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

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  • DeRosa, Dean A.

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.

Suggested Citation

  • DeRosa, Dean A., 1998. "Regional integration arrangements : static economic theory, quantitative findings, and policy guidelines," Policy Research Working Paper Series 2007, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2007
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    References listed on IDEAS

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    Cited by:

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    2. Hannah Muzee & Andrew Osehi Enaifoghe, 2019. "Towards an Inclusive Model of African Regional Integration: How Effective has the Linear Model been so Far?," Journal of Economics and Behavioral Studies, AMH International, vol. 11(1), pages 55-65.
    3. Sorgho, Zakaria, 2015. "RTAs' Proliferation and Trade-Diversion Effects: Evidence of the "Spaghetti Bowl" Phenomenon," Working Papers 206223, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    4. Ferrari, Emanuele & McDonald, Scott & Osman, Rehab, 2013. "Nile Water Availability and Agricultural Productivity in Egypt: A CGE Approach," Conference papers 332386, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Robinson, Sherman & Thierfelder, Karen, 2002. "Trade liberalisation and regional integration: the search for large numbers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), pages 1-20.
    6. Ibarra-Yunez, Alejandro, 2003. "Spaghetti regionalism or strategic foreign trade: some evidence for Mexico," Journal of Development Economics, Elsevier, vol. 72(2), pages 567-584, December.
    7. Nlemfu Mukoko, Jean Blaise & Wabenga Yango, James, 2011. "Zone de libre échange de la sadc et économie de la RDCongo :Création de commerce et Bien-être? [Implications of joining the SADC Free Trade Agreement on the D.R.Congo economy]," MPRA Paper 65050, University Library of Munich, Germany, revised Jun 2015.
    8. Zakaria Sorgho, 2016. "RTAs' Proliferation and Trade-diversion Effects: Evidence of the ‘Spaghetti Bowl’ Phenomenon," The World Economy, Wiley Blackwell, vol. 39(2), pages 285-300, February.
    9. Grant, Jason H. & Parmeter, Christopher F., 2008. "Has The World Trade Organization Promoted Successful Regional Trade Agreements?," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6551, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Nlemfu Mukoko, Jean Blaise & Wabenga Yango, James, 2012. "Analyse de l'économie congolaise à travers la matrice de comptabilité sociale de 2005 [Analysis of the D.R.Congo economy through the social accounting matrix of the year 2005]," MPRA Paper 65037, University Library of Munich, Germany, revised Jun 2015.
    11. Shinyekwa, Isaac & Othieno, Lawrence, 2013. "Comparing the Performance of Uganda’s Intra-East African Community Trade and Other Trading Blocs: A Gravity Model Analysis," Research Series 150227, Economic Policy Research Centre (EPRC).
    12. Ramos, Maria Priscila, 2007. "Politique Commerciale, Qualité et Environnement: une Application aux Négociations Commerciales entre l’Union Européenne et le Mercosur," MPRA Paper 12640, University Library of Munich, Germany.
    13. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, University Library of Munich, Germany.
    14. Dunning John H. & Lundan Sarianna M. & Eckes Alfred E. & Bryant Sarah K. & Unger Michael L. & Shelburne Robert C. & Cernat Lucian, 2001. "Global Economy Quarterly, Issue 3," Global Economy Journal, De Gruyter, vol. 2(3), pages 109-109, December.
    15. Sorgho, Zakaria, 2014. "RTAs’ Proliferation and Trade-diversion effects: Evidence of the “Spaghetti Bowl” Phenomenon," MPRA Paper 60503, University Library of Munich, Germany.
    16. E. M. Ekanayake & John R. Ledgerwood, 2009. "An Analysis Of The Intra-Regional Trade In The Middle East And North Africa Region," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(1), pages 19-29.
    17. Lewis, Jeffrey D. & Robinson, Sherman & Thierfelder, Karen, 1999. "After the negotiations: assessing the impact of free trade agreements in Southern Africa," TMD discussion papers 46, International Food Policy Research Institute (IFPRI).
    18. Shinyekwa, Isaac & Lawrence, Othieno, 2013. "Comparing the Performance of Uganda’s Intra-East African Community Trade and Other Trading Blocs: A Gravity Model Analysis," Research Series 159667, Economic Policy Research Centre (EPRC).
    19. Hanaa Fayed & John Fletcher, 2002. "Report: Globalization of Economic Activity: Issues for Tourism," Tourism Economics, , vol. 8(2), pages 207-230, June.

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