Geographical Simulation Analysis for Logistics Enhancement in Asia

The purpose of this paper is to evaluate the impact of trade cost reduction on the Asian economy by employing a sub-national level model based on New Economic Geography. Our model comprises seven sectors, including manufacturing and non-manufacturing sectors, and 1,715 regions in 18 countries/economies in Asia in addition to the two economies of the US and the European Union. As a Computable General Equilibrium of New Economic Geography, we have developed a simulation model for multi-region and multi-sector that consists of the agriculture sector, five manufacturing sectors and the service sector. We assume that there are increasing returns to scale in manufacturing and service sectors. We have introduced modal choice and separation of trade costs respect to physical and non-physical infrastructure. While physical infrastructure improvements are expected to have a drastic impact on the distribution of economic activities, we found that the positive effects of physical transport infrastructure improvements are rather limited to the neighboring regions of the projects and that the existing concentrations of economic activities are rather persistent. Furthermore, we also find that, besides the ongoing physical transport infrastructure improvements, further trade facilitation or tackling behind-the-border issues among countries could enhance the prevalence of economic growth in each country.