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How integrated is the world economy?

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  • Harry Bowen
  • Haris Munandar
  • Jean-Marie Viaene

Abstract

This paper develops a methodology to measure the degree of economic integration between nations that are members of an integrated economic area (IEA). We show that an IEA is characterized by three properties regarding the distribution of IEA member shares of total IEA output and total IEA stocks of physical and human capital. We then show that the expected distribution of member shares within a fully integrated economic area is a harmonic series, with the share distribution depending only on the number of IEA members. This property is then used to develop a composite indicator of the degree of economic integration within an IEA that indicates the distance between the theoretical and actual distribution of shares; the closer is the actual distribution to the expected distribution, the greater the degree of integration. We empirically compute our degree of integration index for US states, and alternative IEAs (e.g., EU countries, Mercosur, Bangkok Agreement, etc.) and a World comprising 64 countries.
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  • Harry Bowen & Haris Munandar & Jean-Marie Viaene, 2010. "How integrated is the world economy?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 389-414, September.
    • Handle: RePEc:spr:weltar:v:146:y:2010:i:3:p:389-414
    DOI: 10.1007/s10290-010-0061-y
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    1. Marie M. Stack & Martin Bliss, 2020. "EU economic integration agreements, Brexit and trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 443-473, August.
    2. Harry P. Bowen & Haris Munandar & Jean-Marie Viaene, 2008. "On the Extent of Economic Integration: A Comparison of E.U. Countries and U.S. States," Discussion Paper Series 2008-01, McColl School of Business, Queens University of Charlotte.

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    More about this item

    Keywords

    Distribution of production; Economic convergence; Factor mobility; Economic integration; E13; F15; F21; F22; O57;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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