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University of Amsterdam
Graduate School of Social Sciences
Stronger together?
A Case Study of Financial Integration in the ASEAN region Since the Global Financial Crisis
MSc Thesis Political Science: Research Project: 'The Political Economy of
Financial Crises'
June 23
rd,2017Author Supervisor L. J. (Lars) Leezenberg Dr. J. G. W. (Jasper) Blom 10437967 Dr. S. (Sebastian) Krapohl (second reader)
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Table of content 3
Abstract...6
Acknowledgement...7
List of figures and tables...8
List of abbreviations...10
Chapter 1. Research Design 11
Introduction of the research and main research question...11
1.1. Sub-questions...12
1.2. Literature review...13
1.2.1. Economic integration in ASEAN... ...13
1.2.2. Financial crises as catalysts for financial integration...14
1.2.3. External causes for financial integration...14
1.2.4. Internal causes for financial integration...16
1.2.5. Empirical results on financial integration in ASEAN...17
1.2.6. Policy advice on financial integration...18
1.3. Theoretical framework...19
1.3.1. Introduction...19
1.3.2. The intraregional logic of integration...19
1.3.3. Financial integration in the intraregional logic...23
1.3.4. The extra-regional logic of integration...24
1.3.5. Financial integration in the extra-regional logic...26
1.3.6. Alternative explanations...27
1.4. Hypothesis...29
1.5. Sample and Case selection...29
1.6. Data and Methods...30
1.7. Operationalization...32
1.8. Theoretical and societal relevance...34
Chapter 2. How has the process of financial integration in ASEAN developed since the Asian Financial Crisis? 35
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2.1. The Asian Financial Crisis...35
2.1.1. Responses to the AFC...37
2.2. Consequences of the AFC for regional financial integration...38
2.3. The ASEAN Economic Community...40
2.4. The Global Financial Crisis...42
2.5. Financial integration steps since the GFC...46
2.5.1. The Multilateralization of the CMI...46
2.5.2. The ASEAN Comprehensive Investment Agreement...47
2.5.3. The ACMF Implementation Plan...48
2.5.4. The ACMF Action Plan...50
2.5.6. The ASEAN Banking Integration Framework...53
2.6. Conclusion...55
Chapter 3. What are the internal motivations for ASEAN to increase financial integration? 56
Introduction...56
3.1. Growing interdependencies in ASEAN...56
3.2. Regional bond market development and capital market integration...58
3.3. Integration of the banking sector...61
3.4. Improving access to capital for MSME's...64
3.5. Conclusion...66
Chapter 4. What are the external motivations for ASEAN to increase financial integration? 68
Introduction...68
4.1. The significance of ASEAN's extra-regional economic and financial relations...68
4.1.1. Economic and financial relations with China...70
4.1.2. Economic and financial relations with Japan...71
4.1.3. Economic and financial relations with Republic of Korea (ROK)...73
4.1.4. Economic and financial relations with the EU...74
4.1.5. Economic and financial relations with the US...75
4.1.6. Analysis of the extra-regional economic and financial relations...78
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4.3. Geopolitical explanations...80
4.3.1. The South China Sea Dispute...80
4.3.2. Dissatisfaction with the IMF...81
4.4. Conclusion...82
Chapter 5. What are the impediments for ASEAN to increase financial integration? 83
Introduction...83
5.1. The implementation level and 'threshold conditions' for financial integration...83
5.2. The 'Development Gap'...87
5.3.The 'ASEAN Way'...91
5.4. Conclusion...93
Chapter 6. Conclusion. 95
6.1. Design of the thesis...95
6.2. Summary of the results...96
6.3. Limitations of the research...98
6.4. Policy implications and suggestions for future research...98
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Abstract
This thesis presents an extensive analysis of the process of financial integration in the ASEAN region since the Global Financial Crisis (GFC). Using the 'intraregional logic of integration' and the 'extra-regional logic of integration', the thesis will argue that several factors representing both theories have influenced the development of financial integration in the ASEAN region positively and negatively. First, the Asian Financial Crisis (AFC) caused a significant spur in ASEAN's motivation to pursue financial integration. Leading up to the GFC, many initiatives were introduced to increase financial integration. Many of these initiatives were reformed after the GFC along with the introduction of several new initiatives to increase integration. The internal factors that have driven financial integration include growing economic and financial interdependencies between ASEAN member states, the need to strengthen local bond markets, capital markets, and promote free flow of investments. Also, the aim to improve equitable economic development and stimulate local small and medium enterprises (MSME's) form key internal factors that drive regional financial integration. The external factors that have driven financial integration include strong economic and financial links with external regions, especially with China, Japan, Republic of Korea, the EU and the US. The ASEAN region is therefore interested in becoming an attractive destination for foreign trade and investment. Furthermore, a heightened sense of fear for 'systemic risk' and contagion of the financial system from external regions as well as geopolitical considerations have driven financial integration. Finally, the thesis argues the existence of several impediments to the process of financial integration. Several member states lack the institutional quality to implement integration policies effectively. This is attributed to the existence of the significant 'Development Gap' between member states. This gap causes a coordination dilemma between member states resulting in disagreements on how to reach financial integration. Finally, the 'ASEAN Way' of consensus based decision-making in the region results in suboptimal agreements and provides individual member states to make exceptions on integration policies which would hurt their domestic financial sectors.
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Acknowledgment
This thesis is the result of five months of hard work. In these months, a topic was drafted from scratch, literature was read, appointments for interviews were made, data was collected, thoughts were exchanged and chapter were written and rewritten. The final result is this document, in which an attempt is made to tackle a complicated subject that is interconnected to many other subjects. I am happy to note that I have honestly learned what I set out to learn at the beginning of this project. I hope my discoveries are reflected clearly in this thesis. I could not have written this work without the help of my supervisor Dr. Jasper Blom. Through his guidance in one-on-one meetings and critical comments on earlier versions I have been able to clearly state my objective with this thesis and work towards it. I also have to thank my parents and my grandmother for providing me with different locations to do my writing, which has been of significant help for me. Finally I would like to thank my fellow students in the research group with whom I have had pleasant and insightful exchanges on the thesis.
