Integration success of Southeast Asia – the ASEAN single production base

Abstract

In our study, we primarily analyse the impact of the creation of the ASEAN Economic Community on the region’s FDI attractiveness. Two phases can be distinguished in the economic cooperation among ASEAN countries. Between 1976 and 1987, the economic cooperation in Southeast Asia was characterised by import-substitution industrialisation. Since the 1980s, however, ASEAN regional agreements and initiatives have been embedded in an export-oriented and FDI-dependent strategy.

The initiatives of the earlier import-substitution strategy did not render significant results. The economic integration of ASEAN member countries has, however, started to evolve through growing production networks created by transnational companies which were seeking for a cheap production base since the second half of the 1980s.

The shift in strategy at the end of the 1980s has supported market-led processes. For two decades, ASEAN regional agreements and initiatives have been aimed at creating a highly liberalised regional market and a single – integrated – production base which promotes the effective functioning of these production networks in the region, and has attracted new foreign investments.

The liberalisation efforts of several regional initiatives and agreements can be linked to the period of 1997–2003, when due to the Asian financial crisis, FDI inflows into the ASEAN region decreased and then stagnated. In 2003, ASEAN agreed on the creation of the ASEAN Economic Community by 2015 which is based on former regional initiatives and agreements. The efforts for accelerating regional integration contributed to the fact that ASEAN managed to increase its share in global FDI inflows considerably.

In this time of global crisis, ASEAN member countries decided to launch new regional initiatives which amended former ones to make their region more attractive for foreign direct investments. In 2013, FDI inflows into ASEAN reached a record level. As a consequence, the ASEAN region has already caught-up with China in the global FDI race.