South - East Asian Integration in the Context of OIC: Implications of Free Trade among Malaysia, Indonesia and Bangladesh
Journal of Economic Integration
Organization of the Islamic Conference (OIC) is the second largest inter-governmental organization after UN with its 57 members. OIC accounts for 23.6 percent of world population, 5.25 percent of world GDP, and 8.7 percent of world trade as of 2006. When it comes to having world valuable resources, OIC's potential is even more striking with more than 70% of oil and nearly 50% of natural gas reserves of the world. The OIC Ten -Year Programme of Action, adopted in 2005, clearly identifies
... identifies increased economic cooperation among the member countries as a key strategy for higher economic growth and welfare. Nearly a dozen member states have already signed the Protocol on Preferential Tariff Scheme (PRETAS), which proposes a preferential trade regime among the member countries to be effective as of January, 2009. Further steps in the coming years, including possible free trade areas and customs union are also on the agenda. In this context, this paper looks into the likely consequences of an economic integration among three OIC member countries: Malaysia, Indonesia, and Bangladesh. This could be seen as a first step to investigate the possible gains from more comprehensive economic integration initiative including all members of the OIC. Using a multi-sector, multi-country computable general equilibrium framework, we investigate the impact of full trade liberalization among Malaysia, Indonesia and Bangladesh. One should stress that there is not a simple and clear-cut conclusion one can derive at this point. Depending on the nature and the degree of integration, the results vary. From the preliminary results, however, it seems that free trade among these three countries will likely benefit Indonesia and Malaysia while leading to some welfare loss for Bangladesh. Indonesia seems to be gaining most due to increased foreign demand along with terms of trade effects, resulting in improvement in the balance of payments.