By Dr Lili Yan Ing, Secretary General of International Economic Association (IEA) and Senior Economist of ERIA, Yessi Vadila, Trade Specialist, and David Christian, Research Associate: As Southeast Asia gains prominence in the global economic landscape, recent developments underscore its growing influence. In August 2024, Indonesia and Thailand expressed interest in joining the Organisation for Economic Cooperation and Development (OECD). Two months later, four ASEAN members—Malaysia, Indonesia, Thailand, and Vietnam—became partner countries of BRICS. These moves raised crucial questions about ASEAN’s economic evolution, current role in the global economy, and future trajectory.

ASEAN’s transformation since its formation in 1967 has been remarkable. From a modest combined economy valued at US$24 billion, ASEAN emerged as the world’s fourth-largest economic bloc in 2024, with an estimated gross domestic value (GDP) of US$4.13 trillion—trailing only the United States (US$28 trillion), China (US$18.5 trillion), and Germany (US$4.5 trillion). 

This rise reflects broader shifts in global economic governance. The dominance of developed nations, particularly the G7, began to wane in the early 1970s as emerging economies gained prominence. These rising powers have steadily increased their share across four key metrics: output, trade, manufacturing value-added, and foreign direct investment (FDI). Among these emergent forces are China, India, Republic of Korea, and ASEAN nations.

ASEAN has methodically established itself as an indispensable partner for the world’s major economies. In 2023, it accounted for 8% of global trade as well as 5% of global manufacturing value-added, and attracted 17% of global FDI. The bloc has become China’s primary trading partner, Japan’s second largest, Korea’s third largest, and the fourth-largest partner for the United States.

This economic transformation stems not from developed countries' growth rates but from the rapid rise of emerging economies like China, India, and Korea. Development has been driven by structural transformation in industries, technology, and human capital, alongside improved infrastructure and institutions that reduced transaction costs. Governments in these economies have successfully converted 'latent' advantages into strengths, capitalising on latecomer advantages in industrialisation and technology.

However, ASEAN faces two significant structural challenges. First, while domestic consumption drives 55% of the region’s economy and the region’s trade-to-GDP ratio grew from 61% in 2000 to 87% in 2023, the bloc remains heavily dependent on natural resources. The region’s ratio of manufacturing value-added to GDP has declined since 2000, averaging just 20% in 2023. Moreover, 30% of ASEAN’s exports remain resource-intensive, with the remainder primarily in labour-intensive sectors. Only Singapore, Malaysia, and Vietnam have successfully transitioned their exports to higher value-added exports.

Second, ASEAN grapples with a persistent ‘missing middle’ in its medium-sized enterprise landscape. Between 97.2% and 99.9% of the region's approximately 70 million firms are micro or small enterprises—a pattern that has remained largely unchanged since 2010. While these MSMEs contribute significantly to employment (85%), GDP (44.8%), and exports (18%), the scarcity of medium-sized businesses hampers innovation, productivity, and middle-class job creation. A 2021 report by the Asian Development Bank shows a decline in the proportion of employment by MSMEs over the past decade in five of the region's largest countries, even as the number of MSMEs increased. This trend underscores the low productivity of MSMEs.

The Way Ahead

To maintain sustainable growth, ASEAN must enhance its trade and investment capabilities while addressing these structural challenges. The region needs to diversify beyond natural resources and prioritise high-growth sectors where it shows promising potential, such as semiconductors and the digital economy.

Additionally, ASEAN must create a more supportive business environment for small firms to grow into medium-sized and large enterprises. This transformation is crucial for fostering sustainable economic growth and developing a robust middle tier of businesses.

The region’s future partnerships will likely be shaped by geopolitical considerations, especially as member countries pursue membership in influential groups such as the OECD and BRICS. Despite potential changes in US leadership, American foreign and trade policies towards the region are expected to remain consistent. Meanwhile, with President Xi Jinping set to lead China for at least another 15 years, US–China tensions around trade, technology, strategic industries, and security may intensify, potentially impacting ASEAN’s economic development agenda.

Throughout these challenges, ASEAN maintains its role as a promoter of peace and stability, steering clear of alignment with any single global power. The region remains committed to fostering balanced relationships with all major players—the US, China, the European Union, Japan, Korea, India, Brazil, and South Africa. By maintaining equal partnerships in trade and development, ASEAN continues to advance shared growth and prosperity in the multipolar global landscape.

This opinion piece was written by Dr Lili Yan Ing, Secretary General of International Economic Association (IEA) and Senior Economist, ERIA, Yessi Vadila, Trade Specialist, ERIA, and David Christian, Research Associate, ERIA and has been published in The Jakarta Post. Click here to subscribe to the monthly newsletter.

Disclaimer: The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the Economic Research Institute for ASEAN and East Asia.