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Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade
Abstract
This paper addresses the final steps to global free trade - what they might look like, what sort of political economy forces might drive them, and what the WTO might do to help. Two facts form the point of departure: (1) Regionalism is here to stay; world trade is regulated by a motley assortment of unilateral, bilateral and multilateral trade agreements; (2) this motley assortment is not the best way to organise world trade. Moving to global duty-free trade will require a multilateralisation of regionalism. This paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals - fuzzy, leaky trade blocs made up of fuzzy, leaky sub-blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the Big-3 trade blocs, and leaky since some FTAs create free trade 'canals' linking the Big-3 blocs). The paper then presents a novel political economy mechanism - spaghetti bowls as building blocs - whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO might do to help multilateralise regionalism. Copyright 2006 The Author Journal compilation 2006 Blackwell Publishing Ltd.
... In the case of the regional factors, the variation in size between regions may be attributed to differences such as the degree of economic integration, while the world factor may be affected by global integration, e.g., multilateralism. Since the 1990s, trade economists have enthusiastically debated the link between regional and multilateral integration (Baldwin, 1993(Baldwin, , 1997(Baldwin, , 2004(Baldwin, , 2006. However, the literature provides little evidence on the relative importance of world and regional factors. ...
... In the case of the regional factors, the variation in size between regions may be attributed to differences such as the degree of economic integration, while the world factor may be affected by global integration, e.g., multilateralism. Since the 1990s, trade economists have enthusiastically debated the link between regional and multilateral integration (Baldwin, 1993(Baldwin, , 1997(Baldwin, , 2004(Baldwin, , 2006. However, the literature provides little evidence on the relative importance of world and regional factors. ...
... In the case of the regional factors, the variation in size between regions may be attributed to differences such as the degree of economic integration, while the world factor may be affected by global integration, e.g., multilateralism. Since the 1990s, trade economists have enthusiastically debated the link between regional and multilateral integration (Baldwin, 1993(Baldwin, , 1997(Baldwin, , 2004(Baldwin, , 2006. However, the literature provides little evidence on the relative importance of world and regional factors. ...
This paper examines the relative importance of global, regional, country and idiosyncratic factors as well as the determinants that underpin fluctuations in international trade flows across different regions of the world. Our analysis starts by using a Bayesian dynamic latent factor model (BDFM) to simultaneously estimate the four dynamic factors, followed by the application of Bayesian model averaging to identify the variables that explain the shares of variance. Our key findings are: (i) international factors are the most important in explaining fluctuations in international trade, suggesting that the interconnections between economies and policies/shocks at the regional and global level tend to be more important than country-level factors and (ii) regional integration, particularly when the agreement goes beyond trade in goods, is positively related to the share of the regional factor and inversely related to the importance of the global factor. Furthermore, the regional factor is more important in the case of economically large trade blocks. Overall, our analysis illustrates the usefulness of applying a BDFM model to study the co-movements of international trade series.
... On their part, Horn et al. (2010) analyze the relationship between RTAs and WTO dispute settlement, noting the potential for conflicts and the need for coordination. On RTAs and Multilateral Trade Liberalization, Baldwin (2006) argues that RTAs can be a building block for multilateral trade liberalization but notes the risk of fragmentation. This led to the eminent call from Mansfield and Milner (2012), who will examine the relationship between RTAs and multilateral trade liberalization, highlighting the need for coordination and cooperation. ...
... (Osei-Tutu, 2017).Case Studies where we selected two countries, Kenya and Nigeria which have implemented AfCFTA agreements and conducted in-depth case studies to examine the impact on trade, economic integration, and WTO compatibility(Baldwin, 2006;Horn et al., 2010). ...
... Not only has the total number of PTAs grown dramatically, but also more deep provisions have been included in modern PTAs (Limão, 2016). These PTAs often cross over between member countries, creating a networked feature from both a global and single-country perspective (e.g., Lloyd & MacLaren, 2004;Baldwin, 2006;Deltas et al., 2012;Pauwelyn & Alschner, 2015;Sopranzetti, 2018). At the same time, global value chains (GVCs) characterized by the fragmentation of production across international boundaries have rapidly expanded (e.g., Baldwin & Venables, 2013;Baldwin & Yan, 2016;Ruta, 2017). ...
... Specifically, we explore how the centrality of a country's in the PTAs network influences its bilateral GVC participation with other member countries. Owing to evident disparities in the number and depth of PTAs signed by each country (Antràs & Staiger, 2012;Laget et al., 2020;Zeng et al., 2021), there exist divergent positions within the entire and ego-centred PTAs networksome countries occupy central positions, while others are situated on the periphery (Baldwin, 2006;Hur, 2010;Sopranzetti, 2018). 1 We argue that the centralization of a country's position within the PTAs network can affect its bilateral GVC participation with other member countries through two opposing effects: the resource allocation effect and the market substitution effect. The former promotes GVC participation by improving the efficiency of the country's resource allocation, but the latter decreases it through increasing the substitutability of the country's export destination markets. ...
We argue that a country's position in preferential trade agreements (PTAs) network affects its global value chain (GVC) participation level through two opposite effects: the resource allocation effect, which promotes the GVC participation level, and the market substitution effect, which decreases it. Using data from 43 countries over the 2000-2014 period, we find that the overall centrality of a country's position in the ego-centered PTAs network is positively associated with its GVC participation with other member countries, suggesting that the resource allocation affect dominates the market substitution effect. However, upon decomposing the PTAs network into private and common networks, we find that the centralization of a country's position in the private PTAs network has a negative effect on its GVC participation. In contrast, the centralization of a country's position in the common PTAs network has a positive effect on its GVC participation. Furthermore, the centralization of the private network weakens the effect of individual deep PTAs on bilateral GVC participation, while the centrali-zation of the common network strengthens the effect of individual deep PTAs on bilateral GVC participation. A series of tests confirms the robustness of our main findings.
... Yet China is different from many Asian trade partners, being powerful both politically and economically, which may challenge the prospect for multilateralizing regionalism (Baldwin 2006(Baldwin , 2014Baldwin & Thornton 2008); that is, agreeing on trade issues first at the regional level and later at the multilateral level. This may have important geopolitical implications due to the economic interdependence of the involved trade partners. ...
