily to seek raw materials, penetrate the domestic market protected by high tariff walls,
harness the low production cost in recipient countries and organize a network of production
bases for transnational corporations. The issues of diffusion of knowledge and thevulnerability discussed earlier on regional production networks can make FDI an inefficientavenue for regional flows of funds that would address the development needs of the recipient
countries.
However, if there are efficient regional institutions on financial intermediation the
problems associated with ODA and FDI flows are then addressed.
If the region would like to expand intra-regional trade and investment, there is a needfor policy coordination to stabilize intra-regional exchange rates of East Asian currencies andhopefully become the basis for the establishment of a monetary union in the future. Theinterest in monetary cooperation in East Asia stems primarily from the search for an optimal
exchange rate regime. A regional monetary union could be an alternative to both fixed andflexible regimes at the national level. Usually developed countries are willing to join aregional monetary union because they are confident enough to surrender their monetary
independence in order to reap the stability benefits of a regional monetary union. However,for developing countries the monetary policy is meant not only to stabilize prices but also
used as an instrument for achieving other economic goals. As a consequence, these poorer
countries may be reluctant to yield their monetary independence.

Moreover, Ryou and Wang (2003) have enumerated problems of establishing an
Asian regional currency including the diverse levels of economic development and stages of
economic growth. This will make it difficult for East Asian economies to agree on a common
policy goal for monetary coordination.
Moreover, the fragmentation of regional financial markets is another obstacle toregional integration. Accounting standards, prudential ratios, tax rules, corporate governancestandards and other core aspects of regulatory regimes are inconsistent and often inadequate.
The East Asian region lacks the harmonized and robust financial infrastructure to support
cross – border investments in financial institutions and to facilitate the growth of regional
financial service providers (Akhtar, 2004).
Financial and economic convergence is the key in answering regional macroeconomic stability and the establishment ultimately of a regional monetary union. As long as
these diverse stages of economic development and financial development persist among thecountries in the region it would be very difficult to attain the efficient functioning of regional
financial intermediation and macroeconomic coordination.
In the area of movement of human resources, the diversities in demographic andeconomic development dictate motivations of such movement for both sending and recipient
countries. The overall objectives of temporary labor migration differ from the views ofsending countries from the receiving countries. Many of the sending countries use overseas
employment to address growing unemployment domestically, provide an alternative ofimproving the standard of living for their citizens, and generate foreign exchange. On theother hand, for receiving countries, their objectives include addressing the shortages in thelabor market, mitigate the impact of uncontrolled inflows of temporary workers especially theunskilled ones, and support the skilled human resource requirements of FDIs.

Usually demographic asymmetry among countries results in massive movement of
human resources regionally. Higher wages and income in developed countries have attracted
huge number of unemployed workers from developing countries that in turn has caused
problems for both receiving and sending countries in the region.
However, because of the positive contributions and negative consequences of thetemporary movement of workers there is a need to manage such movement. In managing the
temporary movement of workers the economic and social impact of overseas employment
should also be considered. The effects and issues of temporary labor migration differ whether
a country is sending or receiving. For sending countries, the issue of exploitation of workers,
high cost of migration, protection, brain drain and transfer of technology are very prominent.
On the receiving countries, the issue of dependence on foreign workers, the economic andsocial impact of unskilled workers and irregular migrants, and the displacement of local
workers and professionals are some of the reasons why these countries are imposing strict
rules and regulations on the entry of foreign workers. The issue of transfer of technology alsoemanates from the economic and educational asymmetry.
These problems surface mainly because of the unevenness in economic anddemographic structure within the region. Workers coming from developing countries areoften subject to abuse and exploitation in receiving countries because they are unskilled andwith limited education. Brain drain occurs because highly skilled and educated professionals
from developing countries are attracted to higher wages and good working conditions inrecipient countries. This wage differential is a reflection of the economic gap between
sending and receiving countries.
From the receiving countries, the dependence on foreign workers and the social andeconomic impact of irregular migrants stem from the massive flow of workers to thereceiving country because of huge gap in economic and social development. The dislocation

of local workers and dampening of the wage structure again is due to the massive flows
brought about by the attraction of the receiving country due to the socio-economic disparity.
To mitigate these problems many receiving countries have adopted and establishedregulatory measures to limit the movement of workers including nationality and residency
requirements (Mashayekshi, 2000). They have also established market access barriers that
restrict the application of movement of natural person as a mode of supply of service like therequirement for an economic needs test as a condition for accepting foreigners to renderservice in a host country.
Furthermore, to temper the massive movement of workers recipient countries impose
national treatment barriers.

