Challenges to Economic Cooperation
Chapter 5: Pareto Optimality Condition and Economic Regionalization
Page 40 5 Pareto Optimality Condition and Economic Regionalization Regionalism without globalism, often referred to as “fortress regionalism’’ is an antithesis for maximizing the global output and therefore for global economic welfare. Thus, regionalization is no substitute for interregional cooperation. Given the actual state of international economic relationships, not observed to be governed by perfectly free and competitive market rules, à la Adam Smith’s “invisible hands”, they are indeed complementary. Each economic region must be fully and wholly open to interregional global economic relations. The intraregional free flow of outputs and inputs can and must operate to maximize global economic gains. If a given region can add to its economic gains without diminishing such gains for any other region, the second best condition for Pareto optimality will have been achieved. There exists no “true” measure of a Paretooptimality condition in terms of economic welfare. Indeed, based on the tradeflow data, the EU has made economic gains for its members by way of augmenting the intraregional trade. At the same time its share of trade with other regions—North America, the AsiaPacific region, Africa and elsewhere—has continued to increase. The interregional trade flow is a contribution to globalism and adds to global economic welfare. Intracommunity gains have not limited the EU’s intercommunity economic activities. Of course, economic welfare is hardly a concept for unique measurement by trade flows. The debate on “trade creation” visàvis “trade diversion” remains to be resolved. The Vinerian paradigm argued for trade creation...
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