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A salient feature of the East Asian region is the persistent discrepancy between the progress in de facto and de jure economic integration. East Asia has long been said to be the champion of loose regional economic integration, with deepening intra-regional trade and investment linkages in the absence of any formal cooperative scheme. However, an oft-heard claim is that East Asia has been shifting recently towards an institution-based form of regional economic cooperation, primarily as a result of the 1997–98 financial crisis. Next to post-crisis financial cooperative schemes under the ASEAN+3, the surge of Regional Trade Agreements (RTAs) involving East Asian countries is thought by some to further substantiate this claim. The objective of the paper is twofold; first, to assess the validity of the aforementioned claim; and second, to examine the links between de facto and de jure economic integration in East Asia compared to other regions of the world. In the process, the sequencing between trade and monetary cooperation is also addressed. The paper starts by providing a candid assessment of the current state of play of economic cooperation in East Asia (de jure integration), both from the trade and the financial/monetary perspective, and highlights the limitations of the formal regional integration movement in East Asia to date. As a next step, it explores the changing nature of intra-regional trade and investment linkages, contrasts it to the situation in other parts of the world such as Europe and examines to what extent this new form of interdependence may be instrumental in making formal regional economic schemes more attractive. A major conclusion is that de facto trade integration may not automatically lead to deeper regional trade cooperation de jure and that its impact is likely to be stronger on monetary cooperation projects.

Prior to the Asian financial crisis in the fall of 1997, few would have seriously argued for the creation of a system of regional financial cooperation in East Asia. Only a market-led integration process was taking place in East Asia. However, the financial crisis was a major financial watershed that gave East Asians a strong impetus to search for a regional mechanism that could forestall future crises. This search is currently gathering momentum and opening the door to possibly significant policy-led integration in East Asia. This paper aims to provide a view on the current process and future prospects for regional financial cooperation and integration in East Asia. In particular, monetary cooperation in East Asia will be a several decade-long process that requires building collective institutions in the beginning. A major hindrance to monetary cooperation in East Asia is the region's lack of political capital.