Investment in connectivity

Connectivity has many benefits. These include not just the gains from trade but also the implications for the location of economic activities and patterns of trade as a result. Relevant in this respect are the drivers of agglomeration that follows from reductions of transport costs, the sensitivity of location decisions to small policy changes in a low transport cost environment, and the redistributive effects. There is also scope to include these additional effects to those considered in the traditional methodologies of modelling the gains from trade. Given the presence of these extensive gains from connectivity, what are the prospects for the ASEAN Master Plans for connectivity. There is some progress but also that issues and thereby constraints remain, including those around decision making, access to funding and to human resources, regulatory reform and expectations of revenue failing to be met. There is a number of ways that progress might be made. One track in response is to provide more information on the benefits and consequences of connectivity. How this might be done is illustrated by a pair of case studies of actual integration, an air transport example and an automotive industry example. Another approach is to apply a simulation model which is designed to capture the trade and spatial consequences of improved connectivity. In this case, the implementation of the Master Plan on ASEAN Connectivity (MPAC) is considered, with a focus on corridors in the Greater Mekong Subregion (GMS). One of the important contributions is to identify the flow of benefits across countries even of national projects, which leads to discussion about the scope to share funding in infrastructure projects. A key result is that the design of projects for connectivity need not be bound by ASEAN membership. Connectivity matters within the group and between its members and others. ASEAN can lead the development of thinking on connectivity, but projects could be developed at a higher level, involving other economies (the provide examples of working with China, for instance) or a sub-regional level. In either case, the modelling work remains useful in order to capture the distribution of consequences beyond those economies directly involved.