ASEAN needs to remain united, embrace openness, invest in human capital and technology, and champion free trade and multilateralism to becomes one of the principal engines of sustainable and inclusive global growth.
For more than four decades, East Asia, including ASEAN (the Association of Southeast Asian Nations), has been one of the world’s greatest development success stories, lifting hundreds of millions out of poverty and transforming many economies to middle-income or even high-income status.
But the foundations of this success are changing. East Asia is aging rapidly. Global trade is slowing and becoming increasingly fragmented. Artificial intelligence is reshaping comparative advantage and threatening jobs. Climate change is intensifying pressures on food and energy systems. Citizens expect a higher quality of life.
The central question, therefore, is how can ASEAN sustain prosperity while avoiding the middle-income trap?
Productivity-Led Growth
The Asian development model has relied on abundant labour, expanding global trade, and integration into global value chains. But the international environment has fundamentally changed. Since the 2008 Global Financial Crisis, world trade has expanded much more slowly at 3% growth (2012-2015)—well below the 7% average of the pre-GFC era.
The Asian development model has relied on abundant labour, expanding global trade, and integration into global value chains. But the international environment has fundamentally changed. Since the 2008 Global Financial Crisis, world trade has expanded much more slowly at 3% growth (2012-2015)—well below the 7% average of the pre-GFC era.
China has lowered its import elasticity for raw materials and intermediate goods. Industrial automation and advanced robotics have significantly reduced the comparative advantage of labour-abundant economies. The weaponisation of trade and investment interdependence has fragmented the global trading system.
Future growth should rely on productivity. Unfortunately, since the 1997–1998 Asian Financial Crisis, total factor productivity growth across Asia has steadily decelerated, reflecting deeper structural fragmentation and widening gaps between highly productive frontier firms and vast numbers of lagging, informal-sector enterprises— primarily subsistence agriculture and informal retail services.
Governments should aggressively dismantle domestic trade barriers by easing the cost of doing business and improving the investment climate, developing infrastructure especially for rural logistics, reducing post-harvest losses, and expanding digital financial inclusion and micro-insurance frameworks.
Governments must also transition their industrial policies toward greater investment in Research and Development, faster diffusion of technology across firms to improve process innovation and creating competitive market dynamics.
Artificial Intelligence and Human Capital
AI presents extraordinary opportunities such as optimising logistics, improving manufacturing efficiency, strengthening healthcare systems, modernising agriculture, expanding financial inclusion, and improving public administration. For aging societies, AI can partially compensate for shrinking workforces.
However, many developing economies, including within ASEAN, have relied on labour-intensive manufacturing as the first stage of industrialisation. Automation threatens these entry-level jobs. The objective should not be to replace people with technology. Rather, it should be to augment human capability through technology.
This requires a complete rethinking of education policy. Across much of Asia, educational access has expanded dramatically, but educational quality has not.
Education systems and curriculum must be redesigned to emphasise digital literacy, data analytics and complex engineering fundamentals. Equally important, they must foster foundational soft skills—cognitive flexibility, unstructured problem-solving, cross-cultural communication, and teamwork and collaborative leadership.
Institutional Foundations and the Role of the State
The role of the state is critical in deploying public expenditure to build the infrastructure foundation that unlocks private sector profitability. The strategic roles of the state require competent, professional, and high-integrity public institutions supported by capable civil servants and accountable political systems.
The strategic role of the state also requires maintaining macroeconomic stability and fiscal discipline. Credible fiscal management and monetary authority will strengthen confidence that is essential for investment in future growth. Strong and trusted institutions, therefore, matter as much as strong policies.
Regional and Global Cooperation
Every economy that has successfully transitioned into high-income status did so by integrating more deeply into regional and global markets. Japan, the Republic of Korea, Singapore and, more recently, Ireland embraced competition, technology transfer, investment, and international cooperation.
For ASEAN, regional integration has become a strategy for productivity, resilience and prosperity. ASEAN has become the fifth largest economy globally, with more than 680 million people and a combined GDP exceeding US$4 trillion.
The Regional Comprehensive Economic Partnership (RCEP) has created the world’s largest free-trade area, combining the 10 ASEAN states with China, Japan, South Korea, Australia, and New Zealand. RCEP demonstrates that countries with different political systems, income levels and development models can still cooperate under common economic rules.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) provides an institutional platform for structural regulatory benchmarking and alignment among its member states. CPTPP is not merely another free trade agreement; it is a platform for institutional modernisation.
RCEP and CPTPP allow Asian economies to trade intermediate goods with one another with minimal friction, turning East and Southeast Asia into a self-sustaining integrated consumer market.
ASEAN should view these agreements as complementary instruments for achieving deeper regional integration—a strategic necessity.
ASEAN’s Next Chapter
The future will be determined by the strength of our collective institutions.
If ASEAN remains united, embraces openness, leverages RCEP and CPTPP, invests in human capital and technology, and champions a renewed multilateralism, it will become one of the principal engines of future sustainable and inclusive growth.
This article marks this year’s Southeast Asia Update and Oration by Sri Mulyani Indrawati, hosted by Asialink and Asia Institute, University of Melbourne, with support from the ASEAN-Australia Centre.
Image: Sri Mulyani Indrawati standing at a podium delivering the 2026 Southeast Asia Oration at the University of Melbourne. Used with permission: Aaron Francis/Asialink.