Lars Leezenberg, June 23rd, 2017
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List of figures and tables
Tables:
Table 1. Typology of collective goods 22
Table 2. ASEAN GDP figures 2005-2011 44
Table 3. Central Bank Policy Rates and Inflation 45
Table 4. The Core strategic components of the ACMF Implementation Plan 49
Table 5. Achievements of the ACMF between 2009 and 2016 50
Table 6. The ACMF Action Plan 2016-2020 key priorities and initiatives 51
Table 7. Intra-ASEAN trade growth 2005-2015 in billion US$ 57
Table 8. Flows of Inward Foreign Direct Investment from other ASEAN countries (FDI) (in US$ Million), 2010-2015 58
Table 9. Stock Market Capitalization for selected ASEAN countries (% of GDP) 61
Table 10. Domestic Credit Provided by the Banking Sector (% of GDP) 62
Table 11. ASEAN MSME Policy Index 66
Table 12. Flows of Inward Foreign Direct Investment (FDI) by the world excluding ASEAN (in US$ Million) 69
Table 13. ASEAN-China trade and FDI stats comparison 2007-2014 70
Table 14. ASEAN-Japan trade and FDI stats comparison 2007-2014 72
Table 15. ASEAN-Republic of Korea trade and FDI stats comparison 2007-2014 73
Table 16. Total FDI flows from the EU to ASEAN in billion US$, 2010-2015 75
Table 17. Total trade in US$ billion and trade share of total ASEAN trade in %, 2008-2015 76
Table 18. Intra-ASEAN coefficients for variations of bond market rates, lending market rates and money market rates 2005-2015 84
Table 19. ASEAN countries' ranked on GDP per capita as of January 2017 88
Table 20. ASEAN Human Development Index scores and global ranking for 2015 88
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Figures:
Figure 1. Exchange Rates and Interest Rate Changes around the AFC 37
Figure 2. Extra-ASEAN exports 43
Figure 3. Intra-ASEAN exports 43
Figure 4. Composite Stock Indices 45
Figure 5. Market capitalization and total assets of major ASEAN banks 2015 63
Figure 6. Development of EU exports and imports of goods to/from ASEAN, 2004-2014 (EUR million) 75
Figure 7. 'Control of corruption' of ASEAN governments 2010-2015 85
Figure 8. 'Government effectiveness' of ASEAN governments 2010-2015 86
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Abbreviations
ABF Asian Bond Fund
ABMI ASEAN Bond Market Initiative
ABIF ASEAN Banking Integration Framework ACMF ASEAN Capital Markets Forum
ADB Asian Development Bank AEC ASEAN Economic Community AFC Asian Financial Crisis
AFIF ASEAN Finance Integration Framework AFMM ASEAN Finance Ministers' Meeting AFTA ASEAN Free Trade Agreement AMS ASEAN Member States
ASEAN Association of Southeast Asian Nations CAL Capital Account Liberalization
CLMV Cambodia, Laos, Myanmar, Vietnam CMI Chiang Mai Initiative
CMIM Chiang Mai Initiative Multilateralized EU European Union
FDI Foreign Direct Investment GDP Gross Domestic Product GFC Global Financial Crisis HDI Human Development Index
IAINDG Initiative for ASEAN Integration by Narrowing the Development Gap IMF International Monetary Fund
MNE Multi-National Enterprises
MSME Micro, Small and Medium Enterprises RLA Regional Liquidity Arrangement ROK Republic of Korea
SAP Structural Adjustment Programme SCSD South China Sea Dispute
QAB Qualified ASEAN Banks US United States of America
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Chapter 1. Research Design
Introduction of the research and main research question
Throughout my studies the Southeast Asian region has been of particular interest to me. Through various courses, both at the University of Amsterdam and during my exchange semester at SciencesPo Paris, I have learned about politics, ethics, economics and political economy of the Southeast Asian region. During a course in the first semester of this academic year called 'China's rise and the political economy of East Asia' I wrote my final paper on the integration of energy markets in the ASEAN region. This paper was the final spark that was necessary for me to want to pursue a thesis project in which I could research a political economic aspect the ASEAN region.
This research will focus on the ASEAN region because of its uniqueness. It is the fastest growing developing region and has therefore been a important player in global geopolitics, as can be seen by focus of the administration of former US President Barack Obama in his 'Pivot to Asia'. Furthermore, the ASEAN region is establishing a unique and common identity, but at the same time pursuing regional institutions that resemble the institutional quality of the European Union. Therefore the ASEAN region is a promising region for research on many different aspects. As such, this research will explore the process of integration in the ASEAN region. It will do so by discussing various events that have influenced the region's drive for integration. Events that immediately jump out are the two crises the region has had to process, namely the AFC and the GFC. Therefore the research will focus on the periods following both crises, while providing a short summary of the impact of both crises on the regions. The GFC and its aftermath will be central in this research because less is known about this period. After both crises the ASEAN region was faced by questions of uncertainty on many subjects. How could an entire region be affected by the AFC which originated in just one country? Why did the IMF fail in its provision of assistance to the region? Should the region be intensifying its focus on intraregional development and unification?
In order to understand the answers to the questions mentioned above, the process of regional integration is crucial. This process is essential here because it will allow us to understand the position of the ASEAN region on the how to deal with the aftermath of crises and how to prevent them in the future. This research will therefore attempt to identify the factors that explain the development of financial integration in the ASEAN region, since the
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GFC. To do this, the following research question has been designed: 'Which factors explain the development of financial integration of ASEAN since the Global Financial Crisis?'.
1.1. Sub-questions
Before identifying the factors that explain financial integration in the ASEAN region, it is important to provide some historical context. Therefore the first chapter of the main body of the thesis will describe which events and developments have led the ASEAN region to the current state of economic but especially financial integration. The thesis will commence with a brief discussion of the 1997 AFC, despite the fact that the main focus of this thesis is on the period after the GFC. The AFC will be included because it is important to understand the previous era of financial integration if we want to understand the recent development on financial integration since the GFC. Additionally, many of the formal cooperative agreements in ASEAN on financial integration after the GFC are improved and extended versions of agreements which originated in the 'post-AFC' period.
Since the main research question as formulated above is a broad and complex question, it is necessary to divide it into smaller sub-questions around which the different chapters of the thesis will be built. The answers to the sub-questions should collectively lead to a comprehensive answer of the main research question. To accomplish this, the following sub-questions are formulated:
1. How has the process of financial integration in ASEAN developed since the Asian Financial Crisis?
2. What are the internal motivations for ASEAN to increase financial integration? 3. What are the external motivations for ASEAN to increase financial integration? 4. What are the impediments for ASEAN to increase financial integration?
