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 8: Economic Integration in MERCOSUR and the Americas

Mordechai E. Kreinin and Michael G. Plummer

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

Extract

INTRODUCTION Many attempts at regional economic integration in developing countries (particularly in Latin America) were undertaken between 1950 and 1980. However, their inward-oriented bias tended to base these groupings on import substitution at a regional level. Consequently, these accords either were never implemented or eventually ‘self-destructed’. That bias has changed in recent years. After a period of economic stagnation in the wake of the debt crisis of the 1980s, these nations began to reform their economies on the basis of an outward-oriented development strategy. The rapid change in economic policy was partly induced by the success of such policies in Asia, and in part it was imposed by the IMF under the conditionality provisions. Outward-oriented regional integration can be used as a means of strengthening the competitiveness of member countries by reducing intraregional transactions costs while minimizing partner–non-partner country price distortions. Hence new regional initiatives in Latin America (for example, the Common Market of the Southern Cone, or MERCOSUR), as well as Asia, were devised as part of a process of economic liberalization of member countries. Shedding the import-substitution paradigm also opened up the possibility of forming regional accords with developed nations. In fact, joining with developed countries might hold great benefits. The (static) theory of economic integration suggests that, a priori, trade creation is likely to be potentially greater and trade diversion smaller when intraregional trade is high. And developing countries do most of their trade with, and receive most of their investment from, developed countries. For example,...

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