Policy Exploration with Agent-Based, Economic Geography Methods of Regional Economic Integration in South Asia

Abstract

Parts of Asia continue to enjoy high economic growth—this rapid growth however does not extend to all regions of Asia, and within geographic regions growth disparities remain high. This paper features applied and complex models for regional economic development. In a pioneering approach that makes explicit the complex connections needed to spur growth in trade, this South Asia-focused study details a unique method to assess how Aid for Trade (AfT) investments interact with agents of economic change, such as consumers and producers and traders of intermediate and final goods and to evaluate their potential to reduce the cost of bringing more products to more markets. Furthermore, it presents a new tool for policy makers to foster regional economic integration and pursue the overarching development objective of more inclusive growth across a region. The paper shows how modeling restructuring across geographies can visualize policy choice hitherto unseen and unrecognized. The models exhibit structural changes in the regional South Asia economy through the decreases in intra-regional trade transaction costs which are influenced by a set of investment based policy choices. The cost reduction pattern and the nature of non-linear and distributed interactions between the geographic elements of the agent-based system allow it to functionally restructure itself over time. When low growth sections of the regional economy are integrated into evolving regional and global trade networks and agent-based relationships, the benefits of high economic growth are extended to low growth sections of a regional economy, as is made visually apparent in Geographic Information System (GIS) map-based simulations. The paper will review representations of regional development models in terms of their assumptions (peeled away like an onion) and in terms of their level of complexity, very much in the tradition of Peter Allen’s classification system. Traditional mechanical models of regional economic development assume away structural change with the assumption of completeness of network connections among agents in the system, thereby imposing a simplifying homogeneity on economic agents that significantly reduces explanatory power.