Perhaps it is noteworthy to mention the relevance of the final sub-question. The main research question aims to find the factors which explain the development of financial integration in the ASEAN region. Although one would usually focus on the 'positive' factors, i.e. the factors which stimulate the development of financial integration, the main research question would be answered more comprehensively if the impeding factors would also be identified. This would contribute to our understanding of the factors which influence the development of financial integration both positively and negatively.
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1.2. Literature review
1.2.1. Economic integration in ASEAN
In the broadest sense, the topic of financial integration of any region is a discussion on regionalism and integration. These topics will be discussed briefly in the theoretical framework. Several scholars have devoted attention to the process of financial integration in ASEAN. Most have done so whilst primarily discussing the larger process of economic integration. Portela (2013) argues that the signing of the ASEAN Charter and the ASEAN Economic Blueprint in 2007 should be seen as critical moments for the integration efforts in the years following the signing, as these documents provided a basic framework that ASEAN member states (AMS) should implement if the ASEAN Economic Community (AEC) is to be formed. The results concerning economic integration amongst AMS have been positive according to Kabir and Salim (2014), as the policies of the AEC have led to increased regional trade between ASEAN member states as well as gradual removal of trade barriers. However, there are also limitations to further integrational potential. The authors argue that ASEAN will most likely not evolve in a 'common currency union' as the AMS still have significant differences when it comes to inflation, interest rate and exchange rate policies (Ibid, 330).
According to Krapohl (2017), economic cooperation and economic integration in ASEAN has primarily been the result of 'extra-regional considerations'. Krapohl first discusses the nature of this ASEAN Free Trade Agreement (AFTA) and how the agreement is a classic example of an integration empowering initiative based on extra-regional considerations. The consideration according to Krapohl was that, via the AFTA, ASEAN aimed to improve the competitiveness of the region to attract higher amounts of investments from external countries and regions (Krapohl 2017, 117). Additionally, Krapohl argues that the commitment of external countries towards ASEAN integration influences the motivation of AMS to the integration process significantly. Through the 'ASEAN+1 trade agreements' with China, Japan and Republic of Korea (ROK), the AMS have privileged access to these markets. If a member state was not a part of ASEAN, the country would be removed from these economic privileges (Ibid). Because the 'exit option' is not attractive, based on the commitment of external countries to ASEAN, the motivation to stay in an integrated ASEAN becomes larger (Ibid).
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1.2.2. Financial crises as catalysts for financial integration
Regarding the process of financial integration, the literature seems to be less unilateral on the drivers of integration. Dieter (2010) and Grimes (2013) studied the process of regional financial and economic cooperation in the ASEAN region. Both authors conclude that 'formal' financial and monetary cooperation has progressed significantly since the Asian Financial Crisis (AFC) of 1997, which is generally viewed as the single most important event in contemporary Southeast Asian history in terms of triggering increased efforts of economic and financial integration and cooperation (Dieter 2010; Volz 2013). A central explanation here is that the AFC showed AMS that they were extremely vulnerable when a financial crisis occurred, as a strong reversal of capital flows away from the ASEAN region led to extensive capital shortages for many member states (Dieter 2010). As a result, AMS became determined to create a regional cooperative framework in which this problem could be tackled more effectively in the future. Examples of this intensified cooperation on the regional level are the instalments of the Chiang Mai Initiative (CMI), the Asian Bond Markets Initiative, as well as the ASEAN +3 Macroeconomic Research Office (Grimes 2013, 285). Furthermore, the way the IMF handled in reaction to the AFC has also been a cause for regional financial cooperation: "Regardless of their individual merits or problems, countries in Southeast and East Asia then received identical treatment by international financial institutions, and this shared experience has fuelled a sense of shared destiny." (Dieter 2010, 243). This drive towards further financial and economic regionalism was specifically pushed by frustrations among Asian policymakers on the slowness of reforms in the international financial architecture and U.S. dominance, also through the IMF-linkage as part of the CMI (Dieter 2010; Portela 2013; Capanelli 2011). Another factor that has stimulated the steady progression on economic integration is the ascendance of China as an economic and political force, which is simultaneously perceived as both a competitor and ally of ASEAN (Portela 2013, 10). As China is a consistent top three trading partner with most AMS, there is a great reluctance towards antagonizing China, in fear of great economic losses. Therefore, a smaller dependence on China, by becoming more interdependent within ASEAN is a strategy that has been attempted by the region.
1.2.3. External causes for integration
Other researchers have focused on the impact of the Global Financial Crisis on AMS and the forward looking implications for the region and its process of economic and financial
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integration. Krapohl (2015) has argued that the recent GFC has shown that the 'ASEAN +3'1 group has met the preconditions to increase financial cooperation, which could lead to more financial integration in the ASEAN region. Krapohl concluded this by indicating that 'ASEAN+3' has successfully altered the nature of the CMI, into the CMIM2 in 2009 (Chiang Mai Initiative Multilateralized). This is considered a success because it allowed for the creation of the first regional liquidity fund, improving the financial stability of ASEAN. Heng Swee Keat (2009) has therefore concluded that while ASEAN was affected by the GFC, mainly through a significant reduction in exports both within Asia and to other regions, the recovery was quic. This is because the shocks to the financial sector came from "few inherent sources of vulnerabilities"3 (Heng Swee Keat 2009, 269). Menon and Chongivilaivan (2011) agree with Keat's argument that the ASEAN region recovered quickly, resulting in a massive influx of capital after 2009. Regarding the impact of the GFC on financial integration in ASEAN, Lee et al (2013) have concluded that the region has not become more financially integrated. This is an interesting result, despite the fact that the definition of financial integration by Lee et al (2013) is somewhat limited4.
Another explanation that has driven financial integration, specifically the formation and implementation of region-wide financial safeguarding mechanisms and regulatory standards, has been the fear of 'systemic risk' and contagion (Krapohl 2015). The underlying motivation is that any financial crisis is at least in some level a 'collective threat', especially in a region like ASEAN with a growing interconnectedness. This is because in such regions, financial crises have a contagious nature which allows the crisis to easily spread throughout a region. More specifically Krapohl mentions that: "The risk of financial crises and the need for liquidity arrangements in countries with less developed domestic capital markets result from pro-cyclical international capital flows, from balance sheet mismatches and from the herd-like behaviour of international investors" (Krapohl 2015, 163). Because a financial crisis is seen as collective problem and financial stability in the ASEAN region is seen as a 'collective
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ASEAN +3 stands for the members of ASEAN and China, Japan and ROK. 2
The difference between the CMI and CMIM, is that the latter agreements lets members use multilateral currency swaps instead of keeping the currency swaps bilateral, increasing the pool of available capital reserves in financially stressful times (Krapohl 2015, 167).
