A Composite Index of Economic Integration in the Asia-Pacific Region

Abstract:

This paper measures economic integration in the Asia-Pacific (AP) region using a composite index and finds that the region was more integrated at the end of 2005 than it was in 1990, just after APEC was formed. The weights of the index are obtained from a two-stage principal component analysis. In the first stage, we obtain a convergence index to measure the convergence of AP sample countries’ main macroeconomic indicators. In the second stage, we use the indicators of trade, FDI and tourism, as well as the convergence index, to compute the weights for the composite index. From a balanced panel data covering 17 representative AP economies from 1990 to 2005, we find that economic integration in the region has increased during the period 1990-2005. Among the 17 sample economies, Singapore and Hong Kong are the most integrated with the AP region while the Indonesia and China are the least.

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