How Similar Are the East Asian Economies? A Cluster Analysis Perspective on Economic Cooperation in the Region

Abstract

Recent economic calamities such as the 1997 Asian financial crisis have amply demonstrated the

need for increased economic integration in the East Asian economic region. While various forms of

economic cooperation are possible, it is important to identify groups, or clusters, of countries that are

similar to each other economically. Such similarity not only has been shown to be associated with the

increased bilateral trade flows, but also with the increased net welfare gains to the participating

countries. I employ a variety of clustering techniques and come up with a clustering solution

containing four groups of economically similar countries. The clusters are robust across the estimation

procedures. Hierarchical clustering also conducted in this study suggests a sequential agglomerating

path for the countries to follow. The results of this study are intended as one of the (many) decision

tools used by the parties considering multilateral economic cooperation and trade agreements in the

region.