Regional integration arrangements : static economic theory, quantitative findings, and policy guidelines

Source: RePEc

ABSTRACT The author reviews the static theory of regional integration arrangements, identifying and analyzing the impact of such arrangements on the trade and welfare of member countries, nonmember countries, and the world at large. He develops eight policy guidelines that apply mainly to small trading countries unable to influence their international terms of trade or to cease trading entirely with nonmember countries, assuming increasing cost conditions in member countries, homogeneous traded goods, and perfect competition. The guidelines advise establishing regional facilities for compensatory lump-sum transfers or other intrabloc payments to avoid the possibility that, where a trading bloc would be welfare-improving overall, the bloc would not be formed because of the (justified) recalcitrance of one or more would-be member countries whose economic welfaremight be reduced by the adoption of the regional trade arrangement. Other guidelines are appropriate on commonsense grounds. For example: Regional trade arrangements will be welfare-improving if they are formed by countries that are predominantly least-cost producers of exportable, or if they give rise to increased imports from all trading partners. Yet few if any extant customs unions or free trade areas meet such simple guidelines fully. To some extent, customs unions and free trade areas are expected to result in cessation of trade (in homogeneous goods) with nonmember countries. Where trade between member countries and nonmember countries is expected to continue under regional arrangements ( as real-world data suggest), internationally determined terms of trade rather than regionally determined terms of trade are likely to prevail within the trading bloc, limiting the welfare-improving effects of creating trade but not the welfare-reducing effects of trade diversion. Among the most interesting and arguably"operational"policy guidelines to emerge from the author's analysis are those concerning countries that might choose to join 1) a large rather than small regional trading bloc, 2) a regional integration arrangement to overcome hindrances facing exports to third countries, or 3) a regional integration arrangement that could have strong pro-competitive effects under imperfect competition and increasing returns to scale. Guidelines 1 and 2 concern mostly developing countries, guideline 3 concerns mostly advanced countries. But the economic bases for the three guidelines are relevant and compelling.

  • [Show abstract] [Hide abstract]
    ABSTRACT: Purpose – The purpose of this paper is to analyze the effectiveness of the GCC integration. Design/methodology/approach – Both descriptive and comparative analyses are used. In order to measure the effectiveness, indicators like trends of trade, FDI inflows, joint venture project activities and technology diffusion are considered. Findings – The analyses revealed that the Gulf Cooperation Council (GCC) regularly reviews the collective process of all the proposals to be executed. It also conducts an in-depth analysis of all issues concerning the GCC states and their societies. The analyses also showed increasing trends in exports and imports, and high-tech manufacturing after implementing customs union. In the same fashion, the number of joint venture projects, total capital investment and capital investment per project increase dramatically after executing customs union. The analysis further shows that the investment in large-scale joint venture projects increases during the same period. The paper finds a sharp increase in FDI during the period between 2001 and 2004; within this period, the customs union has been implemented. This increased FDI is mainly due to the fact that the GCC attains enlarged domestic market size and stable economic growth after the GCC integration. The GCC integration also contributes to improve the push and pull factors of FDI that have further attracted increased FDI. The paper shows that the GCC countries have adapted and deployed new technology considerably quickly during the period 1999 to 2005 compared with the 1990s. Practical implications – The study noticed improvements in all indicators as well as the push and pull factors that enhance effectiveness of the GCC integration. To attain more effective regional integration, a periodic review of all the issues concerning the GCC states and their societies in light of the advancement taking place in the Arab world and international arenas is vital. Originality/value – The study finds that the effectiveness of the GCC integration is progressive. The integrators that measure effectiveness such as trends of trade, FDI inflows, joint venture project activities and technology diffusion show increasing trends.
    International Journal of Islamic and Middle Eastern Finance and Management 01/2008; 1(July):95-112.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Today many developing countries fear that regional movements in other parts of the world will adversely impact their trade as regionalism overtakes multilateralism. The response has been that most of them are trying to get into one regional bloc or the other via regional trade arrangements (RTAs). In this paper we have investigated how India as a non-member country is affected by formation of RTAs like ASEAN, EU, NAFTA, and MERCOSUR. Controlling for non-RTA factors that influence exports, we find that India’s exports to these RTAs seem to be affected not by the formation of these RTAs per se but by demand side factors.
    Journal of Economic Integration. 01/2009; 24:222-247.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper analyzes the intra-regional trade and investment flows in the Middle East and North Africa (MENA) region using an augmented gravity model applied to panel data. The study uses annual trade and investment data for the period 1980-2006. There is a growing awareness among countries in the MENA region regarding the importance of international trade and foreign direct investment for stimulating growth and integrating into the world economy. The research will attempt to achieve the following objectives: (a) analyze the intra-regional trade and investment flows in the MENA region; (b) identify the major determinants of trade and investment flows in the MENA region using an augmented gravity model applied to panel data; and (c) measure the effect of preferential trading arrangements in the region on members’ trade and investment with other MENA countries.