The regional integration initiatives & Nepal
The concept of regional economic integration has come a long way since the time of notable economists Jan Tinburgen and Bela Balassa. An effort toward liberalization of economic variables, removing any governmental discrimination during the movement of commodities provides a conducive environment for trade creation, thereby leading to an increase in the welfare of the member states. In the current context, the benefit associated with the economic integration comes from the common internal standards and regulations, as much as it does from harmonization of external tariffs and ease of movement of the factors of production. Additionally, the regional integration would bestow an increased might in the global political sphere. It would assist in resolving conflicts and institute a framework for regional prosperity and global leadership.
Since the turn of the century, Asian economies have emerged as the growth center of the global economy. Led by China and India, the continent with a large young workforce is the most dynamic region and accounts for nearly two-thirds of the global economic growth. Strengthening regional connectivity and integration through cross-border infrastructure investment would be crucial for Asia to continue this positive trend. Furthermore, comprehensive regional trade agreements can help lower the tariff and non-tariff barriers and bring a more sustained growth in the region.
The sustainable development agenda provides both the developing and the developed countries with a unique consensus on mutual challenges, priorities, and ambitions. In order to realize the aspirations that have been collaboratively set for 2030, acceleration of regional integration by boosting intra-regional trade and encouraging the participation of the least-developed economies in the global supply chain is a must.
A discernable stride toward the 2030 goals requires a major rethinking of the way the economy is governed at home. The answers to the methods for sustainable development lie in the capacity of business and industries to innovate and bring new technologies to the market. An enabling policy environment would need to complement the untangling of the bottlenecks such as inadequate capital and the poor state of infrastructure. The private sector's developing productive processes to create a vibrant economy would be significant to the regional integration and sustainable development efforts.
For the small landlocked economies, such as Nepal, regional integration is more of a necessity than a policy option. The ideal way forward for Nepal to gain most out of the economic integration would be to identify the key areas in which Nepal could contribute and facilitate the promotion of those sectors. For example, the Enhancing Sustainable Development in Asia and the Pacific (ESCAP) member nations accounts for the majority of imports of medicinal herbs and aromatic plants, a high potential export product of Nepal. Having been recognized by Nepal Trade Integration Strategy (NTIS) for its high social impact value, the product boasts immense promise to contribute to the income generating capabilities of the rural households in Nepal. Addressing the issues related to non-tariff barriers during exports of the product in the region would foster Nepal’s export competitiveness, assisting the country to inch towards the sustainable development targets in the process.
Energy sharing within the region offers an attractive prospect for Nepal. Despite a significant potential and unmet demand, energy sharing is limited particularly in the South Asian region. Should Nepal’s hydropower development activities progress as per the schedule, the country should be able to feed the excess energy into regional grids within a decade.
However, the inadequate domestic investment capacity of Nepal makes the 2030 ambitions seem extremely far-fetched. Nepal has never been able to attract adequate foreign direct investment (FDI), thanks to the policies cocooning ourselves from the outside world. A major reform in the legal frameworks and policies regarding foreign investment – not limited to, protection of investment and returns, mechanisms for sharing of risk, returns, and technology -- is crucial, if Nepal is to fill the investment gap.
The increased financial linkage through the regional integration offers plentiful funding opportunities to the infrastructure projects within Nepal through the regional development banks and other similar entities. Additionally, the enhanced financial cooperation within the region helps build regional defenses against the crises. Regional reserve funds, stronger regional surveillance and policy consultation could help create a resilient financial system among the regional partners. Cooperation within the region to develop the financial infrastructure could help the regional partners adapt the international standards to regional conditions or even set special regional norms. Nepal could make most out of this opportunity.
Inadequate transport connectivity, arduous logistics, and other regulatory procedures are some of the issues that mar the intra-sub-regional trade in the South Asian segment. Nevertheless, the effective functioning of the economic partnership arrangements in the region is expected to lead toward a free, fair and hassle-free multilateral trading and investment regime.
All in all, experiences from around the world indicate that a country’s utilizing astute economic strategies to leverage the regional cooperation can be very effective in accelerating the stride toward prosperity. In an era when developing countries around the world have made a call for greater cooperation, an opportunity to closely engage with the rapidly advancing economies in the Asia and Pacific region should be placed at the top of Nepal’s agenda.
Adhikari is an MBA candidate at Louisiana State University, United States.
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