Comment on “Economic Impacts of Improved Connectivity for ASEAN: An Application of the Geographical Simulation Model”

• Date: 01 July 2016
• Author: Fukunari Kimura
• Published date: 01 July 2016
• DOI: http://doi.org/10.1111/aepr.12148

Comment on “Economic Impacts of Improved

Connectivity for ASEAN: An Application of the

Geographical Simulation Model”

Fukunari KIMURA†

Keio Universityand Economic Research Institute for ASEAN andEast Asia (ERIA)

JEL codes: F15, O53, R12

Isono and Kumagai (2016) employ the IDE/ERIA Geographical Simulation Model

(IDE/ERIA-GSM; hereinafter GSM) and compare the possible economic effects of the

Master Plan on ASEAN Connectivity (MPAC) and the Comprehensive Asia Development

Plan.

The unique featureof the GSM is its ability to visualizethe dynamic effects of tradecost

reductions on the locational choices of industries and the movement of people. In the

relatively simplistic micro structure of a one-factor (except agriculture that have arable

lands as an additional input) seven-sector (agriculture, five manufacturing sub-sectors,

and services) monopolistic-competition setting with CES production functions at the level

of sub-nationalprovinces, changes in transport costs fordomestic and foreign trade as well

as the enhancement in productivity generate sticky movements of the productive factor.

The beauty of the GSM isto make the simulation results plausible simply by manipulating

trade costs, backed up by a number of field trips and empirically reasonable estimates of

some parameters. Capital is missing in the model so that the analysis of economic growth

has some limitations. Even so, the model demonstrates that the simplistic setting of trade

costs can generate realistic simulation results.

It is particularlyimportant to apply the GSM to economic development in ASEAN and

East Asia. These are the regions in which a novel development strategy with production

networks or thesecond unbundling has extensively flourished.To participate in production

networks, reductions in service link costs are crucial. To develop industrial agglomerations

with production networks, the proper spatial design of industrial agglomerations is

essential. Although negative agglomeration effects, that is, congestion effects, are only

partially incorporated, the GSM is shown to be a powerful analytical tool for visualizing

the spatial structure of industrialization for various policy scenarios.

The comparison of the economic effects between MPAC and CADP conveys an

important message for ASEAN. Connectivity is a key concept for ASEAN economic

integration.Different degrees of the sophistication in utilizingthe mechanics of production

networks should be supported by appropriate grades of connectivity. Connectivity allows

†Correspondence: Fukunari Kimura, Faculty of Economics, Keio University, 2-15-45 Mita, Minato-

ku, Tokyo 108-8345, Japan. Email:fkimura@econ.keio.ac.jp

doi: 10.1111/aepr.12148 Asian EconomicPolicy Review (2016) 11, 307–308

©2016 JapanCenter for EconomicResearch 307

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