Trade, foreign direct investment and economic development of Southeast Asia

The Southeast Asian economies, more particularly the ASEAN-5 of Indonesia, Malaysia, Philippines, Singapore and Thailand, have been pursuing an increa singly outward-oriented, export-led and foreign direct investment-led devel opment strategy. This has contributed to high growth performance and struct ural transformation in recent decades, as trade and FDI enable these econom ies to overcome the constraints of small domestic markets and narrow resour ce bases; exploit comparative advantage and scale economies; access foreign capital, technology and managerial and marketing expertise. However, there has been some questioning of the sustainability of the Southeast Asian mod el, particularly in the light of the regional currency and financial crisis that has engulfed the region since July 1997. The crisis has not negated t he role of trade and has strengthened the role of FDI. Opening capital acco unts and domestic financial systems without putting in place measures to st rengthen the latter, including prudential regulations and monitoring and su rveillance mechanisms, have exposed these economies to the downside of vola tile short-term capital flows. Measures are being undertaken to remove the weaknesses in the economies revealed by the crisis, resulting in more effic ient, transparent and equitable economic systems. Together with some of the fundamentals which contributed to past high growth, these economies will r ecover their economic dynamism and the economic miracle can resume.