Regional Economic Integration and Income Inequality in Selected ASEAN Countries

Abstract

Widening income inequality in recent years has triggered an outpouring analysis and reflection on the causes of inequality. Economic cooperation demonstrated robust economic growth, reducing poverty but also accompanied by rising inequality. The income gap persists between ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, Thailand) and the ASEAN-3 (Cambodia, Laos, Vietnam) has become a prominent issue and policy debate. Hence, this study aims to investigate the relationship of regional economic integration and income inequality by adopting a balanced panel analysis for selected ASEAN countries from 2005 to 2018. Trade and financial integration was evaluated to investigate the influence on inequality. Empirical findings showed that trade integration is more effective than financial integration in improving income distribution. Export activities from the manufacturing and service sectors help ASEAN-5, while the agricultural and manufacturing sectors help ASEAN-3 in narrowing income distribution. Therefore, integration policies to improve inequality should not be universally implied on countries with diverse economics structures and varied development activities.

Regional Economic Integration and Its Impact on Income Distribution and the Poverty Level: The Case of the WAEMU Zone

“…The CGE model results revealed that the East Asian community increased economic growth and improved income distribution, thus reducing the region's poverty rate. Ean et al (2020) employed the Fully Modified Ordinary Least Square (FMOLS) method to examine the effect of REI on inequality in the Association of Southeast Asian Nations (ASEAN) countries over the 2005-2018 period. The results showed that trade integration, as well as the agricultural and manufacturing sectors, reduced income disparity.…”

“…Several studies have looked into the effects of regional integration for income inequality and poverty reduction in Africa. For example, Alderson and Nielson (2002) and Beckfield (2006) argue that integration widens the income gap, thus increasing poverty, while Osakwe (2015), Muriel and Guo (2016), Park and Claveria (2018), as well as Ean et al (2020) suggest that African integration may reduce income disparity and the poverty level. Decreasing the poverty level and the income gap remains a fundamental concern for all WAEMU economies (Figs 1-3).…”

The Impact of Economic Integration on Income Inequality in the EU: A Panel Data Analysis of the EU Members from 2002-2020

“…Nevertheless, the sign of this relation is not clear, as another group of works finds that economic integration is linked to reduced inequality (Furceri & Ostry, 2019;Jaumotte et al, 2013;Mundell, 1957;Ravinthirakumaran & Navaratnam, 2018;Tian et al, 2009). Others claim however that the connection is more complex, in the sense that whether integration augments or mitigates inequality depends on other moderating factors such as economic development (Cesaroni et al, 2019;Couto, 2018;Dorn et al, 2022;Ean et al, 2020;Tung et al, 2020). This ambiguity results in a lack of consensus among economists on the precise nature of the relationship (Bertola, 2010).…”

“…Much empirical evidence confirms the theoretical prediction that economic development moderates the relationship between economic integration and income inequality. For developing countries, higher trade intensity is associated with lower income inequality, and the reverse is true for industrialised nations (Cesaroni et al, 2019;Dorn et al, 2022;Ean et al, 2020;Tung et al, 2020). Nevertheless, these theoretical predictions do not always hold because the assumptions are not always met (Mankiw & Taylor, 2020).…”