These are national treatment limitations that include therequirement that sectors and the practice of professions are open only to citizens of thecountry. Immigration policies are also considered a hindrance to regional movement ofworkers. The limitation of stay, non-extendable visa, the cost of visas, the long processing
periods are some examples that can make movement across boundaries of natural persons
costly and may impair economic integration.
Many recipient countries also impose pre-employment requirements that a foreign
applicant needs to consider before procuring a work permit in a receiving country. These
include drug test, police and security clearance, reference checks and medical requirements.
For the sending countries they have initiated seminar programs to orient workers on
the working and living conditions in workers’ country of deployment. To protect theiroverseas workers they have established bilateral agreements with the receiving countries
covering terms of employment, compensation and protection. Some countries have alsochanged the composition of deployed workers by discouraging workers prone to abuse andexploitation and promoting the deployment of skilled workers

Beyond mitigating the negative consequences of massive movement of workers due
to demographic asymmetry, there is a need for regional cooperation to enhance the regional
flow of workers in order to realize the positive contributions of movement of foreign workers
on regional output and employment. For example, the loss of manpower can be addressed
through appropriate diffusion of knowledge. Transfer of technology to migrant workers canproceed if foreign trainees are encouraged to return to their home countries after their stints indeveloped countries. In the field of education cooperation, transfer of technology andconvergence may bring about the return of recipients of educational scholarships to theirhome countries and contribute to the human resource development particularly in educationof their home countries and participate in regional efforts in understanding and studying
regional concerns.
As convergence proceeds, the massive dislocations brought about by migration of
professionals and other highly skilled laborers from low and middle income countries may be
mitigated. If ever, any labor dislocation brought about by the regional flow of humanresources will be insignificant and temporary. It can be argued as economic convergenceproceeds, the wage and income differentials among countries are substantially narrowed. As
this occurs, flows of human resources across the region may still continue but not in the same
scale that is based on labor, demographic and economic asymmetries. It is no longer higher
wages that would attract the massive flow of resources but the tastes of individual workers.
Thus, brain drain will no longer be an issue. The displacement of workers and the socioeconomic impact of irregular workers will also become a non-issue since the root cause of
these problems is the economic unevenness among countries in the region. Once thisdisparity is addressed we will also find addressing the problems accompanying the massive
flows of human resources.

In the provision of regional public goods, the current basis for participation and cost
sharing is the state of economic development of countries. Although countries in the region
are willing to cooperate to prevent the recurrence of the financial crisis the growing relevanceand relative success of ASEAN+3 is mainly due to the financial support that developed
countries have infused in this regional undertaking. In the same manner, ASEAN Haze
Agreement meant to control cross border pollution caused by forest fires and otherenvironmental concerns will only succeed if all countries will bear the cost of its
implementation. In addressing the avian flu and other health issues, cross – border crimes andinternational terrorism as common concerns, usually it is the richer countries that make adifference in the implementation of these regional undertakings.
However, greater cooperation in regional public goods is beset by the interest,
participation and funding of countries in the region. The issue of valuation and the level of
economic development can make low income countries reluctant to participate as they shouldin addressing regional public goods. It can be argued that the preference of these poorer
countries for long-term goods may not be as high as their immediate concern in addressing
poverty and the provision of employment opportunities for its citizens. Moreover, given the
public character of these goods, there may be a tendency for these countries to take a freerider position and let other countries, particularly the more advanced ones to take the lead andfinance various programs meant to produce regional public goods.
However, a free rider option may not be a choice open to member countries sincenon-cooperation and non-participation of a single member may unduly comprise theprovision of regional public goods. In the provision of regional public goods there is a needto separate participation from shouldering the cost of participation since all members are
required to participate. If differences in valuation of regional public goods and level of
economic development are preventing some members not to participate, they should be given

incentives to participate in these regional efforts since universal participation is a must. One
incentive that can be devised is the granting of assistance to poorer countries in financing
their participation in efforts in providing regional public goods. Another is a compensation
package to poorer countries for the loss in income, employment and other forms ofdisplacement as a result of their participation in regional efforts in the provision of regional
public goods.
Preference for regional public goods is largely dependent on the state of economic
development of the country. Although developing and developed countries share borders andcommon concerns, their valuation on these regional public goods may not be the same. As aresult, participation, interest and funding in these common goods are asymmetrical. But once
this unevenness is addressed, the common concerns become common indeed in valuatingthese regional concerns. Currently, this can only be done by leadership and funding fromdeveloped countries in the region.

IV. Conclusion
Although economic, demographic and social disparities in the region have been utilized topromote regional cooperation and integration through trade, investments, movement of
capital and human resources, these widening gaps are becoming a threat for a greater anddeeper regional integration.
The more immediate concern in strengthening regional integration in East andSoutheast Asia is to address socioeconomic and demographic asymmetries and work toward
regional convergence. There is a need for developed economies in the region to take an activerole in financing, through overseas development assistance, technology transfer, institutional
support and development and other programs and projects that would narrow the socioeconomic and demographic gaps among the diverse countries in the region. With theseconvergences, the problems of vulnerability and diffusion of knowledge among local
suppliers in global production networks is addressed; the development of a financial
institutions ready for a regional capital market and the establishment of a regional monetary
union. With higher levels of income and same level of development, migration flows with thedislocations and disruptions to both sending and receiving countries since they are not as
massive. Problems associated in the production of regional public goods are likewise
mitigated by the narrowing of economic gaps among countries in the region.

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Feb. 29, 2008
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