Chapter 4: RIAs and the Global Trading System
1. CHANGING GLOBAL PERSPECTIVES ON RIAs A group of trade economists follow the logic of regional integration agreements (RIAs) being the ‘stepping stones’ toward a liberal global trading system, and to that end strongly support regional integration. Expansion of RIAs could have positive effects on the global economy provided the emerging RIAs are ‘open’ to trade from outside. One key benefit to the global economy comes from the impact of RIAs in stimulating domestic growth, which in turn increases the demand for extra-regional imports, thereby integrating it with the global economy. There are several channels of demand expansion. The principal ones are: (1) demand expansion due to the income effect of gains from trade, (2) increased income induces more investment, (3) increased investor confidence leading to improved ability to attract foreign direct investment (FDI) from the global investing community, and (4) beneficial macroeconomic effects of RIAs. Open regionalism can certainly promote and facilitate external liberalization, meaning trade with non-member economies outside the RIA. Economies grouped in RIAs can regard them as complementary as well as supplementary to multilateralism. They need not necessarily be the antithesis of multilateralism. By following both regional and multilateral approaches simultaneously, the pace of liberalization of the global trading system can be made brisker. This two-pronged approach to trade liberalization can achieve greater gains for those willing to proceed faster and at the same time put pressure on the multilateral negotiations to perform better and deliver tangible results in a reasonable time. This is essentially the...
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