Convergence or divergence of prosperity within the ASEAN community? A crucial issue for the success of the ASEAN economic community (AEC) process

The purpose of this paper is to scrutinize the economic development of ASEAN countries during the period 2000-2014 (after the crisis) with the aim of detecting the convergence and divergence of trends over this period and of providing a framework that could be used for subsequent studies in the future.

Based on the models developed by Solow (1956) and Barro and Sala-i-Martin (1991), the authors estimate absolute and conditional β-convergence through OLS, pooled OLS and pooled OLS with time period effect. The absolute β-convergence can be modelled by the relationship between the log of the compound annual growth rate of GDP per capita (GDPC) (or per worker) and the initial level of GDPC (or per worker). The conditional β-convergence is modelled by the same relationship, supplemented by other factors potentially affecting the growth.

The findings indicate an average annual rate of σ-convergence per annum of approximately 1 per cent, and of 0.4-0.6 per cent for β-convergence, over the period 2000-2014. Compared to other macro-regions (e.g. the European Union), these rates of convergence among ASEAN countries are relatively low.

The ASEAN roadmap should address two interlinked challenges: the first one is to achieve coordination of the macroeconomic, institutional, legal and social policies within the area. The second one is to address the specific microeconomic drivers of each member state to achieve increased sustainable development.

This paper identifies the contradictory results found in previous studies on ASEAN convergence and attempts to clearly determine the optimal sample, sample time period and estimation approaches to obtain sound results regarding convergence processes.