... T he concept of multilateralizing regionalism entails that trade liberalization may first be agreed-on in geographically more limited bilateral or regional FTAs and then multilaterally at the World Trade Organization (WTO) (Baldwin 2006). This idea is a possible solution to the complexity of trade policy landscape consisting of an overwhelming multitude of bilateral and regional FTAs (Bhagwati 2008;Kawai and Wignaraja 2009). ...
... Regional economic integration and the multilateral trading system are complementary and mutually reinforcing, and looking at the world, regional economic integration is undoubtedly a development trend that promotes the development of international trade and also poses a threat to the multilateral trading system, so it is very important to give full play to the positive significance of regional economic integration, avoid its negative significance, and let it and the multilateral trading system learn from each other's strengths and weaknesses in the competition [6]. In addition, although China is actively seeking development in regional economic integration, the United States, Japan, and other countries have been trying to isolate China and control the Asia-Pacific region, so it is also of practical significance to explore how to face some of the problems encountered in the development of regional economy [7]. ...
In the context of an increasingly complex international political and economic situation, major powers have promoted the formation of regional trade agreements of various forms and scope. The impact of MTAs on regional economic growth is explored in this topic, using the Regional Comprehensive Economic Partnership Agreement (RCEPA) as an illustration. Through mathematical modeling and quantitative assessment, a general equilibrium model of the impact of a multivariate trade agreement on regional economic development has been constructed. Different regions and industrial sectors related to the agreement are delineated, and different simulation scenarios are designed to assess the impact of MTAs on regional economic growth under different scenarios. The results show that the members and non-members of the MTA under different simulation scenarios are positively and negatively impacted to varying degrees, with Japan, Australia, and New Zealand among the RCEP members experiencing the most significant positive stimulus, with GDP growth of 3.95%, 2.89%, and 2.11%, respectively. Non-members had a negative impact on the scale of imports and exports and terms of trade, with the United States and India shrinking by 1.16% and 1.69%, respectively. Overall, the MTA contributes positively to the development of regional economic growth.
... Cependant, par définition, la régionalisation exprime la concentration des échanges au sein de la région au détriment des pays tiers. Selon Baldwin (2011), la régionalisation entrave le système multilatéral si elle empêche ou ralentit la réduction des tarifs mondiaux et le complémente si elle accélère, ou tout au moins, n'entrave pas le multilatéralisme (Ferdj, 2024c). Les principaux arguments avancés en faveur de la complémentarité entre ces deux phénomènes reposent sur l'idée que la régionalisation permet d'expérimenter la libéralisation des échanges dans un espace confiné avant de l'étendre au niveau multilatéral. ...
En 2020, la pandémie de Covid-19 a touché presque tous les pays, affectant plus de 50 millions de personnes à travers le monde. Elle a plongé les gouvernements dans une incertitude totale et les a contraints à faire des choix difficiles pour relever les défis sanitaires, économiques et sociaux qu'elle a engendrés. Cet article se penche sur les impacts les plus perceptibles de la Covid-19, en tenant compte des aspects économiques régionaux, et met en lumière l'importance des stratégies de gestion des crises dans les pays du Maghreb. L'Algérie pourrait tirer profit de la revitalisation de l'intégration au sein du bloc nord-africain et d'une coopération renforcée au sein du Maghreb. L'objectif principal de cette étude est d'identifier les défis socio-économiques les plus pressants découlant de la Covid-19 au niveau régional, mettant en évidence l'importance des plans de gestion des crises pour l'intégration économique de l'Algérie dans la région du Maghreb. Cela vise à alimenter la réflexion sur les politiques publiques les plus efficaces, adaptées aux réalités spécifiques de l'Algérie, afin de rebondir sur des bases plus stables et durables.
... However, with the rise of globalization and regional trade agreements, the focus of customs policies has shifted towards trade facilitation and economic integration. Regional trade agreements (RTAs), such as the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN), have significantly influenced customs policies in their respective regions (Baldwin 2006). ...
This study aims to examine the relationship between customs policy and the economic blocs of which Egypt is a member, with a focus on the theory of New Regionalism and modern trends in customs policies. Egypt joined numerous economic blocs following its accession to the world trade organization (WTO) in 1995, yet this membership has not yielded significant positive impacts on the performance of Egyptian exports or the trade balance. The study utilized panel data analysis of Egypt’s international trade from 2001 to 2023. The results indicate that, despite Egypt’s limited success in reaping the benefits of most economic blocs, largely due to the concentration of Egyptian exports in primary and agricultural products and the low tariff rates, factors such as customs clearance processes, tariff barriers, non-tariff barriers, regional trade agreements, and technology adoption still play a crucial role in influencing trade volume among member countries. The findings highlight the significance of effective customs procedures and the reduction of trade barriers in boosting trade volumes within regional trade agreements. The study proposes a strategy for Egypt’s customs policy to maximize benefits from economic blocs, focusing on four key areas: aligning customs policy planning with targeted export sectors to realize trade creation and trade diversion effects; fully implementing trade facilitation programs and liberalizing customs policy procedures; adopting a national strategy to stimulate high value-added export industries as a long-term solution; and adopting regional trade agreements that support cumulative origin as a short-term solution.
... A hub-spoke system is one in which a large country or market takes the lead in promoting integration while involving neighboring countries and markets. The current situation has been described instead as a "reverse hub-spoke system," in which a relatively economically weak Southeast Asia engages stronger Northeast Asia (Baldwin, 2006;Yamamoto, 2007). This objective is becoming a reality through the establishment of regional frameworks in higher education. ...
The history of Asian higher education in modern times has been defined by its close relationship with internationalization. Universities and higher education systems in many Asian countries were established in the modern era based on Western models, with study abroad programs from Asia to the West playing a major role in the modernization and development process. This historical process can also be seen through the lens of a dependency structure of knowledge, also referred to as the global center-periphery relationship. Despite this, Asian higher education has made remarkable strides in the modern era, and the way it has been internationalized— resulting especially from the study abroad experience of faculty members—has become a cornerstone of its independent development. This chapter discusses the theoretical relationship between internationalization and study abroad and the dynamic transformation process of Asian higher education toward independent development based on the results of empirical studies on the impact of faculty members’ study abroad experiences on the transformation and development of higher education in four Southeast Asian countries.