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For example, the mismatches of currencies and excesses of credit which were present during the AFC, were no longer an issue during the GFC (Heng Swee Keat 2009, 269).
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For their research, Lee et al define financial integration in East Asia as 'bilateral holdings of financial assets' (Lee et al 2013, 425). Whilst this is one aspect of financial integration, it certainly is not the only indicator that ought to be used when establishing a view on financial integration. In the operationalization section of this document, a more complete definition of financial integration will be provided.
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good', there is an unwritten implication that these issues must be addressed as a region and not on the level of individual member states (Ibid).
1.2.4. Internal causes for integration
Other research has focused on the Foreign Direct Investment (FDI) flows within ASEAN, which forms an important measurement for financial integration, and on the state of banking integration. Athukorola (2014) has focused on the type and size of FDI flows within ASEAN. His research concludes that Southeast Asia's intra-regional FDI has been dominated by horizontal (market seeking) FDI, whilst vertical (efficiency seeking) FDI has been limited to only a few sectors (Athukorola 2014). The author's argument is that the ASEAN region is keen on increasing financial integration in order to allow for more equal distribution of the intraregional FDI flows. In ASEAN, 'horizontal' FDI occurs when a 'Multi-National Enterprise' (MNE) is producing similar products, or services, with the aim of avoiding additional trade costs which would occur when exporting the products between countries (Ibid). The firm does this while having a remaining production advantage. On the contrary, 'vertical' FDI occurs if a MNE opts to split the production process of a product across countries, with the objective of taking advantage of local production advantages due to less regulations or geographical convenience and lower production and labour prices (Ibid).
Regarding banking integration in ASEAN, there seems to be no clear consensus amongst scholars on the accomplishments and challenges that remain. The banking sector is crucial to AMS and within the financial sector because banks are the primary supplier of credit to businesses and entrepreneurs in ASEAN. Therefore: "a crucial driver for greater financial integration within the core of ASEAN financial systems is the banking sector. ASEAN banks have a significant role in supporting the financial integration process."
(Adiwena et al. 2015, 2). To quantify and measure the level of banking integration, three mechanisms are used; equal access, equal treatment and equal environment (Ibid). This method of measuring banking integration will be utilized in the fourth chapter. Hamid and Lean (2016) have looked at the readiness of the ASEAN banking sector for further integration, by examining the interest rate convergence. Their argument is that when there is convergence in prices or in returns on similar assets in different countries, the financial banking sector is integrated with the rest of the region. The rationale behind this is to stimulate the flow of intra-regional capital throughout the region instead of being concentrated in specific countries or sectors. Their argument can thus be labelled as an argument that focuses on internal considerations for integration. Their findings are that this is
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the case and that therefore, the ASEAN banking sector is ready to be integrated. However there are still some remaining challenges before the ABIF (ASEAN Banking Integration Framework) will become effective in 2020 (Adiwena et al 2015). Their research suggests that the most pressing issue that prevents further banking integration is the different levels of banking development in different AMS. Examples here are apparent differences in total size of assets and bank balance sheets and accessibility of citizens in respective ASEAN countries to the banking sector (Adiwena et al 2011, 4).
1.2.5. Empirical results on financial integration in ASEAN
When assessing the actual state of financial integration, one should not only look at the amount of agreements which have been endorsed. This is because the implementation process in ASEAN has been lacking according to Grimes (2014), Sundararajan (2009) and Kabir and Salim (2014). Although there has been significant progress in terms of 'formal cooperation and integration efforts', the actual implementation of the documents has not been as smooth as AMS had hoped. More authors have pointed out that ASEAN still has significant steps to take before it has realized its goals of becoming (fully) integrated, economically but especially financially (Yean & Das 2015; Dosch 2017; Kabir & Salim 2014; Sundararajan 2009). Dosch states that: "Progress in realising the goals of liberalizing investment and capital flows has been slow." (Dosch 2017, 10). Even the first step towards full regional economic integration, namely the establishment of complete free trade in the ASEAN area has not been achieved yet despite significant efforts to achieve this since the AFC (Dosch 2017, 32-34). One primary reason is the existing "mismatch between political ambitions and capabilities and, often, the political will of several member states to walk the walk" (Ibid).
At the same time, earlier scholarly work has already made the argument that the institutional architecture of ASEAN should be strengthened to improve regional standard setting and monitoring (Capanelli 2011). This is especially relevant with regard to the CLMV5 countries, where the institutional capacity is regarded as too weak to effectively implement integration policies (Duval and Feyler 2016). Furthermore, the preference of AMS to have national policy autonomy is something that has inhibited progress of financial integration in ASEAN (Volz 2013; Duval and Feyler 2016). This is because the process of financial integration calls for a region-wide liberalization of financial services, which is not in the interest of several AMS (Chiou 2010). The underlying reason for this, is because of the 'Development Gap'. The 'Development Gap' is a term that describes the apparent differences
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in economic development within ASEAN, as well as living conditions. It has been argued that this gap is causing a difference of opinion between the higher developed AMS and the less developed AMS about the most efficient way to increase financial integration (McGillivray and Carpenter 2013). Additionally, the consensus-based way of reaching agreements in ASEAN, as well as the non-binding nature of most agreements has formed an impediment to further integration Therefore, several AMS have refrained from implementing these liberalization policies, which has led to slower financial integration (Aggarwal and Chow 2010).
1.2.6. Policy advice on financial integration
Looking forward there are a couple of important issues with regard to ASEAN's financial integration efforts. The relevance of the financial integration process in ASEAN is significant when looking at the amount of policy suggestions which have been made until now. An IMF working paper by Almekinders et al (2015) argues that ASEAN countries should prioritize financial integration. This is because, as previously discussed, the level of financial integration has not made equally significant progress as the level of trade integration in the region (Ibid, 8). They also point to how the banking sector should continue its integration efforts, as the sector is coming from 'a low base' (Ibid, 11). Significant attention is also given to the persistent 'Development Gap'. The domestic contexts of less development AMS should be taken into account according to the report, as this will allow for a safe transition to a more financially integrated region. Wihardja (2013) has categorized the challenges for ASEAN financial integration in (1) regulatory/infrastructural challenges for financial market integration and (2) challenges with regard to the monetary and fiscal policy regimes as well as the impact of the financial market integration on these policies. Both Wihardja (2013) and Volz (2013) are persistent in their warnings of the potential risks that come with financial integration. Volz (2013) has looked at the European experience of financial integration, the effect of the GFC on a financially integrated region, and the lessons that ASEAN should take from this. His conclusion is that, when ASEAN decides to increase its financial integration, it should do so with caution for the creation of regional banks that are 'too big to fail'. This requires adequate supervising institutions on the regional level, not the domestic level and regional safety nets, like the CMIM.
