November 4, 2009: Dr. Michael Plummer

(Click to Enlarge) Dr. Michael Plummer describes the prospects for the ASEAN Economic Community

Assessing the Economics of the ASEAN Economic Community


(Washington D.C.) November 4–Though there is still a long way to go before the ASEAN Economic Community (AEC) can become a reality, the potential gains will be felt by the entire region. In an East-West Center in Washington Asia Pacific Political Economy seminar, Dr. Michael Plummer, professor of international economics at Johns Hopkins University’s SAIS-Bologna program and non-resident senior fellow at the East-West Center, discussed the findings of his recent report, Assessing the Economics of the ASEAN Economic Community, examining the liabilities and advantages to implementing the ASEAN Economic Community and describing the challenges that remain in realizing this goal.


The AEC is an ambitious attempt to create a single market and production base in Southeast Asia. Dr. Plummer noted that several events in recent years prompted ASEAN governments to consider the advantages of greater economic integration with their neighbors. Specifically, he pointed to the 1997 Asian economic crisis, during which ASEAN nations realized that they could expect little recovery assistance from the rest of the world. Further, the recent rise of China and India as key competitors to ASEAN manufacturing networks and the emergence of economic regionalism showed ASEAN leaders the importance of developing a coordinated approach to economic integration. Essentially, Dr. Plummer noted, ASEAN governments want to decrease the costs of doing business in the region and make it more competitive through economic integration.


The creation of the AEC, however, will require a great deal of political capital from regional leaders if it is to be realized, and therefore an understanding of the potential benefits of the program is essential. Dr. Plummer explained that implementation of the AEC would bring benefits to all affiliated countries, though some nations such as Singapore and Cambodia would benefit more than others. Overall, there would be a reduction in trade costs for all markets, and a projected 5.3 percent increase in national income. Manufacturing in the region will particularly benefit, with an additional increase in the service sector. Dr. Plummer explained that exports will likely rise by 43 percent, and imports by 53 percent, overall. Further benefits include an ASEAN that speaks with one voice on trade issues when addressing regional concerns at the global level.


Essentially, Dr. Plummer argued that the AEC will offer important benefits and opportunities to the ASEAN region, and though the political costs for the implementation of the program are high, the economic gains far outweigh these costs. However, the road to implementation of the AEC will not be an easy one. Dr. Plummer argued that the timeframe that has been set for implementation is overly-ambitious. Deadlines, he noted, are important in moving the process along, but more important than timing is the implementation of appropriate policies and practices. Dr. Plummer worried that if ASEAN does not meet the implementation deadline, political pressure will prompt it to declare victory and move on whether or not effective mechanisms have been put in place.


Dr. Plummer noted that it is extremely important that this economic integration be outward-looking as so much of ASEAN trade takes place with the rest of the world. Additionally, he explained that while the integration will bring overall benefits, as with all economic changes, there will be losers. He worried that most ASEAN nations lack national welfare systems to support these losers and help them move into new positions in the economy. Further, he explained that ASEAN will need to boost the existing institutions and perhaps create new ones if the AEC is to succeed: the current ASEAN secretariat, for example, lacks the resources and personnel to manage such a complicated and far-reaching regional mechanism. He also argued for the necessity of creating a regional customs union, and for strategically interacting with existing global institutions. Despite these hurdles, if the challenges can be overcome and the AEC is properly implemented, the benefits to the region will be substantial.


Michael G. Plummer is professor of international economics at The Johns Hopkins University, SAIS-Bologna, and non-resident senior fellow of the East-West Center. He is editor-in-chief of the Journal of Asian Economics and director of the American Committee for Asian Economic Studies (ACAES). Previously, he held teaching and management positions at Brandeis University and the East-West Center. He has also been a Fulbright Chair in Economics (Viterbo) and Pew Fellow in International Affairs (Harvard University). His academic interests include international trade, international finance, and economic integration, especially in the Asian context and he has published extensively in these areas. Professor Plummer serves on the editorial boards of the Asian Economic Journal , World Development and the ASEAN Economic Bulletin.