During 1950s, 1960s, and 1970s, the ‘rush to discrimination’ was led by the Western Europe, which founded the only substantial new customs union of the second half of the twentieth century and also established a complex network of preferential arrangements with other trade partners. (Initially very low protection may also imply small gains from trade creation.) This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Integration timeline West Indies Associated States of Ministers • 1966 to 1981 (Eastern Caribbean Common Market) • Support the Windward and Leeward Islands in their progress towards independence OECS • 1981 to 2010 (Treaty of Basseterre) • Economic integration and cooperation in: external relations, human and social development, and defence Major Areas of Regional Economic Integration and Cooperation. Deeper regional integration to allow cost sharing and risk pooling would promote stable growth. (1) Regional Integration In addition to the global economic regime based on the GATT and IMF systems, which has sustained the world economy since World War II, regionalism, through which neighbouring countries seek to strengthen their economies by entering into some form of “regional integration” has become a major trend. The benefits of regional integration may have been oversold, while the costs have been ignored. What Is Regional Economic Integration? In contrast with free trade areas, customs unions appear to be more conducive to higher degrees of economic integration among members, especially when endowed with supranational structures for common decision making. Significant dynamic gains may also stem from increased competition spurred by regional liberalization. Conflict is replaced by constructive dialogue. 3 Theoretical arguments and historical experience suggest that nondiscriminatory free trade is the “first best” policy option, both from global and individual country perspectives. Benefits of regional integration •Reduction in unemployment and underemployment •Better response to globalization and trade liberalization •Improvement in the quality of life •Reduction in the inequality of wealth distribution •Free movement of goods, labour and capital •Increased market size •Improved levels of international competitiveness Also in this issue If the focus is only on trade-creation and diversion effects, some key parameters that would maximize net gains may be identified a priori. Of late, the US is showing keen interest in regionalism, first in the FTA, and then in emergent bilateral deals, as the window of opportunity to advance a “new trade agenda,” at a time when the progress of multilateral trade negotiations look precarious, and when the ability of the US to control multilateral agenda seems uncertain. Europe was the region of the world, where regional integration started in the early 1950s with the European Coal and Steel Community (ECSC) in 1952. The Pacific Ocean regionalism has been principally but not entirely market driven. The publication presents some notable achievements of regional integration in various sectors such as trade, transport, finance, tourism, energy, disaster management, water resources, peacekeeping training and political cooperation. Additionally, the expansion of the World Trade Organization (WTO) has caused smaller regional agreements to become obsolete. 1. All rights reserved. An additional source of static gains for exporters in the union are the rents from preferential market access (Wonnacott and Wonnacott, 1981). In the case of both the European Union and the East African Community there are three outstanding benefits that regional integration can bring. BENEFITS AND CHALLENGES OF REGIONAL INTEGRATION Presented by: Barry Headley, Senior Economist . 12:56. Of course, the counterpart to this rent is, for the importing member country, trade diversion and a loss of tariff revenue (or of importers” quota rents).6 But the exporting country would realize a net gain, provided that the exporter’s rent is greater than the dead-weight loss associated with expanding production of exports to the union at a marginal cost higher than world market prices. Gains from scale economies internal to the firm would come through lower costs and increased productivity, as companies previously operating at below minimum efficiency can now expand output and move down their cost curves (in static models) and their learning curves (in dynamic models). Larger regional markets may also widen opportunities to achieve economy-wide or industry-wide economies of scale, which are based on such externalities as spillover effects (for example, transfers of know-how from producer to user industries) and may be strongest in high-tech sectors. 3.2.2 Dynamic Effects of Regional Economic Integration 43 3.2.3 Static and Dynamic Effects on African Countries 46 3.3 Benefits of regional economic integration 49 3.3.1 Policy Co‐ordination 50 3.4 Challenges associated with regional economic integration 52 Economies of scale and spillover effects may provide a rationale for regional trading arrangements based on temporarily high external barriers. Definition (i) Regional integration is a process in which states enter into a regional agreement in order to enhance regional cooperation through regional institutions and rules. Cultural differences between and within states will continue to exist both in Europe and in East Africa. Xafa (forthcoming) provides a comprehensive survey of the theoretical literature on economic integration, including the possible implications of the “new trade theory.” Gunter (1989) and El-Agraa (1988) provide other surveys. Small economies often lack the resources to make large public investments. Two advantages of North-South integration are to take advantage of large endowment differences, and the South can take advantage of knowledge and technology mainly produced in the North; and vii. 1. This is the most basic form of economic cooperation. On the one hand, a large regional group may divert substantial amounts of trade from suppliers outside the region, shifting terms of trade against nonmembers, and possibly driving producers in nonmember countries out of markets where they may have a clear comparative advantage. 169 Economic integration in the form of regional markets for goods, services, capital and labour, including common standards and lower reciprocal customs barriers, will create larger and more interesting markets for both African and international investors and manufacturers. Since a regional common market obviously provides a much larger market than that offered by the domestic market of a single country, economies of scale, both internal and external, become possible with the widened size of the market. With 16 landlocked countries, Africa is more fragmented than any other continent. There is no shortage of books and papers on the benefits of regional integration between countries. This is a video giving information on The Benefits of Regional Integration , under the topic Challenges and Opportunities of Regional Integration. Disclaimer Copyright. One of the most compelling arguments for regional integration in SSA is usually made on the basis of the fragmentation of sub-Saharan Africa, which has 47 small economies, with an average Gross Domestic Product (GDP) of US$4 billion, and a combined GDP equal to that of Belgium or 50% of the GDP of Spain. Greater cooperation is the key to furthering regional integration in the Caribbean. 