Driving Regional Trade Integration in Asia via Financial Development Urbanization and Digital Infrastructure

This study investigates the determinants of cross-border trade openness in 14 Asian economies over the period 1987–2025 using an unbalanced macro-panel dataset obtained from the World Bank. In particular, the analysis focuses on the roles of digital infrastructure, financial development, urbanization, and macroeconomic conditions in shaping regional trade integration and cross-border economic connectivity. To ensure robust empirical inference, the study employs several complementary econometric techniques. These methods include fixed-effects estimation with Driscoll–Kraay standard errors, Panel-Corrected Standard Errors (PCSE), and instrumental-variable fixed-effects (IV-FE) estimation. Accordingly, these approaches help address heteroskedasticity, serial correlation, cross-sectional dependence, and endogeneity issues commonly found in macro-panel analysis. The empirical findings reveal several important results. First, financial development is the most consistent and statistically significant determinant of trade openness across all model specifications. In contrast, urbanization exhibits a significant negative effect. This finding suggests that rapid urban expansion may initially redirect resources toward non-tradable sectors rather than export-oriented industries. Moreover, the effects of Internet penetration and broadband infrastructure remain statistically weak after controlling for endogeneity. Therefore, digital infrastructure alone may not be sufficient to improve trade performance. Instead, effective trade integration also requires strong institutions, efficient logistics systems, and developed financial markets. Therefore, the study highlights the importance of integrated financial, digital, and institutional reforms in promoting sustainable regional trade integration in Asia.