Introduction

The difficulties in determining investment priorities arise in large part from the problem of externalities, i.e., large divergences between private and social costs/benefits. An important externality that is often overlooked in a narrow domestic calculus is the costs and benefits of improved transnational linkages. The Asian Development Bank (ADB) rightly sees potential for strengthening regional social and political ties within Asia through cross-border corridor development as a step towards building an Asian economic community (Kuroda, 2006). Some would go further and suggest that regionalism is a matter of survival for Asia in a tripolar world alongside Europe and the United States. There may be important non-economic benefits of regionalism beyond raising national income and reducing poverty. Thus greater weight may be given to regional cooperation and regional projects than would be consistent with purely economic goals.

Nevertheless, there are pitfalls in taking a partial approach to externalities. A proper calculus for setting investment priorities must still take account of all large externalities, not merely those that happen to be in current fashion (e.g. air and water pollution, and congestion). As the dialogue on trade liberalisation is coming to recognise, ‘behind-the-border' externalities sometimes outweigh those ‘at-border'. For most international air and sea movements, main cities are the border and their functional efficiency or lack thereof has a great impact upon logistic costs. Too narrow a focus on land-border infrastructure may risk a double misallocation of resources stemming from neglect of both vital urban infrastructure projects and more modest but no less essential infrastructure in rural areas, which are the source of food and raw materials. Unfortunately, few countries are thorough and transparent in determining national infrastructure priorities and funding because of lack of data and expertise, opportunism, and politicking. Yet the clear evidence of endemic congestion, pollution, and flooding in large cities and rising real prices for food and raw materials points to massive diseconomies of agglomeration.

To assess transnational externalities specifically, it is necessary first to determine the appropriate economic space and the emerging spatial pattern within it. Here the term ‘appropriate' economic space may be more apt than the static one of ‘optimal' economic space. The latter is hard to apply in the situation of rapid growth and structural change occurring within a diverse Asian realm stretching from the Pacific Islands in the east to the Black Sea in the west. More important, however, is the nature of economic space. This should be envisaged as highly contoured with the dominant economic zones being large cities, which are also gateways to the wider world. These gateways are integrated with the international economy by flows along corridors. Where land corridors traverse international boundaries, they may be identified as locations for cross-border special economic zones (SEZs) that could enhance greater Asian regionalism.

Within this broad policy context, this paper elaborates the characteristics of economic space by depicting its unbounded, uneven, sometimes discontinuous, and multidimensional character. Then the spatial planning tools of gateways and multimodal corridors are outlined and applied to Mainland Southeast Asia, Island Southeast Asia, and the Pacific Islands. The efficiency and effectiveness of cross-border special economic zones are assessed in terms of their potential role in deepening Asian integration before contemplating the post-Kyoto effects of fuel pricing on the split between different transport modes.

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