3 Theoretical arguments and historical experience suggest that nondiscriminatory free trade is the “first best” policy option, both from global and individual country perspectives. This is the most basic form of economic cooperation. A regional free trade agreement will benefit the world only if the amount of trade it diverts exceeds the amount it creates. Hendrikstraat 69, Paramaribo, Suriname . Under these circumstances, a customs union could serve to raise members” welfare by reducing excessive costs of inefficient industrial production while at the same time respecting the constraint of maintaining a desired level of industrial activity. Two advantages of North-South integration are to take advantage of large endowment differences, and the South can take advantage of knowledge and technology mainly produced in the North; and. While economies of scale may also be considered a static gain—by assuming unchanged stocks of capital, labor, and technology—their potential for generating dynamic gains bears emphasizing. See answer ellilorne7343 is waiting for your help. Intra-regional and extra-regional security (like European Coal and Steel Community, 1951) against non-members; ix. Some gains from a customs union would also arise from cost savings from lower trade costs. Regional Integration in Africa Trudi Hartzenberg Trade Law Centre for Southern Africa (tralac) Manuscript date: October 2011 Disclaimer: This is a working paper, and hence it represents research in progress. In this case, members would capture the natural rents from being able to export to other members at lower transport costs than for exports to the rest of the world. By providing larger markets through “binding” plurinational commitments, regional integration arrangements are likely to improve the investment climate. Theories of integration have mainly been developed to explain European integration. There are four main types of regional economic integration. To benefit from economies of scale in producing for a larger market; ii. regional integration is the way ahead as there are many regional externalities that can only be addressed through regional co-operation. Transitional adjustment costs would be incurred as the economies in the union move from one equilibrium position to another. It has an economic dimension that benefits everyone. NAFTA has a few formal institutions, an FTA without external tariff and no common market. May 12, 2010, C Kapoor, 4 Comments. If intra-RTA trade expands at the expense of inefficient partner-country producers, it is good. However, as these concepts emphasize the welfare of—and trade between—geographically defined nation states, their relevance is increasingly undermined by the globalization of investment and production. But if inefficient firms producing above world-market prices gain market share at the expense of third country efficient firms due to preferential access, it is bad. This geographical information and the related spatial patterns can play a crucial role in the dynamics of regional integration. There are many degrees of economic integration, but the most preferred and … The greater benefits of nondiscriminatory free trade, relative to regionalism, would not have to be foregone, however, if regionalism is conducive to, and supportive of, multilateral liberalization. What Is Regional Economic Integration? The healthy effects of such a regional economic integration are presumed to be as follows: 1. Benefits of Regional Integration Freedom of travel among islands and find work Improvement in the quality of life as a result of access to A variety of goods and services Been able to better compete internationally The development of various organization that Respond to the needs of each island Each island has more persons to sell its goods to apart from those within its own borders … The benefits from integration are multidimen- sional: political, economical and cu ltural, while the EU entrance is not considered to be without costs; for example, expenses related to Regional integration in Africa has been an aspiration that a majority of countries have been working towards for the last few years, most notably after their liberation from colonisation. 2 Economies of Scale. With the right balance of audacity and pragmatism, regional integration could yield larger dividends ... Nkrumah’s intuition about the potential benefits of Africa’s integration was based on a sound economic rationale, which he failed to articulate convincingly. Under strong lobbying from vested interests, this policy could easily be turned into a defense of “sunset industries,” thus postponing gains from needed structural adjustment. In order to have a better idea about this concept, one should look at the advantages and disadvantages of economic integration – Trade gains are one of the major advantages of regional integration for individual member states. Additionally, migrants need to be sensitized to local customs that will help them integrate into the local environment. • A total of 300 RTAs have been reported to the World Trade Organization (WTO). The net impact is an empirical question and depends on net static and dynamic effects of trade creation and diversion. Regional Integration. Musa Ali Esq. Competition strengthens the reliability of relative prices as indicators of relative scarcities, which leads to more efficient and transparent markets and forces improvements in resource allocation. While these economies’ small size and supply constraints may potentially limit benefits from economic integration, acting as a group can enhance the scale, bringing widespread benefits and helping the region further tap into global value chains. Small economies often lack the resources to make large public investments. The net static effects of a customs union on members” welfare depend on the relative importance of the elements discussed. various regional integration initiatives in Africa. On the supply side, gains from trade creation most frequently occur as resources previously engaged in costly production for the home market are reallocated to producing exports that enjoy preferential access to other members” markets (intra-union or internal trade creation). The economic analysis of customs unions in terms of their trade-creation and trade-diversion effects dates back to the pioneering work of Viner (1950), Meade (1955), and Lipsey (1957). Benefits Of Economic integration. of the Caribbean states. Economies of scale are made possible by larger regional markets. This latter adverse effect on nonmembers would be accentuated, with an erosion of confidence in the future viability of multilateralism. Integration timeline West Indies Federation • 1958 to 1962 (British Caribbean Federation Act) • First and only attempt at Political Union … This is Krugman’s (1984) “import protection as export promotion” argument applied to regional integration. By the same token, the losses from trade diversion may also affect firms owned by the residents of the region located in nonmember countries, or firms located in the region but with strong linkages to firms in nonmember countries. Regional Integration 2. There are more than one hundred regional trade agreements in place, a number that is continuously evolving as countries reconfigure their economic and political interests and priorities. Net gains will also be affected if members have a societal preference for industry; Cooper and Massell (1965) suggest that certain countries are willing to accept a degree of inefficiency associated with industrial protection. The economic success of an RTA is often gauged by growth of trade between the participants. The higher cost of these goods offsets the lower internal market prices attributable to lower intra-union trade barriers. There are four main types of regional economic integration. with regional cooperation reveals a few interesting observations. 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