Towards greater regional integration in Southwest Asia

Regional integration is the process of countries cooperating across borders for economic, infrastructural, and strategic gains. It is gaining momentum across Asia. Institutions like BIMSTEC, BBIN, and ASEAN are facilitating greater connectivity, enhanced trade, and collective resilience. Asia’s deepening ties are evident in foreign direct investment (FDI) trends, with intraregional flows averaging 52 per cent from 2013–2023, driven largely by services, which grew from 46 per cent to 58 per cent of FDI share in the past decade (Asian Economic Integration Report 2025, ADB).
As Asia pivots toward digitalisation and green transitions, strategic partnerships are reshaping investment priorities. In this evolving landscape, Japan has emerged as a key architect, contributing 30 per cent of regional and 10 per cent of global FDI outflows, with a strong 11 per cent annual growth well above the regional 5 per cent average. Through targeted Overseas Development Assistance (ODA), quality infrastructure investment, and engagement in platforms like the Partnership for Quality Infrastructure (PQI) and Japan–Mekong Connectivity, Japan is shaping South Asia’s regional integration, notably in Bangladesh, India, Sri Lanka, and Nepal.

Criticality of Regional Integration in South Asia for Shared Economic Growth and Development: The pivotal position of Southwest Asia between East Asia and the Middle East makes it strategically crucial for the ‘Free and Open Indo-Pacific (FOIP)’. With a vast market, growing consumer market and a large youth workforce, this region harbors immense economic potential, particularly in sectors like trade, manufacturing, and digital services, as well as opportunities for regional value chains and renewable energy cooperation. However, challenges such as poor infrastructure, weak education and healthcare systems, and high poverty levels prevent this country from tapping into its potential.
Currently, regional trade in South Asia remains low, accounting for less than 5 per cent of total trade. Regional economic integration can be key to increasing trade and attracting shared economic prosperity by reducing trade barriers, harmonising regulations, and improving connectivity. In this region, opportunities for integration include developing regional value chains, expanding digital trade, and promoting energy cooperation. External actors like Japan can play a key role in supporting regional development, provided their involvement aligns with South Asia’s integration goals.
Why Regional Integration Important for Bangladesh: Leveraging Strategic Geo-location Advantage. Located at the crossroads of South and Southeast Asia, Bangladesh provides the shortest land route connecting the landlocked Northeastern Region of India with the Bay of Bengal. This positioning enables it to act as a gateway for regional connectivity under BIMSTEC and BBIN frameworks.
Economic Diversification & Export Growth. Although around 75 per cent of Bangladesh’s imports come from Asia, only 16 per cent of its exports go to Asian countries. Regional integration offers the potential to diversify beyond its current RMG-heavy export basket and tap into ASEAN+3 markets with a combined gross domestic product (GDP) exceeding $28 trillion.
Energy Sustainability and Infrastructure Integration. Bangladesh participates in regional energy cooperation projects like the SAARC Framework Agreement for Energy Cooperation and the India-Bangladesh electricity grid, importing over 1,160 MW from India. Japan-supported infrastructure projects like the Matarbari Deep Sea Port will link Bangladesh with regional production networks via BIG-B and BIMSTEC corridors.
Investment Promotion through SEZs. Regional cooperation has led to Japanese and Indian investments in SEZs like Araihazar (Japan Economic Zone). These SEZs are designed to support non-RMG sectors, with the government targeting $20 billion in FDI by 2030.
Political Stability and Multilateral Leverage. Platforms like BIMSTEC enhance regional peace and cooperation, facilitating joint mechanisms on disaster response, climate change, and trade negotiations areas critical to Bangladesh’s diplomatic strategy and security posture.
Japan’s Support for Regional Integration: Enabling Diplomatic Cooperation. Efforts toward regional integration in East and Southeast Asia have often been tempered by persistent undercurrents of historical discord and deep-seated strategic competition. Despite the institutional mechanisms like ASEAN+3 and the East Asia Summit offering platforms for dialogue, the absence of a coherent and inclusive regional security framework reflects enduring fractures.
In this context, Japan has positioned itself as a steady and pragmatic actor—advancing structured partnerships and development-oriented diplomacy, particularly within ASEAN. Its efforts often serve as a stabilizing counterweight amid shifting alignments and growing regional anxieties over strategic dominance. While certain powers expand their influence through narrative framing and expansive connectivity initiatives, Japan’s approach focuses more on institutional reinforcement, human resource development, and normative engagement.
Tokyo’s consistent support for ASEAN centrality—through forums like ASEAN+1, ASEAN+3, and the Regional Comprehensive Economic Partnership (RCEP) reflects its long-term commitment to multilateralism.
Catalyzing Investment. Japan continues to be a cornerstone investor in Southeast Asia and South Asia, maintaining its role as the region’s largest Asian source of outward FDI over the past decade. Between 2013 and 2023, Japan accounted for roughly 30 per cent of regional outward flows and 10 per cent of global outflows. This long-standing investment trajectory is not only quantitatively significant but also qualitatively focused on high-tech and infrastructure sectors.
Japan’s significant infrastructural projects including Mumbai–Ahmedabad high-speed rail corridor and railway expansion in Patna, Matarbari Deep Seaport in Teknaf. Simultaneously, grant support reached $82.9 million for Bangladesh, $70.6 million for Pakistan, and $65.5 million for India, supporting social sectors like health, education, and climate resilience.