... Cependant, par définition, la régionalisation exprime la concentration des échanges au sein de la région au détriment des pays tiers. Selon Baldwin (2011), la régionalisation entrave le système multilatéral si elle empêche ou ralentit la réduction des tarifs mondiaux et le complémente si elle accélère, ou tout au moins, n'entrave pas le multilatéralisme (Ferdj, 2024c). Les principaux arguments avancés en faveur de la complémentarité entre ces deux phénomènes reposent sur l'idée que la régionalisation permet d'expérimenter la libéralisation des échanges dans un espace confiné avant de l'étendre au niveau multilatéral. ...
Résumé. En 2020, la pandémie de Covid-19 a touché presque tous les pays, affectant plus de50 millions de personnes à travers le monde. Elle a plongé les gouvernements dans une incertitude totale et les a contraints à faire des choix difficiles pour relever les défis sanitaires, économiques et sociaux qu’elle a engendrés. Cet article se penche sur les impacts les plus perceptibles de la Covid-19, en tenant compte des aspects économiques régionaux, et met en lumière l’importance des stratégies de gestion des crises dans les pays du Maghreb. L’objectif principal de cette étude est d’identifier les défis socio-économiques les plus pressants découlant de la Covid-19 au niveau régional ,mettant en évidence l’importance des plans de gestion des crises et les retombées positive d'une approche intégrée au niveau régional. Cela vise à alimenter la réflexion sur les politiques publiques les plus efficaces, adaptées aux réalités spécifiques de l’Algérie, afin de rebondir sur des bases plus stables et durables
... However, by definition, regionalization concentrates exchanges within the region to the detriment of third-party countries. According to Baldwin (2011), regionalization hinders the multilateral system if it prevents or slows down the reduction of global tariffs and complements it if it accelerates, or at the very least, does not impede multilateralism. The main arguments put forward in favour of the complementarity between these two phenomena are based on the idea that regionalization allows for experimenting with trade liberalization in a confined space before extending it at the multilateral level. ...
Subject and purpose of work
This article focuses on the most evident effects of COVID-19 influenced by the elements of the regional economic landscape, emphasizing the importance of shock and crisis management plans. Algeria could benefit from revitalizing the construction of the North African bloc and enhancing cooperation in the Maghreb. The main objective of this work is to identify the most urgent challenges related to the socio-economic impact of COVID-19 on the regional economic landscape, and the economic integration of Algeria highlights the importance of shock and crisis management plans.
Material and methods
This study is based on a descriptive statistical analysis of the key economic indicators in the Maghreb region, with a special emphasis on Algeria.
Results
The results obtained have allowed us to outline the strategies adopted by Maghreb countries as part of economic reforms aimed at strengthening regional integration.
Conclusions
The COVID-19 pandemic has presented significant challenges for elements of the regional economic landscape in the Maghreb. The countries of the Maghreb should reduce barriers to trade and investment and link their infrastructure networks. They should focus their efforts on liberalizing trade in goods and services, as well as financial and labour markets.
... The automotive sector serves as a notable example of the escalating regionalization within international relations. This trend is particularly prominent in the so-called factory regions of Europe, North America, and Asia, which constitute trade blocs characterized by a high degree of integration (Baldwin, 2006;Baldwin and Lopez-Gonzalez, 2014). The heightened regionalization of GVCs does not imply the absence of significant trade interactions between these blocs. ...
... Emerging East Asian markets intensified intra-regional rivalry over attracting FDI in the 1990s, taking the form of a unilateral 'race to the bottom' of trade liberalization, particularly regarding electronic parts and components within the Information Technology Agreement -ITA (Baldwin, 2006). On the other hand, meanwhile, other manufacturing sectors such as the automotive, electric, as well as petrochemical, iron, and steel industries, favored by import-substitution policies over the years, lagged behind network-like industries in unilateral trade liberalization, resulting in a lack of consistency in the East Asian regulatory regime (Kimura & Obashi, 2011). ...
This book argues that a resilient region should act reactively and proactively in the face of shocks and disruptions and asserts that the institutionalization of regional cooperation may be the answer to development challenges in times of uncertainty and instability.
It considers regional, transregional, and subregional cooperation initiatives for building regional resilience and critically examines a broad spectrum of issues, such as international security and trade, economic development, value chains in production, and social welfare. Adopting the concept of resilience allows for a holistic, dynamic, and systematic approach to the studies on the regional process of institutionalization, responsiveness, and adaptability to challenging circumstances. The economic and social indicators of the countries in the region are examined alongside an analysis of the regional institutional architecture.
The reader is acquainted with the essence of resilience concerning each category of challenges and the mechanisms of its achievement and strengthening through regional integration. The interdisciplinary character of the book makes it suitable for usage not only by economists but also by lawyers. As such, the book will be helpful to scholars and students of international economics, international security, and policymakers.
... Emerging East Asian markets intensified intra-regional rivalry over attracting FDI in the 1990s, taking the form of a unilateral 'race to the bottom' of trade liberalization, particularly regarding electronic parts and components within the Information Technology Agreement -ITA (Baldwin, 2006). On the other hand, meanwhile, other manufacturing sectors such as the automotive, electric, as well as petrochemical, iron, and steel industries, favored by import-substitution policies over the years, lagged behind network-like industries in unilateral trade liberalization, resulting in a lack of consistency in the East Asian regulatory regime (Kimura & Obashi, 2011). ...
This chapter covers conceptual and empirical studies of East Asian GVCs. The considerations follow a theoretical approach to GVC on the attributes of export-led growth policy supporting the expansion of GVCs in the region, as well as contemporary challenges to the growth model exercised by East Asian economies resulting from shocks such as the GFC, the Covid-19 pandemic, and Russia’s aggression in Ukraine. The empirical section of this chapter presents GVC metrics for APT countries using the MRIO database and a case study for the regional automotive industry. The most important regional initiatives in enhancing GVC resilience are also presented. The analysis demonstrates the growing position of ASEAN emerging markets in regional GVCs and the dominance of a vertical pattern of intra-industry trade within sectoral GVCs. In terms of enhancing GVC resilience, attention is drawn to the need to diversify markets and suppliers, as well as regional regulatory cooperation, information exchange, development of infrastructure, skills, and sources of financing.
