Regional cooperation remains critical for increasing new infrastructure, but the substantial gap between what is needed and what is in the pipeline is widening. Innovative mechanisms are urgently needed to help mobilize public finance, attract greater private sector participation and tap new sources of long-term capital.

Inadequate investment in infrastructure continues as a major barrier to sustainable and inclusive economic growth in developing Asia. Physical connectivity through roads, rails, and ports is essential for efficient, reliable, and low-cost logistics for international trade and investment. Following the 1997/98 Asian financial crisis (AFC), many economies in the region used economic cooperation and integration initiatives in part to expand markets beyond traditional trading partners in Europe and North America. By the time the GFC hit, over half of Asian trade was with other Asian economies. Asia’s intraregional trade and investment was strong enough to help shield the region from excessive fallout, while domestic stimulus pulled affected economies quickly out of recession. Although much of the stimulus came through infrastructure investment, it hardly slowed the widening infrastructure gap in most economies. Substantial deficiencies in both the quality and quantity of multimodal infrastructure across Asia persist because of a shortage of investment—which has yet to return to pre-1997 levels. From 2011 to 2013, the time required to export or import increased in Asia, underscoring both physical and behind-the-border deficiencies. Further, the benefits of connectivity have been unevenly spread. In sub-regions where transport is good-such as East Asia-trade has expended rapidly. But in sub-regions where connections are poor, trade remains low and economic growth has lagged.

Adequate infrastructure connectivity is critical for economic competitiveness, and is a major factor determining where investors locate and what they produce. Extensive and efficient transportation are the links of supply chains-connecting people and firms to markets, whether buyers/importers or sellers/exporters. Aside from access to markets, it creates jobs and boosts business opportunities. It helps narrow the development gap-nationally and sub-regionally promoting inclusive and sustainable growth. Improved transport infrastructure reduces costs, particularly for Southeast Asian supply networks catering to East Asian manufacturers across major product lines such as garments, automobiles, and electronics. Given Asia’s largely liberalized trade regimes, narrowing the infrastructure gap would do more to reduce trade costs and increase volumes than eliminating remaining tariff barriers. Futhermore, with large segments of Asia’s poor living in remote or isolated areas, they would benefit greatly from improved access to industrial centers as well as to health and educational services.