Japan’s Indo-Pacific Strategy Combines Infrastructure, Investments, and Partnerships. Japan’s Free and Open Indo-Pacific (FOIP) vision is strategically aligned with broader regional integration efforts across Asia. Through key infrastructure investments such as the Matarbari Deep Sea Port and the Bay of Bengal Industrial Growth Belt (BIG-B) initiative, Japan is enhancing industrial and logistical connectivity across South and Southeast Asia. Its trade and technology support specially focused on industrial zones, SME development, and quality infrastructure to strengthen regional value chains.
Bay of Bengal Industrial Growth Belt (BIG-B). The Bay of Bengal Industrial Growth Belt (BIG-B), launched in 2014 under Japan’s “Abenomics” strategy, is a transformative bilateral initiative aimed at turning Bangladesh into a regional trade and industrial hub. Anchored in the “Japan-Bangladesh Comprehensive Partnership,” Japan committed over US$6 billion in Official Development Assistance (ODA) loans to bolster infrastructure, improve the investment climate, and promote industrial agglomeration along the Dhaka–Chattogram–Cox’s Bazar growth corridor1. The initiative is built on three strategic pillars: industrial and trade development, energy infrastructure, and regional economic connectivity. BIG-B aligns closely with Bangladesh’s “Look East” policy and is compatible with regional cooperation frameworks such as BIMSTEC, BCIM, and RCEP.
Matarbari Deep Seaport and Prospects of a Southwest Asia Supply Chain Corridor. Japan’s strategic infrastructure partnership with Bangladesh is exemplified by the Matarbari Deep Sea Port (DSP) a landmark project transforming the country’s trade and logistics landscape. Located in Cox’s Bazar, this is Bangladesh’s first deep-sea port, and it marks a critical leap toward becoming a maritime trade hub. Initially designed to support a coal-fired power plant, the port’s expanded scope reflects a broader vision of regional connectivity, now backed by a $1.5 billion investment, including a $1.09 billion loan from JICA.
Bangladesh’s shipping infrastructure will hugely benefit through accommodating larger vessels and offering faster, cost-effective maritime routes. With 94 per cent of Bangladesh’s trade already reliant on maritime transport, Matarbari DSP is expected to increase trade efficiency, reduce logistical costs, and potentially add 2–3 per cent to GDP, while generating large-scale employment and investment.
Key Challenges Hindering Regional Integration in South Asia: Weak Infrastructure Connectivity. The lack of efficient transportation systems, poor energy interlinks, and limited digital infrastructure have slowed down cross-border trade and regional coordination.
Enduring Political Tensions. Deep-rooted geopolitical frictionsparticularly between India and Pakistancontinue to overshadow regional cooperation efforts. The absence of mutual trust has often derailed initiatives under platforms like SAARC.
Uneven Economic Weight. India’s dominant economic presence, contributing over 70 per cent of South Asia’s GDP, creates an imbalance that raises concerns among smaller economies about equitable benefits from integration.
Hidden Trade Barriers. Despite formal trade pacts, inconsistent regulations, complex customs procedures, and differing product standards create bottlenecks that restrict seamless economic exchange.
Instability and Security Risks. Persistent internal conflicts, fragile political environments, and security threats in countries like Afghanistan and Sri Lanka divert attention from regionalism, making sustained collaboration difficult.
Way Forward: To unlock the full potential of Japan’s role in Southeast Asia’s regional integration, the following strategic actions are recommended, categorised under Infrastructure and Connectivity, Economic Cooperation, and Environmental Sustainability
Infrastructure and Connectivity
• Fast-track Japan-supported infrastructure: Prioritise the completion of key infrastructure projects, such as the Matarbari Deep Sea Port and Bay of Bengal Industrial Growth Belt, to improve logistics and foster investment.
• Review and renegotiate transit terms: Develop fair revenue-sharing frameworks for transit and port usage, reducing inefficiencies and enabling value-added services.
• Strengthen regional infrastructure: Invest in roads, railways, ports, and logistics through public-private partnerships (PPPs) to eliminate bottlenecks and enhance trade flow.
• Modernise trade facilitation: Develop multimodal transport corridors and digitize customs processes to streamline trade and reduce delays.
• Expand digital connectivity: Invest in cross-border broadband, e-commerce, and fintech platforms to promote market integration.
Economic Cooperation
• Leverage economic zones: Establish joint industrial parks at key locations and integrated logistics hubs to attract cross-border investments.
• Deepen energy collaboration: Launch joint hydropower and renewable energy projects; create cross-border energy-sharing agreements to support sustainable growth.
• Enhance regional platforms: Actively engage with regional frameworks like BBIN, BIMSTEC, and ASEAN, aligned with Japan’s Free and Open Indo-Pacific (FOIP) strategy to enhance trade, investment, and connectivity.
• Boost cultural and business exchanges: Promote tourism, academic partnerships, and trade fairs to strengthen bilateral trust and collaboration.
Environmental Sustainability
• Advance climate resilience: Launch collaborative environmental programs, green trade corridors, and renewable energy initiatives to address climate change and foster sustainable development.
• Promote green investments: Encourage Japan’s private and public sectors to invest in sustainable projects such as Circularity, clean energy, waste management, and eco-friendly infrastructure across Southeast Asia.
• Facilitate green technology transfer: Create mechanisms for the transfer of green technologies and practices from Japan to the region, supporting clean industrial processes, energy efficiency, and sustainable agriculture.

Dr M Masrur Reaz is an economist, and Chairman and CEO of Policy Exchange Bangladesh. masrur.reaz@gmail.com