How to Improve Sustainable Regional Integration in CAREC Economies

Financial support for small and medium-sized enterprises is essential to leveraging financial integration. Photo credit: ADB.

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Published: 01 June 2023

Developing efficient institutions and technical capacity building can strengthen regional cooperation and integration in Central Asia.


Despite the increasing significance of regional integration, limited empirical evidence exists to compute and measure its levels using digital and sustainable development dimensions and related indicators in the member economies of the Association of Southeast Asian Nations (ASEAN) and the Central Asia Regional Economic Cooperation (CAREC). The data is needed to chart the progress vis-à-vis planned targets.

A study published by the CAREC Institute aims to fill this gap by constructing a simple index of regional integration using different dimensions—including digital and sustainable development dimensions—and indicators to quantify the progress in the ASEAN and the CAREC economies. The goal is to support evidence-based policymaking.

The study covers the ASEAN economies of Brunei Darussalam, Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam, and the CAREC economies of Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, and Tajikistan. It uses a simple aggregation technique to build the ASEAN–CAREC Digital and Sustainable Regional Integration Index and provides policy implications. It includes the dimensions of trade and investment, regional value chain, finance, movement of people, infrastructure, regulatory cooperation, and digital economy, plus related conventional and sustainable indicators, where data was available. Sustainable development indicators stress the need for inclusivity and environmental protection in regional integration.


Comprehensive research and deeper analysis of the progress of integration have remained scarce.

The Africa Regional Integration Index includes five dimensions of regional integration: trade integration, productive integration, infrastructure and connectivity integration, integration in the movement of people, and financial integration.

The Asia–Pacific Regional Integration Index and the Asia–Pacific Regional Cooperation and Integration Index, meanwhile, added institutional and social integration dimensions. Although the three indices are comprehensive, they do not cover either digital or sustainable dimensions of regional integration.

The ASEAN–CAREC Digital and Sustainable Regional Integration Index focuses on developing the indicator framework for digital and sustainable regional integration using the framework for monitoring the progress of the Sustainable Development Goals. This approach considers the possibility that strong regional integration may not be the most desirable outcome in the context of the COVID-19 pandemic. For instance, the COVID-19 crisis may have a more negative impact on the most regionally integrated economy. On the other hand, a more regionally integrated economy may also recover faster due to better access to medical supplies. Based on experiences in development of the Africa Regional Integration Index, Asia–Pacific Regional Integration Index, and the Asia–Pacific Regional Cooperation and Integration Index, the study uses simple aggregation techniques to build the index and to offer policy implications.

The 7 dimensions and their respective indicators are the following:

Intraregional goods exports to gross domestic product (GDP)

Intraregional goods imports to GDP Average tariff on intraregional imports

Stock of intraregional foreign direct investment inflows (FDI) to GDP
Stock of intraregional FDI outflows to GDP

Intraregional real exchange rate volatility

Average intraregional financial development index score 

Regional value chain participation index

Intraregional intermediate goods exports to total 
intraregional goods exports

Intraregional intermediate goods imports to total 
intraregional goods imports

Intraregional liner shipping connectivity index

Intraregional average trade cost (in US$)

Average intraregional rural access to electricity

Average intraregional share of internet users in population

Intraregional liner shipping connectivity index

Stock of intraregional emigrants per capita
Intraregional outflow of remittances to GDP

Intraregional inflow of remittances to GDP

Number of regional economies that have signed free trade agreements with the economy

Number of regional economies that have signed international investment agreements with the economy

Rule of law index score

Share of ICT good exports in intraregional exports

Share of ICT good imports in intraregional imports
Average intraregional share of population with financial 
institution or mobile money account
Average intraregional secure internet servers
Average intraregional proportion of household with access to internet
Average intraregional share of female population with financial institution or mobile money account


The ASEAN–CAREC Digital and Sustainable Regional Integration Index captures progress in conventional trade and investment integration, regional value chain integration, movement of people, conventional and sustainable infrastructure integration, regulatory cooperation, and digital economy integration. In financial integration, only sustainability indicators are used. Due to data limitations, sustainability indicators for trade and investment, regional value chain, and movement of people are not captured, which remains a major limitation of the study.

