Economic Integration and Development

Economic Integration and Development

Has Regionalism Delivered for Developing Countries?

Mordechai E. Kreinin and Michael G. Plummer

Mordechai Kreinin and Michael Plummer consider the implications of the emerging global trend of economic regionalism for developing countries. The analysis focuses on the trade and investment effects of integration in developed countries on developing countries, as well as the ramifications of regional integration in the latter. After an extensive review of the theoretical and empirical literature pertinent to the economics of regionalism, the book considers the ex-post trade and direct-foreign-investment effects of the Single Market Program in Europe and NAFTA, followed by chapters on ASEAN and economic integration in Latin America, primarily MERCOSUR.

Chapter 4: Effect of EC-92 and NAFTA on Developing-Country Trade Flows

Mordechai E. Kreinin and Michael G. Plummer

Subjects: development studies, development economics, economics and finance, development economics, international economics

Extract

INTRODUCTION Conventional wisdom1 holds that one of the factors responsible for the 1997/8 Asian financial crisis was the rise in the current account and trade deficits of the afflicted countries.2 In turn, it is plausible that regional integration schemes in Europe and North America diverted enough exports from ASEAN and South Korea as to contribute to their trade deficits. The same may be said about MERCOSUR in South America. Diversion of direct foreign investment (DFI) originating in the industrial countries is also possible (see Chapter 5). Thus regional integration schemes may have contributed, albeit marginally, to the economic crises in Thailand, Indonesia, Malaysia, the Philippines (the big ASEAN Four) and South Korea. This chapter explores part of the puzzle: what diversionary effect did the Unified Market Programme in Europe, known as EC-92, have on the exports of developing countries in Southeast Asia and elsewhere? EC-92 consists of 284 directives issued by the EC secretariat designed to remove all restrictions on the flows of trade, capital and people within the 12 members at the time of the Community, and provide for market unification through other means. The directives began coming into force in the later part of the 1980s. While they were all supposed to be implemented by 1993, some were delayed until the mid-1990s. Theoretically, EC-92 could have had both positive and negative effects on non-members, including Asian developing countries, hence the need for empirical assessment. POSSIBLE EFFECTS OF EC-92 While the Cecchini Report of the European Community claimed that...

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