Importance of Physical Connectivity in ASEAN

Physical connectivity, together with institutional connectivity, is the key for economic development in ASEAN and East Asia. Production networks in ASEAN and East Asia, particularly those in the manufacturing sector, are the most advanced in the world. Baldwin (2011) introduces the concept of the “2nd unbundling” for international division of labour in terms of production processes or tasks that extend the boundary of corporate activities, beyond the national border. Connectivity backed up by physical logistics infrastructure and institutional economic integration is crucial to the development of production networks.

Both ASEAN and East Asia have substantial differences in development stages. Such diversity actually enhances opportunities to expand production networks. By effectively utilizing the mechanics of production networks, the regions can achieve both the deepening of economic integration and the narrowing of development gaps. In the process, it is important to identify the demand for logistics infrastructure by geographical location and stages of development.

At the East Asia Summit 2010, ERIA submitted the CADP, which presented ASEAN's logistics and other economic infrastructure development plans that were consistent with the process of industrialization and the extension of production networks. The applied conceptual backbone is the extended fragmentation theory and new economic geography. ERIA, in parallel, supported the ASEAN Secretariat to complete the Brunei Action Plan and the Master Plan on ASEAN Connectivity, both of which shared a common conceptual framework.

This chapter is organized as follows: the next section briefly explains the conceptual framework based on the extended fragmentation theory and new economic geography, which logically links logistics/institutional connectivity with overall development strategies. The three tiers in terms of the degree of participation in production networks are also introduced. The third section assesses the current status of logistics infrastructure and services in ASEAN, while the fourth proposes further logistics and supplementary economic infrastructure development by the three tiers of economic development.