... The idea is that regional trade agreements can act as 'stepping stones' by effectively removing trade barriers via the fragmented integration caused by overlapping PTAs (Bhagwati, 1992). The more countries join PTAs, the greater the incentive for other countries to join or to create new PTAs to avoid suffering trade diversion effects (Baldwin, 2006). However, regional trade agreements can also act as 'stumbling blocks' because they are an easier alternative to multilateral liberalisation, shifting focus away from the WTO (Bhagwati, 1992). ...
... During the post-war era, there were obvious developments in the liberalization of international trade fl ows (Kerr, 2010;Krpec Hodulák, 2012). Many restrictions were inherited from the Great Depression of the early 1930s and the Second World War, a time that was viewed as a dark age not only for the international trading system but for the entire world economy (Baldwin, 2006;Evenett, 2019). ...
... While traditional RTAs and the respective literature focused mainly on tariff reductions and resulting trade creation vs trade diversion effects (e.g. Baldwin, 2008Baldwin, , 2006Bhagwati, 1991;Krugman, 1989;Robinson and Thierfelder, 2002;Summers, 1991;Viner, 1950), more overlapping and increasingly deeper RTAs pose new challenges (e.g. Bhagwati, 1991Bhagwati, , 1993Bhagwati, , 1995Pomfret, 2021;Thompson-Lipponen and Greenville, 2019). ...
... La preocupación por la proliferación de acuerdos regionales ha llevado a diversos planteamientos alternativos para multilateralizar el regionalismo, no solo considerando las normas de origen (Baldwin, 2006;Estevadeordal, 2007). Baldwin (2007) tiene una mirada negativa de la proliferación de ACRs debido a que introducen ineficiencias económicas tanto por la desviación de comercio que se crea, como por el enredado entramado de reglas de origen que dificulta el comercio. ...
Este libro busca abrir el debate académico entre expertos y profesionales sobre la política económica actual en el Perú y plantear a los lectores no académicos y a los «hacedores de políticas» propuestas que les permitan tomar decisiones conscientes, racionales y bien informadas que orienten la economía hacia una mejora en la calidad de vida de la población en el corto plazo. Opciones de política económica en el Perú 2011-2015, editado por José Rodríguez y Mario Tello, presenta, tanto a profesores como a alumnos universitarios, nuevos materiales de enseñanza en términos de temas, referencias y aspectos teóricos incorporados en los trabajos del libro, que reflejan el estado actual del conocimiento del área económica.
... This phenomenon leads some countries that are not among the original members to want to join the agreements. Baldwin (2006) also models the impact that trade barriers themselves have on the partner's market access as a result of reciprocal trade liberalisation. Exporters can gain better access to the partner's market if the country lowers its barriers. ...
The world expansion of trade in manufactured goods has been more dynamic than production over the last 25 years. The greater trade openness was due more to the growth of extra-regional trade than to intra-regional trade. Regions and trade agreements performed heterogeneously. Using a structural gravity model, we obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements. The contribution derived from the reduction of MFN tariffs stands out, followed in importance by the component of preference for openness and trade facilitation. The contribution of the preferential channel via preferential trade agreements has been more important for extra-regional than intra-regional trade. For Latin America, heterogeneity is the fundamental characteristic, from the protectionism of Argentina and Brazil to a better openness performance of the countries of Central America and the Caribbean, and the members of the Andean Community (CAN) with an intermediate behaviour. Mexico, Colombia, Chile and Peru, economies from different regions, are the most open in Latin America. The concept of open regionalism is highlighted: without non-discriminatory trade openness, there is no regionalism that can significantly reduce trade costs.
... I discuss the transition from a more cooperative (but not coequal) to a more power-based process of integration in the 1850s in section 4. Using the example of the Zollverein, section 5 turns to the functional elites that played a decisive role in shaping the integration process; in section 6, I summarise the findings. Unfortunately, it is not possible to address the manifold parallels to the widening and deepening of European integration, which have been discussed since the beginning of the 1950s (Viner 1950;Fischer 1960;Henderson 1981;Baldwin 2006). ...
This article presents and discusses the long-standing intergovernmental cooperation and institutional integration since about 1830, on which the German Empire could rely after its foundation in 1871. The inter-governmental perspective reveals that economic integration should not be interpreted as a process determined solely by the ever-present Prussian power politics. Prussia had to compromise and grant far-reaching concessions to other states in order to achieve its economic policy goals. However, striving for hegemony increasingly influenced Prussian attitudes since the beginning of the 1850s. At that time, the forms of institutional cooperation between the states also began to change.
The analysis of the economic integration of the German states builds on the concepts of political economy used by Fritz Scharpf in the context of European integration distinguishing between two forms of political integration, “negative integration”, which is the elimination of existing restrictions (e.g. mutual abolition of customs duties), and “positive integration”, which denotes the enforcement of economic policy and regulatory competences for suprastate organisations. In this case, negative and positive integration were achieved through intergovernmental policy. The approach is compatible with a historical-institutionalist perspective emphasising path dependencies and the performativity of institutionally-supported integration processes, in that once established institutional arrangements do not determine future decisions, but influence possible solutions to future problems and thus reduce contingency. The functional perspective taken in this chapter does not imply that unification was inevitable and that there were no alternatives to the course of events. Instead, the approach adopted here serves to identify the institutional preconditions for the founding of the Empire.
The gravity model is the workhorse model of trade. Yet, many economists still view gravity as a reduced‐form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. This paper offers a historical overview of the evolution of gravity, from an a‐theoretical application to an estimating computable general equilibrium model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about gravity, summarize the current recommendations for gravity estimations, highlight properties that have made gravity so successful, and review the latest contributions to the related literature.
Purpose
This article examines the concepts of “deglobalization” and “decoupling” from the perspectives of developing and developed nations. It also assesses the short-term impacts of globalization, particularly in the context of the COVID-19 pandemic, and predicts the long-term effects on global trade and cooperation between nations.
Design/methodology/approach
Panel data from 85 countries (2000–2022) were utilized. Poisson Pseudo-Maximum Likelihood (PPML) regression analysis was conducted to analyze pre- and post-COVID-19 globalization levels. The study focuses on trade patterns and trends, specifically comparing the effects on developing and developed nations.