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1.3. Theoretical approach and hypothesis 1.3.1. Introduction
This chapter will provide the theoretical framework that will be used in this thesis. The thesis will use the theories of the 'intraregional logic of integration' (Mattli 1999, 2013) and the 'extra-regional logic of integration' (Krapohl 2017) to identify the driving factors that explain the pursuit of financial integration in ASEAN. First, the intraregional logic of integration will be discussed. The workings of the intraregional logic will be illustrated in a discussion of the typology of goods that characterizes intra-regional drivers of integration. Also, the type of dilemma's that result from cooperative efforts will be discussed and how they can influence the process of integration. Additionally, the process of financial integration within the intraregional logic will be explained. This will be followed by the introduction of the 'extra-regional logic of integration'. The difference with the intra'extra-regional logic will be explained through the distinctive type of collective goods that are at stake in the extra-regional logic. Also, the process of financial integration in the extra-regional logic will be explained. Next, some alternative explanations for financial integration will be presented, which will be followed by the hypothesis that will be used for this thesis.
1.3.2. The intraregional logic of integration
Several EU integration theories, like Neofunctionalism, Liberal Intergovernmentalism and Institutionalism, form the basis of the intraregional logic of integration (Krapohl 2017, 34). According to the intraregional logic:"the member states of regional organizations integrate in order to liberalize and regulate regional markets and to profit from comparative cost advantages and economies of scale within these markets." (Ibid, 34). The intraregional logic argues that integration efforts are based on the potential benefits of intensifying regional cooperation. According to the intraregional logic there is already a relatively significant internal market place, therefore member states of the regional organization are already quite interdependent of each other. Potential problems that can develop in the intra-regional logic of integration are known as the PD (Prisoners' Dilemma) and CD (Coordination Dilemma) (Mattli 2013), where the latter is also known as a 'battle of the sexes' (Krapohl 2017). The former is a problem of 'free-riding' behaviour, which can be mitigated by the formation of 'commitment institutions, for example a central monitoring framework (Mattli 2013). The latter is more a problem of agreement, because in regional cooperation efforts there are multiple 'courses of action' for financial integration in which member states will have opposing interests (Ibid, 781). The general argument for promoting regional integration is to
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exploit the potential economic/financial gains via the liberalization of intraregional economic activities as well as re-regulating of pivotal sectors. In the most general view, economic theory states that international trade and investment will lead to an increase in welfare compared to remaining a closed economy with little or no external investments and trade relations. Iyoha (2005) argues that increasing free trade, as a result of regional integration should lead to higher economic growth. This is due to the 'dynamic effects' of integration, referring to increasing market size, exploiting economies of scale, increasing competition, trial and error and increasing investments. Likewise, investments in the region will increase because regional integration encourages both domestic and international corporations to invest in the region, thereby avoiding trade- and capital restrictions which would be imposed non-member states (Salvatore 2006). The most influential dynamic effect is the increase of competition because it stimulates local producers to increase their efficiency as they will be forced to shut down their businesses otherwise (Ibid).
Mattli (1999; 2013) was the first to discuss the proposition of a concrete 'intraregional logic of integration' under the notion of comparative regionalism. In a more recent article from 2013, Mattli describes this theory as the 'externalities theory'. In the 'externalities theory', the effect of 'cross-border externalities'6 is most important. Within the externalities theory, there is an internal logic and an external logic. In short, the internal logic identifies the conditions which are necessary for (un)successful integration, while the external logic seeks reasons to explain why and how integration might cause cooperative responses from externally located countries (Mattli 2013). What is interesting about the internal logic, is that Mattli argues that regional integration will only take place when the 'demand side' and 'supply side' conditions of integration are met. In Mattli's own words the internal logic's argument is as follows: "the argument is that regional governance (i.e. regional rules, regulations, and policies) may be understood as an attempt to internalize externalities that cross borders within a group of countries." (Mattli 2013, 780). The motivation behind this is to ensure that the costs of the externalities are mainly affecting the parties who cause the externalities. One example of such an externality would be when two AMS want to impose protectionist measures for a specific sector in a bilateral trade agreement. This will affect the other AMS as they will also have to pay extra costs to become involved in the specific sector for which protectionist measures have been installed. The externality can be internalized if the region agrees on a policy that the other AMS will still be allowed to bypass the protectionist
6 Mattli defines 'cross-border externalities' as the costs and benefits of regional integration efforts both on different countries within the region and externally located countries (Mattli 2013).
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measures of the two AMS who did install these measures when wanting to get involved in this specific sector. The causes of externalities which affect both trade and investment throughout a region are based on political instability and stability threatening risks in the financial sector which are inevitable when working with local companies and governments. As the potential gains of regional market exchanges increase through improving technologies, the costs of the externalities increase as well. This creates stronger incentives to develop regional regulations which are capable of decreasing the rising costs. Ultimately, the demand for regional integration and cooperation is dependent on the nature of the regional economic/financial activities (Ibid).
However, the request for integration from the private sector is not sufficient for an integration process to be successful. There are also 'supply side conditions' which have to be met. These conditions generally refer to the conditions which regional political leaders request, which usually refers to the potential payoff for their respective countries. One aspect of the supply side is particularly relevant to discuss in the context of this thesis, namely the potential for a 'Coordination Dilemma'. The 'Coordination Dilemma' as identified by Mattli is particularly relevant for the case of ASEAN financial integration. This is because Mattli argues that, like in the case of ASEAN, integrational efforts include more than just the removal of border barriers. Examples of such measures are introductions of 'common rules of origin', common investment codes and quality standards (Ibid). Another important subject, is the unavoidable rise of 'distributional issues'. The chosen path to integration will inevitably benefit certain states more than others. Generally the more advanced states within a regional organisation will benefit exponentially more from integration efforts than less developed ones. This is because the higher developed states are more advanced in their institutional capacity and infrastructural development, allowing for higher gains to be made from economic/financial integration (Almekinders et al 2015; Portella 2013). The Coordination Dilemma thus stems from disagreement of how to reach financial integration, by deregulation or by improving institutions. This also raises the obvious question of equitable distribution. Going back to the theory, Mattli argues that this potential for conflict over distribution calls for an 'undisputed leader' in the region to seek closer ties. The presence of such a leader is therefore a key condition on the supply side for successful integration (Ibid). This is an interesting conclusion since Krapohl (2017) argues that there is no such 'undisputed leader' within ASEAN (Krapohl 2017, 109). According to Krapohl, Indonesia, Singapore, Malaysia and Thailand are significantly more important for the process of regional integration, but they
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balance each other out as no one of these countries is significantly more powerful than the other three (Ibid).
