ADBI series on Asian Economic Integration and Cooperation
Edited by Biswa Nath Bhattacharyay, Masahiro Kawai and Rajat M. Nag
At the policy level, there are two major economic justifications for regional cooperation between two or more countries. The first is the need to deal with project-related additionalities and externalities, and the second is the potential to derive economies of scale in pursuit of national goals. By pursuing these, all participating countries benefit from regional cooperation. However, removing physical and non-physical barriers in order to realize these benefits requires investment as well as harmonization and simplification of relevant policies and procedures. Regional projects may bring additional concessional and nonconcessional funds. Both positive and negative externalities have the potential to arise when the consequences of one or more countries’ actions spill over national borders. These could include time and cost savings, environmental protection and trade facilitation as well as environmental pollution, trafficking and the spread of communicable diseases. If the concerned countries do not make cooperative arrangements, the result will be too few positive externalities in relation to the negative. Regional programs and regional projects can also produce economies of scale in provision of public or private (marketable) goods and services above and beyond what any country could achieve alone. As such, regional cooperation can facilitate the achievement of national goals.
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