Findings
First, there was a slight decline in global trade in 2020 due to COVID-19, followed by recovery in 2021–2022. Second, developing nations experienced more significant trade declines than did developed nations. Third, while the US? China trade decreased slightly, and China-India and US-India trade increased during the pandemic. These findings suggest that while there may be short-term disruptions, long-term trends indicate resilience in global trade patterns, with shifts in output and new partnerships emerging.
Originality/value
This study contributes to the understanding of deglobalization and decoupling by providing empirical evidence on pre- and post-COVID-19 trade patterns. The findings suggest that while globalization may have short-term effects, it is likely to lead to post-pandemic recovery and strengthened cooperation between developing and developed nations. This research also highlights the importance of developing strategies to manage uncertainty and external shocks in global trade, emphasizing the role of lockdown measures, national security considerations, and trade policies in shaping the future of globalization and decoupling.
The ASEAN Outlook of Indo-Pacific (AOIP) emerges as a potential catalyst for advancing ASEAN’s competitiveness. This chapter explores the evolution of regionalism in Asia, tracing its roots from the East Asian Economic Caucus to present-day initiatives like the AOIP. It argues that regionalism, driven by both institutional frameworks and market forces, holds the key to sustained economic growth and resilience in the face of globalization. The chapter also emphasizes the pivotal role of manufacturing in ASEAN’s development trajectory, highlighting the need for financial deepening to bolster the sector’s performance. Additionally, it examines the dynamics of the global production network within ASEAN Plus countries, shedding light on opportunities and challenges for optimal participation. Insights from this analysis underscore the imperative for ASEAN and its partners to prioritize regional cooperation and address structural constraints to realize the full potential of the Indo-Pacific region.
The purpose of this article is to highlight some of the stages of country's export saga. The country is an island, Iceland, a remote island in the north. The export saga spans more than a thousand years, from Viking settlement to the present day. The introduction provides an overview, followed by a story about the generation born a few years before World War II and what life was like before and after the start of significant fish exports. Secondly, it discusses the evolution of exports from Iceland in terms of the goods that dominate exports. Thirdly, it analyses whether the nature of exports has changed in response to the significant export opportunities that have opened up to the US and, subsequently, to Europe with the formation of the EU, EFTA and NAFTA. For a long time, the export of goods in the form of fish has been important for Iceland. In this context, two export stories from Iceland can be told. The export of services in the form of tourism has become more important than the export of goods in recent years. This development is in line with the theory that the more a country develops, the more it shifts its exports from goods to services - which is visible in Iceland's exports, as tourism is classified as a service export in the national accounts, the international standard. The country's export story can be seen as a twilight saga in the stormy seas of international development. The methodology used is based on the popular business SWOT analysis, which allows to assess the benefits of exporting over time. This method helps to assess the following factors: Strengths, Weaknesses, Opportunities and Threats. The results of a SWOT analysis depend on the factor being assessed: Strengths, Weaknesses, Opportunities or Threats. The matrix approach to SWOT analysis has been structured to identify strengths, weaknesses, opportunities and threats. The method has been highly regarded by business researchers. There are several practical implications, and they relate to all dimensions of strengths, weaknesses, opportunities and threats. Last but not least, the study includes several factors related to value/originality in the industry, which implies issues that exporters should bear in mind and take into account if they start any international activity in the form of exporting fish cargo to other countries.
This research paper investigates the impact of regional trade blocs (RTBs) on global trade and economic growth, adopting a comparative perspective. Regional trade agreements (RTAs) have gained significant prominence in the global economy due to their role in promoting trade liberalization and economic integration among member nations. This study aims to assess the potential for multilateral liberalization within these blocs and examines how political and ideological differences influence the effectiveness of RTBs. Additionally, it explores the consequences of the proliferation of RTAs on international trade dynamics and their broader economic implications. The analysis begins by examining the effects of RTBs on global trade. The study compares the trade performance of RTB member countries with non-member countries to assess the extent to which RTBs contribute to trade expansion. Furthermore, the research investigates the impact of RTBs on economic growth. The economic integration fostered by RTBs can lead to increased investment flows, technology transfer, and productivity gains. It considers the potential spillover effects of RTBs on non-member countries, as increased regional integration may create both opportunities and challenges for economies outside the bloc. The analysis also delves into the complexities of multilateral liberalization within RTBs. While RTBs aim to promote trade liberalization among member countries, the presence of political and ideological differences can hinder the achievement of comprehensive agreements. The study explores the challenges faced by RTBs in reaching consensus on sensitive issues such as agriculture, intellectual property rights, and services trade. It examines the role of political dynamics and power asymmetries within RTBs in shaping the outcomes of negotiations.
The aim of the paper is to determine the effect of Multinational Enterprises on economic development, measured by the Human Development Index, in a group of 58 high and upper-middle income countries where they operated from 2005-2016, while considering the role of free trade agreements. We follow a robust dynamic panel data econometric methodology. For our analysis, we considered the total sample and sub-samples of countries based on their trade status. The results indicate that Multinational Enterprises drive economic development by favoring the expansion of people’s capabilities. Therefore, measured by added value, the economic activity of this type of company tends to enrich the life of society as well as the fundamental freedoms in the foreign country in which they operate. The effects of Multinational Enterprises on economic development are higher in countries with a large number of Free Trade Agreements, which means that intensification of free trade favors the MNE’s role in social goals.
Buku ini mengupas transformasi konglomerat Indonesia, khususnya aktivitas ekonomi dan relasi politik mereka dalam dua dekade terakhir. Dalam trajektorinya, para konglomerat—juga disebut dengan pengusaha besar swasta, kelompok bisnis, dan korporasi besar—mendominasi dan membentuk arah perekonomian Indonesia sejak tahun 1970-an hingga akhir 1990-an melalui kedekatan dan perlindungan dari pemerintah Orde Baru.
Meskipun hampir bangkrut dihantam krisis moneter Asia tahun 1997, disusul jatuhnya Presiden Soeharto sebagai patron politik, para konglomerat berhasil bangkit. Kali ini tidak saja kembali menguasai sektor-sektor strategis, tapi terlibat langsung dalam politik dan kebijakan pemerintah. Dalam perkembangannya, salah satu aspek yang tidak banyak mendapat perhatian adalah transformasi konglomerat Indonesia yang semakin terintegrasi ke dalam ekonomi global, yaitu melalui internasionalisasi kapital di pasar Asia Pasifik, khususnya Asia Tenggara, baik melalui merger, akuisisi, dan usaha patungan yang melibatkan perusahaan lintas negara.
