1. VII.E Trade Policies for Development
Regional Economic Integration
See text, Chapter 12,
Sections 12.5, 12.6 and 12.7, pp
ECON April

2. VIII.E REGIONAL ECONOMIC INTEGRATION Among Developing Countries ECON 3508 April 4, 2013

3. How does REGIONAL ECONOMIC INTEGRATION Work? Advantages
Potential Disadvantages
Forces promoting economic integration
Types of Integration Scheme
Experience with Economic Integration
Some Specific Integration Schemes: Africa, Latin America and Asia

4. The Historical Record:
Some comments on:
The US common market after 1776;
Germany after 1870 unification
The European Common Market: from 6 members to 27 or so.
LAFTA; NAFTA; CAFTA
Chavez “Bolivarian Alternative (?)
Asian, African and other integration attempts

5. 1. How does REGIONAL ECONOMIC INTEGRATION Work?
It makes possible productivity improvements,
i.e. it permits more output to be squeezed out of given quantities of human, natural and capital resources.
It thus can contribute to
increasing real incomes in a country, thereby permitting
improved human development by individuals and families for themselves, and
by governments through increased taxation and social expenditures (health, education, social security, infrastructure etc.)

6. It can also promote economic development through
strengthening the tax base of governments so that
more can be invested in public goods or other purposes directed more specifically at economic development.
The economic expansion facilitated by economic integration may make possible public investment in safeguarding the environment? Maybe
Does Economic Integration promote stability and peace among countries?
Evidence and argumentation pro:
Evidence contra:

7. How does Regional Economic Integration promote productivity improvements?
1. Permits Implementation of Economies of Scale and Consequent Resource Saving (human, natural and capital resources):
Larger plant size
Larger enterprise size
Increased length of “production runs”
Increased intra-industry specialization
Increased vertical specialization
Increased agglomerative economies.
These are some of the “dynamic benefits” of improved rationalization of economic structure. i.e. it permits the emergence of a rational division of labour

8. i.e. it permits the emergence of a rational division of labour and larger scale production with higher productivity for countries that otherwise would be too small to permit economies of scale on an “Import Substitution Industrialization” strategy. It may also make possible a coordinated industrial strategy among members (e.g. the Canada-US Automotive Agreement of 1962, or the European Coal and Steel Community of 1953 or so.)

9. 2. Static Benefits: gains from comparative advantage from trade creation
3. Impacts of Increased Competition within the Integration Area:
Stimulates domestic product quality improvement;
Stimulates improvements in product quality and reductions in production costs.
4. Expanded Market Size can Promote Increased (and more efficient) Investment.

10. 5. Strengthened Ability for the Region to develop successful “clusters” of economic activities and thus to integrate and compete in the international economy
6. Strengthened Ability for the Region to Face External Competition for its own domestic markets. .
These gains can be greatest for small country partners

11. 2. POTENTIAL DISADVANTAGES OF REGIONAL INTEGRATION
Costs of Transition to Larger Markets:
Some industries or types of economic activity may not be able to compete with imports.
The result is then labour displacement, economic dislocation, and unemployment.
Are these “costs” of economic integration borne by the workers and enterprises themselves, or does society share in their burden?
enterprise and industry restructuring costs;

12. 2. Possible Longer Term Negative Impacts:
“agglomerative dis-economies” for some regions or countries
consequent loss of economic activity and employment; (e.g. the Maritime provinces in Canada?)
3. Trade diversion may harm some partners
What is “Trade Diversion?