The objective of the intraregional logic can be illustrated through the type of goods the logic produces. The process of regional integration in general can be viewed as some 'collective good' which has to be created by the member states of a regional organization, which must include adequate benefits for the involved member states to make integration worthwhile. The collective goods theory makes a division of four different goods across the dimensions of 'rivalry of consumption' and 'excludability' (see table 1) (Krapohl 2017, 36). First, when there is a rivalry between regional member states for the consumption of a specific good from which they can also be excluded, this specific good becomes a private good. Second, the publicly available goods are characterized by their 'non-excludability' and a low rivalry of consumption. Third, the 'common pool resources' are characterized by a high rivalry for consumption, but a low level of exclusion. Fourth, we speak of 'club goods' if there is no rivalry for consumption of a specific good, but exclusion from this good is possible. Table 1: Typology of collective goods
Excludability of consumption Non-excludability of consumption Rivalry of Consumption Private Goods
Common Pool Resources
(Extra-regional investments and exports)
Non-rivalry of Consumption
Club Goods
(Regional Market Liberalisation
and Regulation) Public Goods
Source: Krapohl 2017, 37
Establishing regional financial markets in the intraregional logic of integration can be seen as the formation of a club good. This is because there is potential excludability of consumption but non-rivalry for consumption. In line with the intraregional logic, the objective behind financial integration in ASEAN is to facilitate intra-ASEAN trade and investment (AEC Blueprint-2025, 7). In order for intra-ASEAN trade and investment to develop, all AMS have to eliminate trade barriers to trade and investment. These cuts on tariffs and capital restrictions are specific actions that can be issued between every possible bilateral pairing of AMS. At the same time, it is not necessary to apply these similar measures of trade and financial liberalization against 'third' states that are located outside of ASEAN. This principle applies for the entire ASEAN region. As a result, if certain AMS decide to go back to certain trade and capital barriers for specific states, exclusion from intraregional FDI, capital movement and trade is possible. When certain AMS decide to trade goods and/or services and
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send FDI bilaterally, it does not exclude any of the remaining AMS from similar activities in the ASEAN markets. As a result, there is low rivalry for the consumption of the regional trade and capital markets as 'club goods'. Due to the fact that intraregional trade and capital/FDI flows can be characterized as a club good, there are positive implications for regional integration on these matters. First, the possibility of exclusion will provide ASEAN with a tool to impose sanctions against individual AMS that are not participating and adding their share of the burden that comes with providing the club good. These 'free riders' are generally sanctioned with exclusion, which should lead to an increased desire to cooperate, leading to an increased overall possibility of actual production of the goods intraregional trade and capital/FDI flows. Second, the fact that intraregional trade and regional financial markets have a 'non-rivalry in consumption' character means that every AMS is able to gain through the availability of it. Despite some AMS being able to make relatively higher gains from trade and regional financial markets than others, the possibility of defection by some AMS, because of a justified fear of absolute losses, is insignificant.
1.3.3. Financial integration in the intraregional logic of integration
The regional rationale for increasing financial integration in ASEAN is to enhance intra-ASEAN trade and investment: "by increasing the role of intra-ASEAN indigenous banks, having more integrated insurance markets, and having more connected capital markets." (AEC Blueprint-2025, 7). According to Stavarek et al (2011), financial integration will bring economic growth, both directly and indirectly. The interrelated benefits that follow from financial integration all have potential positive effects on intra-ASEAN trade and investment. First, risk sharing allows for the formation of larger markets, hence the fact that the same risks can be shared and therefore reduced on average. This can lead to pursuing economies-of-scale, which in its turn may allow firms to have better access to capital markets. This especially holds for the 'Micro, Small and Medium sized Enterprises' (MSME's) which are of vital importance to the ASEAN economies, as these firms are often the ones facing the highest credit constraints. Additionally, there is empirical evidence which suggests that the sharing of risks throughout a region will improve the specialisation in different production chains across the region (Kalemli-Ozcan et al. 2003). Second, financial integration will allow for the removal of every kind of impediment on the trading of financial assets, allowing for a considerable increase in intraregional capital flows and credit allocation (Levine, 2001). Third, financial integration will improve economic growth. This can be achieved through several channels. First, financial integration will generate economic growth as a result of less
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restrictions on capital flows. Second, opening international capital markets will generate capital flows going from places of capital-abundance to places of capital scarcity. As a result, the less developed ASEAN states might experience acceleration in their efforts of catching up with the developed AMS. Third, economic productivity might grow as a result of financial integration when capital flows release existing credit constraints that the region is suffering from, allowing for more productive investments to be made (Bonfiglioli 2008). Finally, financial integration might improve the actual functioning of the financial systems of individual AMS by intensifying the competition between credit providers.
Krapohl ultimately dismisses the possibility of regional integration in ASEAN being based on the intraregional logic of integration. The main reason for this, is because there would be no demand for regional integration as the intraregional trade and investment flows are not high enough to consider building economies of scale based on comparative cost advantages. Also, the intraregional logic would not be able to explain the 'highs' and 'lows' on integration in developing regions, as it assumes a stable self-reinforcing pattern of growing interdependencies and subsequent institution building (Krapohl 2017, 51). Therefore, the extra-regional logic of integration should also be discussed.
