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mean unilateral policies cannot, in fact, do the job better. The East Asia Miracle of
the 1980s and early 1990s is testament to the value of unilateral liberalization. To
say that without integration something bad will happen is farfetched. To argue the
entire region will only benefit by joining an integration initiative or agreeing on
some regional agenda is equally erroneous. Even without the risks of integration
discussed earlier, this is the wrong way to think.
Countries commit to a regional agenda because it is to their national advantage.
It expands opportunities, and allows them to allocate their own resources more
efficiently. If they fail to see this and decide not to participate, nothing disastrous
will happen. This is of course very different from a global commons like climate
change.
If unilateral policies improve a country's economic performance, it is not
difficult to imagine some positive spillover effects on the regional economy. In
trade and financial integration, for example, if countries adopt policies that are good
for themselves even without signing up for a regional initiative, their economic
growth could become more robust and stable, which by itself also helps the region.
Thus, national policies are key. But they are also important in maintaining the
integrity of those domestic institutions required for effective regional initiatives.
Even in today's more globalized world, nations remain dominant, and democratic
deliberation is largely organized around them. Each country has the right to create
and protect its own regulations and institutions. For regional integration to work,
there must be sufficient national or domestic policy space to maintain the integrity
of domestic institutions. 12 Policy space, when filled in with the right measures, can
advance the regional economy. The key principle is clarity and transparency—that
the unilateral policy and national deliberation are based on facts and evidence for
improving welfare. The cooperation agenda for regional integration can then focus
on the rules and monitoring that ensure more effective implementation, while
minimizing negative spillovers (as a safeguard). This approach can also improve
the quality of national deliberations, making them more effective in boosting
welfare.
9.3
Integration-Driven Capital Flows and Income Inequality
9.3.1 Liberalization and Capital Flows in Post-GFC
Financial sector liberalization (FSL) has been widely promoted as a way to better
allocate capital and widens opportunities for savers and investors. It also creates an
environment conducive to financial innovation. Some argue that FSL helps build
discipline among policy makers in securing macroeconomic stability.
This has been the predominant thinking until recently. One of its most
important—yet controversial—components
is capital account
liberalization
12 A similar principle can also be applied to the concept of globalization; see Rodrik ( 2011 ).
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