13. 3. Forces behind the attempts to form larger economic communities:
Economic theory and argumentation
Problems with ISI;
Other regional integration experiences,
esp. the European Common Market, but
Also the USA and Asian and L. American
Demonstration effects
Political arguments:
peace and stability and
regional bargaining power

14. 4. Types of Integration Scheme
Specific Functional Cooperation
Agreement to cooperate for specific purposes
(watershed management; transport, energy….)
Free Trade Area (FTA);
Lowering and elimination of trade barriers between two or more countries; separate tariff structures for the rest of the world
2. Customs Union (CU)
CU = FTA + Common External Tariff
3. Common Market (CM):
Common Market = CU + Factor Mobility (capital & labour)
4. Economic and Monetary Union (EMU):
EMU = CM + Single Currency (monetary &Exchange rate policy)
5. Political Union (PU)
Political Union = EMU + Common foreign and security policy

15. Obstacles to Successful Integration
Achieving effective economic integration is complex and politically difficult. Why?
Vested interests of enterprise may object due to fear of competition from neighbors
Political or philosophical differences among neighboring countries
e.g. East African Community with Idi Amin, Nyrere and Kenyatta

16. 3. Trade Diversion may damage some partners and induce them to leave
4. Distributional Issues: fear that some countries gain disproportionately while others lose
5. Weaknesses in the supranational institutions
6. Infrastructural weaknesses prevent meaningful economic interaction

17. Developing Country Experiences with Economic Integration: Africa
Early ambitious “Pan-Africanists” and modest gradualists;
Moderates unwilling to sacrifice national independence so soon after achieving it. A gradualist approach for some time, but with high aspirations
Major difficulties have hindered progress Antagonisms among countries
Logistic Obstacles: Infrastructure Gaps (see map)
Physical Magnitude of Integration Task (see map)

20. African Economic Integration Schemes
Southern African Development Community (SADC)
East African Community (EAC)
Economic Community of West African States (ECOWAS)
Economic Community of Central African States (ECCAS)
Common Market for Eastern and Southern Africa (COMESA)
Arab Maghreb Union (UMA)
Southern Africa's Common Monetary Area (CMA)
African Economic Community, (AEC)

21. 6. Some African Integration Schemes
A. Southern African Development Community (SADC)
Originally SADCC; Founded 1980;
Defensive economic organization vs. aparteid S. Africa
Re-founded in 1992 with S. African presence
Objective: a full common market
200 million people; GDP +/- 200 million
Dominated by S. Africa
Successful expansion of intra-regional trade

22. Southern African Development Community

23. B. East African Community
Long pedigree starting in the 1967
Dissolved in 1977
Re-founded in 1994
Early Progress was limited due to
Problems among Prime Ministers and political differences
Idi Amin
Perceptions that Kenya was gaining most
Significant success recently:
Rapid expansion of intra-bloc trade

24. East African Community, member countries

25. H. African Economic Community
(The Community of Common Markets)
Founded in 1991;
The Sub-Saharan Integration Scheme, including all others except Mahgreb
Ambitious objectives:
Promote ec., soc., &cultural development and integration
Establish a framework for the mobilization af all resources
Promote cooperation in al fields of human endeavour
Harmonize policies of all existing and future economic communities
“Fund for community solidarity and compensation”
Envisages rather complete union ultimately.
Common currency; common Central Bank, Pan-African parliament

26. African Economic Community,
including

27. African Intra-Bloc Exports as a Per Cent of Total Exports
Integration Scheme
1970
1980
1990
2000
2007
COMESA
9.1
6.1
6.6
6.0
4.7
EAC
16.9
8.9
13.3
17.6
20.4
ECCAS
2.2
1.4
1.0
0.6
ECOWAS
2.9
10.1
7.8
10.8
9.4
SADC
0.3
2.8
12.2
15.2
Source: Text, p. 490 and World Bank, World Development Indicators, p. 349

28. Latin American Experience with Economic Integration
Early Beginnings; Limited Early Achievements Current Schemes Prospects

29. Asociación Latinoamericana de Integración

30. ALBA Alianza Bolivariana para los Pueblos de Nuestra América

31. Central American Common Market

32. Grupo Andino

33. Caribbean Associations

34. Mercosur

35. ASEAN

39. Conclusion: Numerous attempted integration schemes; Mixed results
Some schemes excessively ambitious, falter in implementation
Difficulties in establishing effective integration movements are immense
Success re integration is vital for Africa’s and Latin America’s Future