ASEAN Economic Community: A General Equilibrium Analysis*

Abstract

The ASEAN Economic Community (AEC) is the largest integration effort attempted in the developing world; if realized, it will create a single market with the free movement of goods, services, foreign direct investment and skilled labor, and freer movement of capital encompassing nearly 600 million people. This study, a first attempt to evaluate the full benefits of the AEC, finds that the project could produce gains similar to those resulting from the European Single Market, amounting to 5.3 percent of the region's income. The benefits could be doubled if, as expected, regional integration also leads to new free trade agreements with key external partners. The whole region will share in these gains. There will be mild trade and investment diversion effects for some other countries, but the world will benefit too. Nevertheless, the AEC poses political challenges: the present study finds that the project will imply significant structural adjustments in several ASEAN economies.