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Regional Integration, Growth and Convergence

Author

Listed:
  • Willem te Velde, Dirk

    (Overseas Development Institute)

Abstract

This paper examines empirically whether and how regional integration leads to convergence and growth amongst developing countries. Using standard growth models for nearly 100 developing countries over 1970-2004 we cannot establish robust growth effects of regional integration as such at the aggregated level of analysis even after using alternative measures of regional integration. However, because we find that trade and FDI promote growth, and because regional integration tends to increase trade and FDI, regional integration still has a positive impact on growth in its members through the effects of increased trade and investment on growth. Further, country-specific growth diagnostics do suggest that regional integration can be a binding constraint to growth as “deep” regional approaches can help to address crucial rail, road, air and energy links amongst countries (e.g. in the East African Community). Our findings also suggest that initially high levels of regional income disparities will lead to greater decreases in disparities. Whilst the level of intra-regional trade and incomes do not explain changes in income disparities, the presence of a regional Development Finance Institutions (e.g. Central American or East African development banks) with a relatively high loan exposure to GDP ratio tends to reduce regional income disparities suggesting a useful role for deeper integration in achieving regional cohesion. A one percentage point increase in exposure by DFIs leads to a drop of σ of about one percentage point. Finally, while the macro economic literature on regional integration tends to highlight only limited expected effects of African regional integration itself, our work at the firm level in three African countries (Benin, Malawi and South Africa) is indicative of significant dynamic effects of regional integration through the effects on firm level productivity in Africa. We suggest that in the future, further growth analytical work is undertaken which combines the development of methods to examine the effects of regions and measurement of the various types of regional integration.

Suggested Citation

  • Willem te Velde, Dirk, 2011. "Regional Integration, Growth and Convergence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 1-28.
    • Handle: RePEc:ris:integr:0527
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    Citations

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    Cited by:

    1. M. G. C. N. Madadeniya & S. Sivarajasingham, 2018. "Which Is Better For Economic Growth In Sri Lanka, Trade With Saarc Or Trade With Asean?," Journal of Smart Economic Growth, , vol. 3(3), pages 95-116, December.
    2. John Bosco Nnyanzi & John Bosco Oryema & Nicholas Kilimani, 2022. "Real exchange rate undervaluation, regional integration and services sector performance: evidence from the East African Community," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-23, December.
    3. Ibrahim, Muazu, 2020. "Effects of trade and financial integration on structural transformation in Africa: New evidence from a sample splitting approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 556(C).
    4. Angkeara Bong & Gamini Premaratne, 2018. "Regional Integration and Economic Growth in Southeast Asia," Global Business Review, International Management Institute, vol. 19(6), pages 1403-1415, December.
    5. Kadigi, Reuben M.J. & Robinson, Elizabeth & Szabo, Sylvia & Kangile, Joseph & Mgeni, Charles P. & De Maria, Marcello & Tsusaka, Takuji & Nhau, Brighton, 2022. "Revisiting the Solow-Swan model of income convergence in the context of coffee producing and re-exporting countries in the world," LSE Research Online Documents on Economics 115636, London School of Economics and Political Science, LSE Library.
    6. Enoch Kwaw-Nimeson & Ze Tian, 2023. "Institutional Quality, Foreign Direct Investment, and Regional Integration: Empirical Evidence From CEN-SAD," SAGE Open, , vol. 13(1), pages 21582440221, January.
    7. Takfarinas Saber & Dominik Naeher & Philippe Lombaerde, 2023. "On the Optimal Size and Composition of Customs Unions: An Evolutionary Approach," Computational Economics, Springer;Society for Computational Economics, vol. 62(4), pages 1457-1479, December.
    8. Zhao, Jun & Serieux, John, 2020. "Economic globalization and regional income convergence: Evidence from Latin America and the Caribbean," World Development Perspectives, Elsevier, vol. 17(C).
    9. A. S. Skriba & A. O. Altukhov, 2019. "The EU-Russia Geopolitical Contradictions and Participation of the Post-Soviet States in Regional Economic Integration," Outlines of global transformations: politics, economics, law, Center for Crisis Society Studies, vol. 12(2).
    10. Bruno Jetin, 2019. "ASEAN Economic Community: the shift from absolute to relative poverty, and the rise of the middle class," Post-Print halshs-02388525, HAL.
    11. Aweng Peter Majok Garang & Hatice Erkekoglu, 2021. "Convergence Triggers in Africa: Evidence from Convergence Clubs and Panel Models," South African Journal of Economics, Economic Society of South Africa, vol. 89(2), pages 218-245, June.
    12. Sperlich, Y., 2013. "Comparing the Speed of Convergence in American Integration Areas," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(1), pages 77-88.
    13. G.D.N.M Godagampala, 2018. "Impact Of Investments In Human Capital Determinants On Economic Growth: Time Series Analysis Based On Sri Lanka," Journal of Smart Economic Growth, , vol. 3(3), pages 85-93, December.

    More about this item

    Keywords

    Economic Growth; Foreign Direct Investment; Economic Integration; Convergence;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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