Buku ini mengulas transfigurasi konglomerat Indonesia secara mendalam melalui studi terhadap proyek integrasi ekonomi di kawasan Asia Tenggara, yaitu kesepakatan regional Masyarakat Ekonomi ASEAN. Melalui pendekatan ekonomi politik, buku ini manawarkan argumen dan analisis baru bahwa proyek integrasi ekonomi regional sebenarnya bersumber pada proses perkembangan kapitalisme beserta kekuatan sosial dominan yang muncul di dalamnya. Dalam hal ini, kebangkitan, reorganisasi, dan ekspansi bisnis dari korporasi besar di pasar kawasan—termasuk konglomerat Indonesia—menjadi penopang dan pendorong kerja sama ekonomi regional ASEAN.
Multinationals are significantly assisting the continuing process of globalization. Their policies have a significant impact on the volume and type of finance, direct foreign investment, and trade flows. A multinational strategy determines the degrees of global integration and neighborhood response for a specific brand. During 1990 and 2010, income growth dominated China's performance. On the non-income components of the Human Development Index (HDI), Brazil and Turkey outperformed China. China has reduced its HDI gap more than any other nation, despite years of internal strife. Offering internationally standardized products has replaced providing locally customized items as the primary objective of well-managed businesses. Institutional and economic reforms have a substantial impact on growth accelerations. Indonesia switched from industrialization to import replacement as oil revenues started to fall. Spending on social services and rural development increased in India, rising from 13.4 percent in 2006-2007 to 18.5 percent in 2011-2012. Markets are frequently opened and trade barriers are frequently abolished when a nation grows. The Thai government is eager for Asia's high-tech hub to emerge. Due to official support, Chile has had considerable success growing exports. Exports were boosted by tax benefits and duty-free access to foreign components in Mauritius. Social services are one way that states can encourage long-term economic prosperity. The average degree of human development is higher in nations where the government spends more on healthcare and education. When it comes to implementing a cutting-edge finance structure to speed the transition to universal healthcare, Mexico is a pioneer. In view of the aforementioned, the main focus of this research article is on using transnational marketplaces from a theoretical perspective to employ sector-specific competencies for global markets.
This chapter applies the gravity model approach to examine the trade creation and trade diversion effects in terms of total trade, export, and import for 86 countries over 1994-2018. To evaluate the possible difference between countries, the analyzing sample is divided into three groups: high income, upper middle, and lower middle income countries. Therefore, specific for each income level group, trade creation and trade diversion effects are estimated by Poisson pseudo maximum likelihood estimator. Moreover, along with this, the trade potential for each group and even for each country is calculated based on the estimated results. The results indicate that even in average, the country groups look like they reached their trade potential. The country-based analysis reveals that there is vital potential to expand trade relations. In this context, the findings point out the possibility of increasing income level by developing trade potential, especially in continuously rising globalization.
Preferential Trade Agreements (‘PTAs’) are, at their core, an expression of cordial relations between States. After all, States rarely engage in PTA negotiations with enemies. Nonetheless, PTA negotiations, even amongst allies, have become lengthier and increasingly arduous. This is because modern PTAs, with their extensive coverage in terms of sectors and market regulation, are not just complex, but also bring to the fore concerns from domestic groups about potential impacts on their respective business sectors’ competitiveness, and from other domestic groups over possible changes to fundamental standards in areas like health and safety and animal welfare, among others. This chapter explores the politics of interstate competition at play in PTA negotiations. It argues that geoeconomic competition has become an increasingly important consideration in modern PTAs, and points to some novelties in European Union (‘EU’) and United States (‘US’) PTAs that reflect this concern with ensuring their own competitiveness, in particular elements of the USMCA (‘US- Mexico-Canada PTA’) and the EU-United Kingdom (‘UK’) Trade and Cooperation Agreement (‘TCA’).KeywordsTCAUSMCAPTANegotiationCompetitionGeopoliticsGeoeconomics
The EU has pursued many trade pacts across the world. This is part of its foreign policy: as the third largest economy in the world and lacking hard power, the EU relies on trade agreements to project its interests. These are often complex and far-reaching initiatives that have the potential to shape not only economic but also political and social life in the EU and its trading partners.
In Standardizing the World, Francesco Duina and Crina Viju-Miljusevic have gathered a group of leading experts to present an unprecedented assessment of the EU's efforts to standardize a wide array of economic, political, and social aspects of life through its trade agreements across the globe. Drawing on economic sociology and constructivist strands in international political economy, the volume examines what is being standardized, the extent to which the EU has been able to project its worldviews, and what explains the observable patterns of standardization across policy areas and geographies. Ten leading scholars from across the world offer as many chapters on EU agreements with all major trading partners and cover efforts in social and labor rights, the environment, investments, rule of law and anti-corruption, agriculture and food quality, services, public procurement, sustainable development, and more. Their findings paint a picture of a dynamic EU capable of projecting its
worldviews across the globe that is nonetheless not always consistent or successful.
Standardizing the World provides a wide-ranging and rigorous understanding of standardization in trade agreement as well as the EU's abilities to project its power and worldviews across the globe.
The objective of this document is to decompose the gross value of bilateral exports of the automotive sector in the NAFTA region, according to the source and destination of its value added. A multi-country input-output model is utilized. The results indicate that Canada and Mexico are highly dependent on U.S. inputs to produce automotive exports while the U.S. records the highest content of domestic value-added. Besides, the U.S. has formed production chains that supply Canada and Mexico with production inputs that after processing return to the U.S. or are re-exported to third countries, whereas Canada and Mexico are limited to supplying final and intermediate goods to the U.S. Trade between the two countries is minor.
This study, by employing an augmented gravity model under the Poisson pseudo-maximum-likelihood (PPML) estimation, aims to scrutinise the determinants and potential of seafood exports from Vietnam—a transitional and emerging economy to the global market over the period of 2000–2018 at both aggregate and sectoral levels. With remarkable growth over the years, Vietnam has become the largest seafood exporter in Southeast Asia. The country’s seafood exports have been diversified in terms of export structure and export markets. The estimation results show that the size of economies and market development from importers are the main factors that are driving Vietnam’s total seafood exports. At the sectoral level, the magnitude of the effects of income per capita significantly differs among the subsectors of seafood. We find that the impacts of factors such as region, access to the World Trade Organization (WTO) and the free trade agreement (FTA) establishment on Vietnam’s seafood exports are heterogeneous. We found that there is still room for the expansion of Vietnam’s seafood exports to some market destinations. This article suggests a dynamic strategy to increase Vietnam’s seafood exports in the coming years.