Table 1: Performance in Composite Regional Integration

ASEAN 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Trade and investment integration 0.35 0.36 0.38 0.35 0.35 0.36 0.41 0.37 0.40 0.38 0.40
Financial integration












RVC integration












Infrastructure integration 0.52 0.53 0.53 0.52 0.54 0.55 0.54 0.52 0.51 0.51 0.51
Movement of people 0.26 0.26 0.27 0.28 0.28 0.27 0.27 0.27 0.26 0.27 0.27
Regulatory cooperation 0.50 0.50 0.49 0.50 0.50 0.49 0.51 0.51 0.51 0.50 0.50
Digital economy integration 0.34 0.34 0.37 0.39 0.38 0.37 0.38 0.39 0.40 0.39 0.41
Overall composite RI 0.40 0.41 0.43 0.41 0.41 0.41 0.42 0.42 0.42 0.43 0.42
Trade and investment integration 0.42 0.42 0.42 0.44 0.49 0.40 0.43 0.38 0.43 0.39 0.39
Financial integration 0.50 0.46 0.52 0.51 0.52 0.41 0.48 0.43 0.47 0.45 0.47
RVC integration 0.48 0.49 0.56 0.47 0.46 0.41 0.42 0.39 0.42 0.52 0.45
Infrastructure integration 0.49 0.48 0.42 0.45 0.48 0.49 0.50 0.50 0.57 0.58 0.52
Movement of people 0.44 0.43 0.44 0.39 0.38 0.37 0.36 0.37 0.36 0.37 0.43
Regulatory cooperation 0.53 0.51 0.51 0.52 0.51 0.54 0.53 0.57 0.56 0.56 0.55
Digital economy integration 0.34 0.36 0.35 0.34 0.33 0.38 0.38 0.41 0.43 0.47 0.46
Overall composite RI 0.46 0.45 0.46 0.45 0.45 0.43 0.44 0.44 0.46 0.48 0.47

RVC = Regional Value Chain; RI = Regional Integration.
Source: Author’s calculations.

Overall, CAREC’s average regional integration score was higher than the ASEAN region. Strong integration in Central Asia is attributed to more active participation in trade and investment, regional production networks and value chains, movement of people, cooperation arrangements over time, and the digital economy in recent years. The region performed better in conventional integration due to the robust contribution of financial, infrastructure, and regulatory cooperation, and modest contribution of sustainable digital economy integration. All CAREC economies fared better in conventional trade and investment integration than the ASEAN economies of Brunei Darussalam and Indonesia during 2014–2020. While the results indicate that the CAREC region has improved in trade and investment integration, high instability persisted. During 2010-2020, Kazakhstan obtained the highest score in overall average integration among all CAREC and ASEAN economies.

The ASEAN average regional score was higher than that of CAREC in sustainable financial integration, infrastructure integration, and regulatory cooperation. Singapore was the top performer, followed by Malaysia. Singapore obtained the best score in digital economy integration, sustainable financial integration, and infrastructure integration, while Malaysia scored above regional average in all dimensions except trade and investment integration.

Singapore and Kazakhstan attained the highest levels of digital and sustainable regional integration in their respective regions and their performance in these dimensions varied significantly across their indicators. Pakistan was the least integrated economy.

Most Central Asian economies experienced substantial volatilities in trade and investment, financial integration, regional value integration, and infrastructure integration. They made substantial progress in movement of people, regional cooperation, and digital economy integration.

In sustainability indicators, the CAREC region’s performance improved significantly. However, it exhibited negligibly in intraregional real exchange rate volatility compared to the substantial performance of the ASEAN region.

In intraregional financial development index, the CAREC region performed better than the ASEAN regional average in recent years.

