The role of microeconomic policy reform in regional integration — analytical and empirical issues

Economic integration should not be an end in itself, but the outcome of domestic reforms that increase the general contestability of markets. The paper finds that for India, comprehensive domestic regulatory reform dominates as an integration strategy, while an ASEAN+6 PTA would fail to deliver gains. Multilateral action is an intermediate strategy, important for delivering trade liberalisation in sensitive sectors and in highly protected economies. The paper then considers what institutional approaches might facilitate further domestic structural reforms. Key to this are mechanisms to review the desirability and performance of all regulations and institutions on an ongoing basis, and in a way that involves all relevant stakeholders. Such policy review institutions can provide technical solutions, helping to identify particular reform options. They can also be part of a strategy to manage the domestic political economy of reform, by providing a forum in which countervailing interests could marshal against vested interests, thus helping to build a coalition in favour of reform. Finally, they can facilitate policy coordination within and across levels of government. The paper considers desirable characteristics of such institutions, and provides examples from around the Asian region.