economic and financial structure and the state of the international financial system. iv. conclusion to conclude, east asia has been in the process of dynamic transformation. we are still a long way from fully understanding the policy implications of east asia ’ s integration into the global economy. i am looking forward to learning from both prominent scholars and central bankers their analyses and perspectives on the issues. i would be delighted if all of you could take away some insights from the discussion. thank you for your attention. note : “ east asia ” or “ east asian emerging economies ” is defined as comprising of people ’ s republic of china, hong kong, korea, singapore, taiwan, indonesia, malaysia, the philippines, and thailand.

world economy has gone beyond a mere production base. it is increasingly a source of final demand as well. second, china ’ s integration into the global economy is promoting transformation of trade, investment, and production patterns of other economies. previously, china maintained its comparative advantages mainly in production of goods and services that were intensive in the use of unskilled labor. in recent years, however, it has attracted sizable foreign direct investment from developed countries and thereby strengthened its competitiveness in production of capital - intensive or knowledge - intensive goods and services. such changes on the part of china have affected comparative advantages of other east asian economies as well and required them to reallocate domestic resources accordingly. the efficient reallocation of resources could, in principle, lead to higher growth of the region as a whole. at the same time, however, the adjustment process sometimes entails certain costs. if domestic markets and institutions are not flexible enough to facilitate reallocation of labor and financial resources from unproductive sectors to productive sectors smoothly, the cost might appear in the form of stagnant growth and unemployment. in this regard, it is of utmost importance for policymakers to continuously pursue reforms to ensure that their domestic systems remain responsive to structural changes in the economy. on the financial front, east asia ’ s integration with the international financial system has also advanced steadily in recent years. the integration brings benefits to the economies in the region. with more funding options available, borrowers in the region can raise funds on more favorable terms. with more global investment options available, investors can improve the risk profile of their portfolio through diversification. however, as financial integration deepens and international capital flows become more active, negative shocks originating from one country or region are easily transmitted to another country or region. such transmission of shocks is not only from developed economies to emerging economies, but also vice versa. asset prices, in particular, stock prices, are closely correlated both globally and regionally. it should be noted that, in such circumstances, asset prices tend to overshoot economic fundamentals from time to time, causing excessive volatility, which could in turn negatively affect the developments in the real economy. iii. issues for discussion at the conference whereas east asia ’ s integration could bring substantial benefits to both the global and regional economies, possible side effects should be monitored carefully. it will be a challenge to reap maximum benefits from deepening economic and financial integration while minimizing costs that could possibly arise from such integration.