The contribution of average intraregional rural access to electricity in infrastructure and connectivity index has improved gradually in the CAREC region compared to a decline in the ASEAN region during recent years, while average intraregional share of internet users in population contributed more in the ASEAN region.

The contribution of rule of law index to regulatory cooperation steadily increased in the CAREC region and declined negligibly in the ASEAN region.

In digital economy indicator, the CAREC region generated a higher score than the ASEAN region. All CAREC economies obtained better than ASEAN economies of Brunei Darussalam and Cambodia. The CAREC region scored better in sustainable indicator of average intraregional secure internet servers compared the ASEAN region. However, performance of the CAREC region remained lower in sustainable indicators of average intraregional proportion of household with access to internet and average intraregional share of female population with financial institution or mobile money account compared to the ASEAN region in most years.

Table 2: Overall Average Regional Integration by Indicator and Country

ASEAN Trade and investment integration Financial integration RVC integration Infrastructure integration Movement of people Regulatory cooperation Digital economy integration Average score
Brunei Darussalam 0.1280 0.4236 0.3063 0.6027 0.1950 0.3318 0.0545 0.2917
Cambodia 0.4554 0.4554 0.3518 0.1700 0.3609 0.1800 0.0036 0.2824
Indonesia 0.2154 0.1027 0.4372 0.3390 0.0800 0.5527 0.1736 0.2715
Malaysia 0.2981 0.6936 0.6654 0.7036 0.4227 0.7736 0.6772 0.6048
Philippines 0.3400 0.4554 0.3345 0.5300 0.3400 0.3927 0.4100 0.4003
Singapore 0.6463 0.9490 0.0609 0.8572 0.3300 0.9100 0.9700 0.6747
Thailand 0.3372 0.8036 0.1436 0.4327 0.1981 0.5845 0.4472 0.4209
Vietnam 0.5327 0.2236 0.5672 0.5318 0.2154 0.2954 0.3081 0.3820
Average RI 0.3836 0.5054 0.3500 0.5254 0.2690 0.5009 0.3754 0.4156
Kazakhstan 0.4080 0.5870 0.1470 1.0000 0.4618 0.8200 0.7160 0.5914
Kyrgyzstan 0.5027 0.3509 0.1190 0.6018 0.6427 0.6570 0.2290 0.4433
Mongolia 0.5618 0.6543 0.6409 0.2354 0.2027 0.4200 0.6509 0.4808
Pakistan 0.2680 0.5118 1.1370 0.1509 0.0945 0.7227 0.2272 0.4445
Tajikistan 0.3527 0.1927 0.3040 0.5010 0.5650 0.0618 0.1118 0.2984
Average RI 0.4100 0.4740 0.4609 0.4527 0.3940 0.4654 0.3860 0.4347

RVC = Regional Value Chain; RI = Regional Integration.
Source: Author’s calculations.

Performance of CAREC Economies

Intraregional goods imports accounted for a significant portion of the GDP of the Kyrgyz Republic, Mongolia, and Tajikistan for most years, in contrast to Kazakhstan and Pakistan. Intraregional foreign direct investment inflows and outflows to GDP contributed significantly to trade and investment integration in the CAREC region.

Most CAREC economies, except Mongolia, persistently scored low in sustainable financial integration. They need to diversify their financial markets and create robust institutions to achieve higher intraregional financial vitality and integration.

Except for Pakistan and Mongolia, performance of CAREC economies remained lower than regional average. The performance of Kazakhstan, Kyrgyz Republic, and Tajikistan fluctuated over the period of study. CAREC economies displayed relatively high instability in this aspect.

CAREC economies, except Kazakhstan, experienced high volatilities in infrastructure integration. The intraregional average trade cost contributed heavily to infrastructure and connectivity index in the region. Intraregional rural access to electricity increased in recent years but intraregional share of internet users in the population is low.

