Intra-Regional Trade in East Asia: The Decoupling Fallacy, Crisis, and Policy Challenges

This chapter examines the export experience of East Asian economies in the aftermath of the crisis against the backdrop of a systematic analysis of pre-crisis trade patterns. The analysis is motivated by the “decoupling” thesis, which was a popular theme in Asian policy circles in the lead-up to the onset of the recent financial crisis, and aims to probe three key issues: Was the East Asian trade integration story that underpinned the decoupling thesis simply a statistical artefact or the massive export contraction caused by an overreaction of traders to the global economic crisis and/or by the drying up of trade credit, which overpowered the cushion provided by intra-regional trade? What are the new policy challenges faced by the East Asian economies? Is there room for an integrated policy response that marks a clear departure from the pre-crisis policy stance favouring export-oriented growth?