Prospects for Decoupling in Asia’s Growth Model

The study examines the empirical evidence and options for decoupling Asia from the US and EU markets. First, it demonstrates that the strong linkages both within Asia and between Asia and the United States and Europe have not waned in the last 25 years, though the transmission channels have become more complex. Second, the study finds that there are significant downside risks for the recovery of growth in the United States and Europe. Third, the types of goods produced in Asia as outsourcing for large enterprises is likely to incorporate more second-generation technology that could increasingly promote intra-regional production networks. Fourth, it shows that stock market indicators in Asia are highly correlated with the major financial centers in the United States and Europe. Finally, pegged and managed exchange rates will likely continue to form part of the policy tools used in most Asian economies, notwithstanding the lessons from the Asian financial crisis. A number of forwarding looking policy implications are derived from these findings.