JEL Codes: F1, F14, Q1
In this paper, we analyze the evolution of China’s production structure. Through the use of a subsystem approach and world input-output tables, we assess the role played by domestic and foreign final demand in the Chinese manufacturing subsystem. The results indicate that the importance of domestic demand has increased since the years of the crisis, forming a U-shape over the period. The dependence on foreign demand remains crucial for high-tech subsystems, and the medium high-tech subsystems are central to the growth of domestic demand. In addition, final demand and labor intensity play a significant role in employment growth.
The objective of this work is to study how effective are EU's preferential agreements in granting their partners improved market access. In particular we assess how far preferences are indeed utilised by exporters, when entering the EU's market. The complexity of EU's protection renders the exercise uneasy. In particular, many EU's partners are eligible to several different preferential regimes, and the competition between regimes needsto be taken into account. Our results suggest that underutilisation of preferences does not have a large average impact on the protection faced by exporters when acceding the European market. Still, the utilisation of preferences is lower when the preferential margin is small, suggesting that compliance costs are not negligible. Most of all, the utilisation appears weak under the GSP for textile and apparels, and most of all for EBA for the same products. Restrictive rules of origin are here the main suspects.
Interest in regional integration has recently revived in both developed and developing countries. The US has responded to the lack of progress in the Uruguay Round of the GATT by pursuing bilateral trade negotiations, while developing countries have been prompted to re-evaluate the potential benefits of regional integration. The tendency for the world trading system to divide into three blocs - the European Community, the Americas and East Asia - is providing their members with guaranteed access to large markets; however, poor non-member countries will suffer from the loss of access and the risk of trade wars is increased. In this book leading international experts assess the renewed attractiveness of regional integration to individual countries, the types of integration that are suitable to various circumstances, the conditions necessary to their success, and the relationship of regionalism to multilateral free trade.
World trade is governed by the rules of the World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade (GATT). The WTO sets rules of conduct for the international trade of goods and services and for intellectual property rights, provides a forum for multinational negotiations to resolve trade problems, and has a formal mechanism for dispute settlement. It is the primary institution working, through rule-based bargaining, at freeing trade.
In this book, Kyle Bagwell and Robert Staiger provide an economic analysis and justification for the purpose and design of the GATT/WTO. They summarize their own research, discuss the major features of the GATT agreement, and survey the literature on trade agreements. Their focus on the terms-of-trade externality is particularly original and ties the book together. Topics include the theory of trade agreements, the origin and design of the GATT and the WTO, the principles of reciprocity, the most favored nation principle, terms-of-trade theory, enforcement, preferential trade agreements, labor and environmental standards, competition policy, and agricultural export subsidies.
Thanks to the successive rounds of multilateral trade negotiations under the GATT/WTO, barriers to international trade as measured by multilateral tariffs have strongly decreased over the last decades, and tariff rates applied to trading partners have converged due to the application of the Most Favored Nation (MEN) regime. At the same time, however, understanding trade policy and market access issues has become very complex and the policies of countries often appear to be discriminatory, because of special conditions granted to developing countries (Generalized Systems of Preferences, GSP) and the least developed countries (LDC), and because of the proliferation of often overlapping regional and bilateral trade arrangements (Cernat and Laird 2003; Pangestu and Gooptu 2004).
Under global competition and oligopolisitic production, volume manufacturing production has prevailed, and has required much of engineers and workers, as well as huge capital resources. Due to the availability of human resources and suppliers, East Asia has become a leader of volume production. Indeed, multinational corporations (MNCs) have successively moved their manufacturing locations to the cheap labor countries of East Asia from Singapore, to Malaysia and Thailand, and finally to China. In the meantime, capital intensive processes have remained in Japan and the United States.
Something new has been happening. Over the last decade and a half, special interests that suffer from trade restrictions have mounted more vigorous and increasingly overt political efforts to oppose campaigns for new import restrictions. "Anti-protectionism" has been on the rise. Yet we know surprisingly little about that side of the ongoing policy struggle. This book is the first attempt to our knowledge, at a systematic investigation and analysis of anti-protection political activity in the United States. The questions we explore are of interest in many other countries as well. We offer four main arguments, based on study of 14 episodes in recent US trade policy. 1. Among those who pay for protection, those who matter most in the political process are the special interests that benefit most from the specific trade that would be restricted. 2. There was a sharp increase in aggregate political opposition to product-specific trade protection over the decade from the mid-1970s to the mid-1980s. 3. Two primary conditions appear to determine the extent of anti-protection activity: a group's trade dependence and the degree of threat of protection to that interest. Other conditions also can affect group behavior. 4. Anti-protection activity matters. The growing anti-protection phenomenon has made a significant and positive difference in product cases.
Introduction As the broadening in the scope of its rules and recent rapid rise in membership demonstrate, the World Trade Organization (WTO) arguably has become the most successful international organization dealing with economic relations among nations. This success has, however, been accompanied by an increase in strains within the WTO and in outside pressures that challenge the long-run viability of the institution. This chapter briefly examines the nature of the major challenges that have arisen and discusses various proposals for successfully meeting them, including actions agreed upon at the November 2001 Ministerial Conference in Qatar launching the Doha Development Round. The discussion focuses on six issues confronting the WTO that require attention by its members to ensure the continued effectiveness of the institution. They are: The work ‘overload’ on WTO members and the WTO Secretariat brought about by the significant increase in recent years in the number and technical complexity of matters on which WTO rules have been negotiated and are currently being proposed The deep dissatisfaction of the developing countries over the balance of gains and adjustment costs between developing and developed countries in recent rounds of multilateral negotiations, especially the Uruguay Round The impact of recent WTO rules on domestic economic and social conditions that traditionally have been influenced mainly through domestic political decision-making processes
In this paper, the relationship between multilateralism and international regionalism is examined from empirical and theoretical perspectives. An analysis of commodity flows suggests that the European Union, the North American Free Trade Area and a slowly emerging trading bloc centred upon Japan occupy an increasingly prominent role in an ongoing process of gee-economic adjustment centred upon regionalism. This resurgence of regionalism is often interpreted as a direct threat to multilateralism and the international regulatory framework embodied in the World Trade Organisation (WTO). The central contention of this paper is that multilateralism and regionalism are associated with different modes of regulation and a transformation is currently underway from Fordism and multilateralism supported by the WTO to a more flexible system of production based on regionalism. Regionalism in the world economy should therefore be interpreted as a powerful force fundamentally transforming the relationship between the world's principal economic players.
