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Measuring Economic Integration in the Asia-Pacific Region: A Principal Components Approach


This paper measures economic integration in the Asia-Pacific (AP)
region using a composite index. 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 extent of
convergence among the main macroeconomic indicators of a
sample of AP economies. In the second stage, we use indicators
of trade, FDI, and tourism, as well as the convergence index, to
compute the weights for the composite index. We found that
economic convergence in the AP region increased until 1998 but
has since fallen back. The integration of trade, investment, and
people flows increased between 1990 and 2000, weakened
slightly to 2003, and has since picked up again. Among the 17
sample economies, Singapore, Hong Kong, and Chinese Taipei are
the most integrated with the AP region and Indonesia and China
are the least integrated. Read the paper