The relatively high integration of CAREC economies is attributed to greater human mobility than goods mobility due to relatively more open borders and labor remittances. This highlights the relative relevance of stock of intraregional emigrant per capita and intraregional outflow and inflow of remittances to GDP in movement of people dimension in CAREC economies.

The relatively high scores in regulatory cooperation integration imply that all CAREC countries have entered regional trade agreements and are members of different regional economic alliances, though with differential outcomes. The CAREC economies have signed fewer free trade agreements and international investment agreements. However, the relative rule of law index contributed significantly to the regional cooperation index.

The CAREC region scored higher than the ASEAN region. All CAREC economies obtained better scores than the ASEAN economies of Brunei Darussalam and Cambodia. CAREC also has a better intraregional average for secure internet servers.


Therefore, the CAREC economies should evolve robust institutions to strengthen the performance of the dimensions of regional integration and also reduce the volatilities in their performance.


Strengthen the CAREC program. Evolve formal institutions for sustainable integration to boost regional integration efforts and rejuvenate the special and differential treatment mechanisms for stronger economic integration in landlocked countries. Advance cooperation in new production and digital services by additionally bolstering business and investment regimes, focusing on wider application of digital trade promotion, technology transfer, and knowledge sharing.

Promote trade and investment integration. Improve trade facilitation and remove non-tariff barriers to help slash high intraregional trade costs and promote free trade zones in all CAREC corridors. Strengthen regulatory institutions to formalize the informal economy. Develop stronger cross-border economic corridors for the product and services market to generate greater sustainable regional integration.

Leverage financial integration. Provide substantial financial support to leverage more private participation in development of small and medium enterprises (SMEs) in CAREC economies. Robust banking reforms can spur financial development, provide credit to SMEs, and promote trade and financial integration.

Strengthen regional value chains. Enable robust social protection and healthcare systems and resilient supply chains by strengthening the ongoing digitalization process. Promote e-commerce and digital business services for enhanced digital trade and tourism services. Develop regional value chain integration through regional cooperation in capacity building for skills of SMEs to bolster trade in goods and services using digital platforms.

Develop robust infrastructure. Further enhance cross-border infrastructure connectivity through robust regional interlinks by expanding existing transport and economic corridors under the CAREC program. Develop intraregional free trade zones along the CAREC corridors to convert transport corridors into economic corridors.

Leverage movement of people. Enhance tourism to accelerate employment, businesses, and economic growth. Promote e-visa or free visa services and tap new tourist destinations in less explored regions of the CAREC economies. Institutional cooperation and capacity building in managing cross-border movement of people in CAREC economies should be developed.

Sustain regional cooperation. Bolster robust regional free trade agreements. Improve the economic environment and remove technical and institutional barriers to promote the free flow of energy in the CAREC region for greater price competitiveness, self-sufficiency, and energy security.

Promote digital economy. Boost digital trade in services by increasing digital connectivity. Increase trade intensity in ICT products through effective regulations on trade in digital goods and services. Develop robust regulations on data management, cyber security, and digital inclusion through regional cooperation in the development of digital infrastructure.


Falendra Kumar Sudan
Professor, Department of Economics, University of Jammu, India

Falendra Kumar Sudan specializes in Environmental and Natural Resource Economics, Development Economics, and Demography. Since 1998, he has been actively engaged in teaching, research, and consultancy at the University of Jammu, India. He is Director, Regional Centre of Expertise in Educational for Sustainable Development under UNDP through UNU-IAS, Tokyo. He has been a Member of the State Level Environmental Impact Assessment Authority under the Ministry of Environment, Forest and Climate Change since March 2016.

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Central Asia Regional Economic Cooperation Institute (CAREC)

The Central Asia Regional Economic Cooperation Institute (CAREC) is an intergovernmental organization promoting economic cooperation in Central Asia and along the ancient Silk Road through knowledge generation and sharing. CAREC is jointly shared, owned, and governed by 11 member countries: Afghanistan, Azerbaijan, People’s Republic of China, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan.

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