Trading Blocs - ASEAN Economic Community

The ASEAN Economic Community is an important example of a trading bloc, particularly when you consider the countries involved in it.

Key Features of the ASEAN Economic Community

• ASEAN is a trade bloc of 10 nations with an aggregate economic size (as measured by the total GDP of the member countries) of $2.3 trillion.
• The aim is to establish a fully-fledged economic community (AEC)
• The trading bloc’s diversity – ranging from advanced economies like Singapore to developing countries like Myanmar is an interesting feature – who will be the long-term winners and losers from deeper integration?
• ASEAN’s member countries (in 2015) are Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam

Economic Background to the ASEAN Economic Community

• ASEAN is a middle-income region but with big differences in per capita incomes of the member countries
• Countries such as Singapore and Brunei enjoy a high GDP per capita at around $49,000 and $39,000 (PPP) respectively, on par with the top tier of developed-market economies.
• In contrast, Myanmar and Cambodia have a very low GDP per capita of just below $900 (PPP) The ASEAN region has a population of over 600 million, which is around 9% of the world’s total population
• The combined 2014 GDP of ASEAN countries makes it the 7th largest economy in the world worth $2.6 trillion 25% of ASEAN trade is intra-regional trade – the aim is to increase this as ties deepen and also for a rise in intra-regional foreign direct investment flows
• China is the No. 1 trading partner for ASEAN 5 “ASEAN+1” free-trade agreements have already been signed, with China, Japan, Korea, India and Australia/New Zealand respectively ASEAN countries now attract more FDI inflows in total than the Chinese economy

The Importance of FDI into the ASEAN Countries

A particular feature of the ASEAN trading bloc is the significant flows of foreign direct investment (FDI) into them:

Over the last several decades, ASEAN has received significant inflows in foreign direct investment (FDI), thanks to:

• Favourable demographics (including a young fast-growing population)
• A rapidly growing middle class
• Relatively cheap labour and expanding trade linkages

In recent years ASEAN has positioned itself as a destination for transnational companies seeking to diversify investment from China, where unit labour costs have been increasing quickly.