Rules of Origin (RoO) are among the most important instruments in the negotiation and functioning of Regional Trade Agreements (RTAs), designed to determine the eligibility of goods for preferential treatment among RTA members. Ostensibly meant to prevent the trans-shipment of imported products across RTA borders after only superficial assembly, they may act as complex and opaque trade barriers in practice. This book suggests that RoO do this with intent rather than accidentally. In other words, RoO are truly trade policy instruments. The book's overall message for the policy community is that RoO are a potentially powerful and new barrier to trade. Their design should hold centre-stage in trade negotiations rather than being relegated to closed-door technical meetings. (Editor Abstract)
A principle of the theory of international trade is that free trade is efficient. Possible externalities aside, people can only gain from voluntary exchange. This book considered the reasons why political decision makers have chosen not to allow free trade. Standard trade theory at the time of writing of the book had used the Musgrave separation between efficiency and distributional decisions through lump-sum taxes and transfers. Yet, because such taxes and transfers are generally not available, the efficiency of free trade is compromised by governments seeking distributional objectives through trade policies. Standard trade theory also assumed benevolent governments choosing policies to maximize social welfare and explained protectionism as a second-best policy of the social-welfare maximizing governments. This volume describes decision makers who have political objectives that are not necessarily consistent with the public interest. Since the initial publication of the book, political-economy themes have become common place in the literature on international trade policy.
This paper demonstrates that bilateral free-trade agreements can undermine political support for further multilateral trade liberalization. If a bilateral trade agreement offers disproportionately large gains to key agents in a country, then their reservation utility is raised above the multilateral free-trade level, and a multilateral agreement would be blocked. Bilateral agreements between countries with similar factor endowments are most likely to have this effect. It also follows that bilateral free-trade agreements can never increase political support for multilateral free trade. (JEL F15).
Recent regional initiatives have been addressed from a Vinerian perspective of trade creation and trade diversion. This is true of both policy-oriented economists, who tend to be critical of the initiatives, and theorists, who have added dynamic and game-theoretic elements to the Vinerian structure. This paper describes the stylized facts of much recent regional integration and develops an alternative model. The analysis suggests that regional integration, far from threatening multilateral liberalism, may in fact be a direct consequence of the success of past multilateralism and an added guarantee for its survival.
Preface Background to the Hawley-Smoot Tariff The Hawley-Smoot Tariff The Building of a Liberal Trade Policy The Trade Expansion Act and the Kennedy Round The Trade Reform Act and the Tokyo Round Fair Trade and the Uruguay Round The North American Free Trade Agreement A Return to Unilateralism Bibliography Index
It is an absolutely beautiful day. The lake is very blue, the hills look like a picture postcard, and the only blots on the landscape are British preferences about which I spend most of the night dreaming. a Frustration within the American trade delegation at the inaugural round of the General Agreement on Tariffs and Trade (GATI) was understandable. In Geneva in the summer and fall of 1947, the British Commonwealth of Nations prevented the United States from putting its free-trade ideology into practice. Great Britain led the way in refusing to abolish the Ottawa system of Imperial tariff preferences. Winthrop Brown, the U.S. negotiator responsible for clinching an Anglo-American trade agreement after months of belabored talks, gave way to the United Kingdom. That American free traders were forced to compromise their rather idealistic objective of erasing discriminatory commercial practices, of which preferences ranked as a pernicious form, is surprisingly not an accepted view. Some judge the United States as a selfish winner in the world economy, a nation that forced open Britain to American exports [Kolko, 1990]. Others view the assault on preferences as naive dogmatism of State Department bureaucrats who, while enamored by free-trade theory, drained the economic strength of Cold War allies [Woods, 1990]. But the GATT negotiations actually signaled a defeat for the free traders. Rather than being selfish or unrealistic, U.S. trade policy turned out to be wise. Fireworks against preferences fizzled in the face of political pressures and economic real/ties that were ultimately fled up in the strategic concerns of the early Cold War. President Harry S. Truman veered from the campaign to wipe out discmarion, as pursued by State Department ideologues, to serve a national security agenda. In doing so, the United States showed forbearance toward protectionism.
David C. Yang is a professor of accounting at the UH's College of Business Administration specializing in international accounting.
Five major lessons for successful global trade management emerge from the first fifty years of the GATT/WTO system. They need to be applied to the present situation to set the stage for another half century of successful multilateral trade cooperation. I will summarize the key headings at the outset and then elaborate each, concluding with proposals for the upcoming Fiftieth Anniversary Ministerial and the WTO agenda for early part of the twenty-first century.
This paper constructs a two-country intra-industry trade model with efficiency differences at both national and firm level, to focus on the impact of trade on asymmetric countries. We show that in both countries opening up to trade strengthens the self-selection effect, raises average industry revenue, profit and efficiency and generates welfare gains. However, cross-country efficiency gaps lead to substantial differences in the magnitude of these trade-induced changes. The more efficient country has a greater proportion of exporting firms and a higher failure rate, which makes entry more risky. However, for successful entrants expected revenue is higher and entry is therefore also more profitable. Since the rationalisation effect is also stronger in the more efficient country, welfare gains from trade are higher.
This paper presents an interpretation of rising regionalism in world trade as a coordination failure, based on (i) sector-specific
sunk costs in production, and (ii) “friction” in trade negotiation. Given these elements, if a regional trade bloc is expected
to form, private agents will make investments that will make bloc member countries more specialized toward each other, but
bloc and nonbloc countries mutually less specialized. This diminishes the ex post demand for multilateral free trade. Thus,
the expected supply of regionalism generates its own demand, creating a Pareto-inferior equilibrium.