1.3.4. The extra-regional logic of integration
The extra-regional logic of integration is based on the theory of 'new regionalism' (Hettne and Söderbaum 2000). The main idea behind the concept 'new regionalism' is that regions aim to open up regional markets in order to adapt to the increasing importance of becoming involved in the global production chains (Ibid, 42). The extra-regional logic of integration says that: "Regional states may choose to integrate in order to become economically more attractive for extra-regional investment inflows and to gain leverage in international trade negotiations in order to achieve better market access to other world regions." (Ibid, 34). Attracting FDI is key to the optimal functioning of export oriented strategies. An example would be the case of Myanmar, which has only recently escaped from economic isolation (Kudo et al 2013, 11). By becoming further economically and financially integrated the region's prospects will improve in the eyes of potential external investors and trading partners. According to Krapohl (2017), economic integration and cooperation in ASEAN is mainly driven by the extra-regional logic of integration because the AFTA (ASEAN Free Trade Agreement) is "predominately aimed to improve the region’s competitiveness in order to attract extra-regional investments" (Ibid, 117). Furthermore, ASEAN is still far removed from a high economic interdependence and has no economies of scale to benefit from, like in the EU, and
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therefore fails to meet one of the core criteria for intraregional logic of integration (Ibid, 118). To clarify, it should be mentioned that Krapohl's works focuses on economic integration. The fact that a similar classification of the nature of financial integration in ASEAN has not yet been given by any scholar is what makes this thesis worthwhile.
Contrary to intraregional trade, the external FDI inflows and export outflows are 'common pool resources' for AMS as these goods are different through their 'non-excludability' but rivalry of consumption. (Krapohl 2017, 42). This rivalry on consumption within a region exists because these common pool resources are finite. This implies a zero sum game, when one member state in a region 'consumes' foreign FDI inflows, another region is not (Krapohl 2017). In the extra-regional logic of regional integration, the game's structure that individual member states engage in is dependent on the way that external actors react. External actors might support regional integration in a systematic way. This implies that external actors, such as China, Japan or the USA, might increase the investments in the region to the member states that are cooperating effectively. Reversing this thought process implies that individual member states that do not implement and adhere to regional cooperation effectively will suffer from a decrease in external investments and losing access to these external markets. The individual member states will engage in a 'battle of the sexes' if the external actors do in fact promote regional integration in this manner. On the other hand, external actors might be less keen on regional integration and might therefore also not stimulate it systematically. When this is the case, the member states in the region move away from a 'battle of the sexes' and divert to a 'Rambo situation' (Ibid, 46). A 'Rambo situation' occurs when an individual member state gets to enjoy specific 'privileges' within the economic/financial ties it has with the most important external actors. In every region it is certainly possible that one specific member state is a more attractive destination for trade and capital from external actors compared to the rest of the region. Economically, the country with the largest economic and financial markets may be more attractive to external investors, especially when the difference with the rest of the region is significant.
Resulting from these circumstances is the fact that specific member states will obtain more privileges within the region in which they are situated. These privileges might be potentially conflictual with the process of regional (financial) integration when increasing integration and cooperation imply that these countries have to give up these privileges. An example might be the scenario where the privileged member state has to cancel its bilateral investment or trade agreement with certain external states when there is an official requirement for harmonization of foreign investment regulations. In this particular situation,
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the privileged member state will make a cost-benefit analysis in which it weighs both sides. The country weighs the shares of their intraregional and extra-regional gains through integration and the potential losses that will follow from losing their external privileges. When the share of gains from intraregional and extra-regional activities through integration are larger than the losses of the privileges, the region will remain in a 'battle of the sexes'. When the losses of the privileges outweigh the potential gains from integration, the privileged state(s) will turn the region into a 'Rambo situation', where the primary strategy is to defect and protect the obtained privileges. The 'Rambo situation' (Zürn 1993) might be the most undesirable situation during the integration process for ASEAN. This is because the presence of this situation might imply that there is one member state that is capable of surviving on its own, by creating its own terms and conditions with external states in bilateral agreements. This might endanger the entire process of integration, as the defection of a member state in one area of integration, in this case economic/financial, might trigger a 'domino effect' into other areas of integration and might even lead to the stagnation of the ASEAN integration project. The role of the external states is therefore important. It is up to the external states to recognise this potential stagnation and act accordingly by rewarding the ASEAN region as a whole for pursuing integration (Krapohl 2017, 44). One way to achieve this would be to offer no specific privileges or exceptions to some of the more powerful AMS like Singapore or Indonesia, but to spread the benefits of introduced agreements so that less developed AMS can obtain their 'fair share' of benefits.
1.3.5. Financial integration in the extra-regional logic of integration
The effects of financial integration in the extra-regional logic are similar to the effects in the intraregional logic. However the rationale behind financial integration in both logics is different. In the extra-regional logic, the objective is to obtain a better competitive position in the global market (see figure 1). First, financial integration will allow for better sharing of risks. The opportunities for risk-sharing allow for the financing of high-risk projects, which could generate higher returns than less risky projects. The option of risk sharing will permit otherwise risk-averse local and international investors to hedge any negative potential shocks. With regard to the ASEAN region this implies that the less developed AMS will now become more attractive destinations for investments from the ASEAN region and from international investors. Further integration might also remove specific credit constraints that investors face, making the region more attractive (Stavarek et al 2011). The mere fact of having a larger number of options will guarantee less exposure to credit risk when the number of potential
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business partners increases. This then makes the region more attractive for external investors as regional economies grow and the financial sectors become more integrated (Krapohl 2017). Furthermore, Kalemli-Ozcan and Manganelli (2008) have highlighted that when financial integration allows access to foreign markets, actors will have a bigger range of resources through which they can finance their projects. This then leads to the possibility to utilize multiple investment sources, reducing the risk of the investors. Financial markets will therefore become more liquid and deeper, which allows for more efficient processing of information across the financial sectors, increasing financial stability for the region. Jappelli and Pagano (2008) have argued that increased competition through more foreign 'intermediaries' is the most important factor through which integration will increase domestic financial developments. More competition will eventually lead to a decrease in costs of utilizing financial services for both firms and private households, especially in less developed countries.
1.3.6. Alternative explanations
There are alternative explanations for financial integration in ASEAN which are not addressed by either the intraregional logic or the extra-regional logic of integration. Perhaps the most important alternative explanation, which can be linked to the extra-regional logic of integration, is the fear of external crises with a potential to damage ASEAN economies and financial markets significantly (Arnold et al 2012; Stiglitz 2010). The ASEAN region did not suffer as much from the GFC because it was not as integrated with the global economy as the US and the EU for example, which was a result of the AFC (Ibid). In order to maintain this level of self-reliance, despite growing globalisation, regional integration is the most viable option. Off course, one of the core pillars of ASEAN is to integrate its regional economy into the global economy and be competitive within it (ASEAN Secretariat 2007, AEC Blueprint 2015). However in order to achieve this, it is necessary first to create an integrated regional economy to allow all AMS to be able to profit. Furthermore, the ASEAN region has had significant critique of the Western oriented international financial system. Especially the IMF has been criticized frequently at different moments in time for not adjusting its conditionality programs to the specific situation in ASEAN at the time of the AFC. This institutional component of the international financial system, which has hindered the ASEAN region, has triggered a feeling of regional identity. If the IMF is not willing to take into account the differences of the ASEAN region, then ASEAN itself, along with its dialogue partners in Asia will come up with self-initiated financial safety nets and agreements.
