Economic Integration and Development
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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.
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Chapter 7: Anticipatory Effects of Regional Integration: The Case of ASEAN

Has Regionalism Delivered for Developing Countries?

Mordechai E. Kreinin and Michael G. Plummer


INTRODUCTION 1 How trade is reoriented through policy change has always been an important question in international economics. In particular, over the past few decades, the effects of regional trading arrangements (RTAs) on trade flows have been debated vigorously. As a second-best policy change, the implications of RTAs for partner and non-partner countries are theoretically ambiguous, as they lead to both trade creation and trade diversion; hence empirical modelling of these policy changes is essential. While the applied modelling of trade creation and diversion has become quite sophisticated, almost all paradigms that consider the trade effects of RTAs are static in nature, that is, they focus on the one-time price effects of RTAs. However, the effects over time of regional economic integration may be far more important. In a recent attempt to capture empirically the effects of RTAs, Freund and McLaren (1999) model the changes over time in trade orientation caused by RTAs.2 In particular, they consider the importance of anticipatory changes in the behaviour of economic agents. Using the case studies of the EU, NAFTA, MERCOSUR and EFTA, they find fairly convincing evidence that an acceding country’s trade orientation towards its RTA partners rises over time along an ‘S’-shaped path. For example, the adjustment to the RTA policy shock of an ‘average’ EU member lasted 12 years, with the process beginning four years before the date of accession. Weaker results of the anticipatory effect were obtained for the other RTAs. If we are able to generalize these findings, policy...

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