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Another important explanation that the literature review provides is a geopolitical explanation (Ravenhill 2010). In general, regional integration can lead to broader positive effects in political and macroeconomic terms, especially in terms of stability in a region. It has been argued by Adler and Barnett (1998) that the member states within an integrated region are less likely to enter into a bilateral conflict. This is primarily because a stronger integrated region means more financial interdependencies within the region. This increased interdependency results in larger potential losses when entering a conflict, as two member states in a region are more dependent on each other for economic/financial welfare. Furthermore, having strong regional institutions that are able to exert influence on the behaviour of individual member states may assist in changing commitments of certain unstable member states. At the same time, improved coordination on macro-economic topics will decrease the risks of macroeconomic 'shocks'.
Furthermore, it would be in the interest of individual AMS to become less dependent on China as a trading partner and as a source of FDI (Das 2013; Zeng 2010). The reason behind this is because China has been a cause for concern within ASEAN, through the South China Sea Disputes. In 2013 ASEAN failed to provide the world with a common view on the issue, as different member states had different interests in the dispute, which could collide with the economic/financial interests these same member states have with China (De Castro 2012; Hong 2013). Another geopolitical argument in favour of financial integration could be made from the perspective of China and Japan's external view towards ASEAN. It has been argued that after the AFC, it became apparent for both China and Japan that there was high risk associated with financial instability in their common 'backyard', referring to the ASEAN region. Both China and Japan had and still have significant trade and investment relations with the ASEAN region and it is in their interest to have financial stability in that region in order to minimize risks (Kabir and Salim 2014). This would also explain why both China and Japan were the key initiators of the CMI bilateral currency-swap arrangements whilst providing the bulk of the funding for this initiative (Yoshimatsu 2014, 80). Accompanied with this improvement of the 'self-help mechanisms' is the underlying aspiration of China and Japan, and the ASEAN region itself, to reduce the influence of Western financial institutions and economic power houses like the US, EU and IMF. In short, supporting financial integration in order to achieve higher financial stability in Asia can therefore be noted as another alternative explanation.
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1.4. Hypothesis
It has been argued by Krapohl that the intraregional logic is the dominant explanation for high developed regions and the extra-regional logic is equally dominant for less developed regions. However this does not imply that integration in a high developed region is not driven by certain extra-regional factors and vice versa. Krapohl therefore argues that: "The intra- and extra-regional logics of regional integration are not mutually exclusive, but the relative weights of the two logics differ between world regions" (Krapohl 2017, 53). The discrepancies within the literature review seem to suggest that neither the intraregional logic nor the extra-regional logic of integration has a significant dominance in its ability to explain extra-regional financial integration in ASEAN. Therefore, the ASEAN's integration process becomes somewhat eligible to also be considered as driven in part by the intraregional logic. Because the argument has been made that economic integration has been driven primarily by the extra-regional logic of integration, the hypothesis will argue that there is a gradual shift from this logic towards the intraregional logic:
H1: 'Since the GFC, the process of financial integration in ASEAN is undergoing a shift from being driven by the extra-regional logic of integration, towards being driven by the intraregional logic of integration.'
It is important to note here that the hypothesis does not argue that the extra-regional logic is becoming completely obsolete. Rather, there seems to be a stronger balance between the two logics in terms of their ability to explain financial integration in ASEAN. Furthermore, as has been hinted at in the literature review, the pace of financial integration in ASEAN has been slow. The impediments to further increasing financial integration will be explored in the final chapter.
1.5. Sample and Case Selection
The broader aim of this research is to provide an understanding of the integration process for the ASEAN region and to explain the underlying drivers for financial integration. The selection of ASEAN for this thesis is because it will serve as a 'test case' whether there actually is a shift from the extra-regional logic towards the intraregional logic of integration. With regard to the selection of the GFC in the research question, one has to look at the aftermath of the AFC and the general consensus since the GFC. First, the literature seems to suggest that the AFC represented a 'watershed' in ASEAN integration. Although the GFC would be less severe, the fear of the region for another 'AFC like situation' after the GFC
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would result in the expectation of significant actions to be initiated with regard to improving regional financial integration. Second, after the GFC a gradual shift took place, moving away from the general acceptance and embracing of globalization and (global) free trade to a renewed sense of 'competitive regionalism' and even protectionism (Keat 2009; Emmers and Ravenhill 2010). These developments make the case of ASEAN integration, as well as providing explanations for why integration is or isn't taking place in the specific timeframe since the GFC so relevant. Therefore, this research starts from the point of a case, namely financial integration in ASEAN, in search of a theory that can explain this case (George & Bennett 2005). The research will use financial integration as the selected case to attempt to explain one aspect of the integration process in ASEAN, namely the formation of the AEC. The type of research that will be conducted to assess the causal mechanisms behind ASEAN financial integration is a 'single case study'. The reason behind this, is that we want to understand what is so specific about this case of financial integration as well as the general implications it holds for the process of regional integration in other non European/non-Western regions (Gerring 2004).
1.6. Data and Research method
The data that will be used for this research is both qualitative and quantitative. First, the qualitative data will consist of documents and several interviews. The interviews will be held with several employees of the ASEAN Secretariat, specifically those who are working in relevant groups. For this thesis, the most relevant groups within the ASEAN organisation are the ASEAN Finance Integration Division and the Initiative for ASEAN Integration by Narrowing the Development Gap Division (IAINDG). These groups will be key in this research as they are most closely linked to the process of financial integration. However, it is essential to obtain information from outside the ASEAN organization as well, as the ASEAN employees might be biased towards an optimistic view on the process of financial integration. Therefore, some interviews will also be conducted with several companies, primarily MNC's, in order to obtain a 'private sector' view on the financial integration efforts by ASEAN. Due to the operational limitations of this research, the companies that will be interviewed are strictly Dutch companies. However, the interviewed firms produce different goods or services and operate in different AMS. Therefore the fact that only Dutch companies will be interviewed should not be a major influence for the results. Finally, an interview with the Dutch Federal Service for Entrepreneurs (RVO) will be conducted to gain an insight in how governmental agencies assist companies in their endeavour to expand their business into Southeast Asia.
