Dynamics and Politics in Regional Integration Arrangements: An Introduction

Overwhelming evidence links openness and economic growth. Inrecent years many developing countries have attempted to liberalizetheir trade and investment regimes, mostly through autonomousunilateral liberalization. At the same time, a growing numberof governments have begun to explore and participate in regionaltrading agreements. The agreements grant reciprocal trade preferencesto participating countries, resulting in discrimination againstnonmembers. The causes and consequences of regional integration have givenrise to an extensive and vigorous debate among both scholarsand policymakers. However, the quality of this debate has beenseriously hampered by the absence of clear analytical modelsand empirical evidence on many of the factors under discussion.Few of the recent arguments in favor of regional integrationarrangements have been satisfactorily formalized or tested.To address some of these issues, a World Bank research programfocuses on new and developing country aspects of regionalism.The program explores lacunae in the traditional static analysisof regional integration arrangements; addresses the dynamiceffects of integration, the economics of deep integration, andthe politics and political economy of regional integration arrangements;and compares regionalism with multilateralism. The articlesin this symposium address the topics of dynamics, politics,and political economy in regional integration agreements.     

Trade Policy and Poverty Reduction in Brazil

A multiregion computable general equilibrium model is used toevaluate the regional, multilateral, and unilateral trade policyoptions of Mercosur from the perspective of the welfare of allpotential partners in several proposed agreements. The focusfor Brazil is on poverty impacts. The results show that thepoorest households in Brazil experience gains of 1.5–5.5percent of their consumption, which are about three to fourtimes the average gains for Brazil. Protection in Brazil favorscapital-intensive manufacturing relative to unskilled labor-intensiveagriculture and manufacturing. So trade liberalization raisesthe return to unskilled labor relative to capital and disproportionatelyhelps the poor.     

Free trade agreements and market integration: Evidence from South Korea

We consider the effects of free trade agreements on market integration between South Korea and its solo and trade-bloc FTA partners. Free trade agreements should reduce tariffs and trade costs and lead to faster home-to-foreign price convergence. We investigate these ideas with a non-linear self-exciting threshold autoregressive (TAR) model, by introducing a threshold break at the effective FTA date. This strategy allows us to consider: (1) whether trade costs have declined after the free trade agreement; and (2) whether the speed of mean reversion in the home-foreign price differential is faster after the FTA. Our study includes nine of South Korea’s free trade agreements and covers twenty-eight partner countries. We find evidence that after free trade agreements, trade costs have been reduced for nine countries, providing evidence that greater market integration has been achieved on this score. However, evidence on whether the speed of home-to-foreign price convergence increases after free trade agreements is lacking.     

Regional Integration and Economic Growth

The rapid economic growth of developing countries that openedtheir markets to free international trade during the past twodecades has stimulated a large empirical and theoretical literatureon the impact of trade on growth. This literature concludesthat free trade and growth were positively correlated duringthe 1970s and 1980s. However, most studies focus on nondiscriminatoryopenness. Does regional integration matter for economic growth?Do regional trade agreements have any impact on growth? This article presents empirical evidence that countries withopen, large, and more developed neighboring economies grow fasterthan those with closed, smaller, and less developed neighboringeconomies. The results are robust to different specificationsof the empirical model and different definitions of openness,suggesting that small economies should grow faster when theyform regional trade agreements with large and more developedeconomies. However, testing for the impact of five regionaltrade agreements during the 1970s and 1980s finds that noneled to faster growth. The main reason seems to be that mostof these agreements were among small, closed, and developingeconomies.     

Globalization and individual gains from trade

We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. Although trade reduces markups in both countries in our framework, its impact on variety depends on their relative position in the world income distribution: product diversity in the lower income country always expands, while that in the higher income country may shrink. When the latter occurs, the richer consumers in the higher income country may lose from trade because the relative importance of variety versus quantity increases with income. Using data on GDP per capita and population, as well as on the U.S. income distribution, our theoretical results are illustrated in two different contexts: the hypothetical bilateral trade liberalization between the U.S. and 188 countries; and the historical sequence of U.S. free trade agreements since 1985.     

Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements

The past decade has witnessed a renewed interest in regionaltrade agreements, with many policymakers and academics seemingto believe that these provide more than the traditional gainsfrom trade. This article examines several possible benefitsthat regional trade agreements may confer on their partners,including credibility, signaling, bargaining power, insurance,and coordination. It assesses the necessary conditions for eachpossible channel to work, gives stylized examples of specifictypes of policy where the benefit might be applicable, examinescases where the explanation might be relevant, and discussestheir overall plausibility. It concludes by examining the NorthAmerican Free Trade Agreement and the Europe Agreements.     

Why OECD Countries Should Reform Rules of Origin

With preferential trade agreements on the rise worldwide rulesof origin—which are necessary to prevent trade deflection—areattracting increasing attention. At the same time, preferenceerosion for Generalized System of Preferences (GSP) recipientsis increasing resistance to further multilateral negotiations.Drawing on different approaches, this article shows that thecurrent system of rules of origin that is used by the EuropeanUnion and the United States in preferential trade agreements(including the GSP) and that is similar to systems used by otherOrganisation for Economic Co-operation and Development countriesshould be drastically simplified if developed economies reallywant to help developing economies integrate into the world tradingsystem. In addition to diverting resources for administrativetasks, current rules of origin carry significant compliancecosts. More fundamentally, it is becoming increasingly clearthat they are often been designed to force developing economiesto buy inefficient intermediate products from developed economiesto "pay for" preferential access for the final product. Theevidence also suggests that a significant share of the rentsassociated with market access (net of rules of origin compliancecosts) is captured by developed economies. Finally, the restrictivenessof rules of origin is found to be beyond the levels that wouldbe justified to prevent trade deflection, suggesting a captureby special interest groups. The article outlines some alternativepaths to reforms. JEL codes: F13, F15     

Endogenous Tariff Formation: The Case of Mercosur

Mercosur appears as an interesting case study for analyzingthe determinants of exceptions in regional trade agreements.Its member countries—Argentina, Brazil, Paraguay, andUruguay—intended to make Mercosur a full customs unionby January 1995. This goal turned out to be too ambitious, andthe Protocol of Ouro Preto and other agreements signed in December1994 led to a hybrid solution. Overall, out of a total of 9,119tariff lines, around 30 percent are subject, in at least onemember country, to either external deviations from the commonexternal tariff or internal deviations from free trade. Thusan important set of holes remains under the existing agreement,leading some authors to consider Mercosur an incomplete customsunion. This article compares the results of the theoretical literatureon endogenous tariff formation with evidence from Mercosur.The results show that Mercosur's common external tariff andmember countries' deviations from it and from internal freetrade can be explained by sector or industry lobbying as predictedby the endogenous tariff literature. If a viable political economyis a key to success, then Mercosur is here to stay.     

全球价值链中贸易增加值的测度与比较——以中国、俄罗斯、印度三国贸易为例

近年来,以“金砖国家”为代表的新兴经济体已成为全球经济增长的重要引擎和贸易重地,中国、俄罗斯和印度三国作为其核心国家在国际分工中的地位举足轻重。以传统贸易总值法测算中国出口贸易夸大了中国真实的贸易利得,导致中国频频面临贸易摩擦。本文利用世界投入产出表1995—2011年的数据,从增加值贸易角度对三国间的出口额进行国内外增加值分解和测算,对比分析总值贸易和增加值贸易,解释三国贸易趋势和结构特征,进一步了解三国在全球价值链中的地位和作用。实证结果表明,贸易增加值核算方法能更全面和准确反映各国参与国际分工和在国际贸易中的真实获益情况,对中国认清主要贸易合作伙伴、有针对性地制定贸易政策有指导作用。     

SOUTH-SOUTH TRADE: Theory, Evidence, and Policy

Recently a number of commentators have argued that trade policyin developing countries should be deployed discriminatorilyto encourage the expansion of trade among southern countries.Such a strategy is seen as being central in the framing of anew international economic order. This article evaluates thearguments in favor of a relative expansion of South-South tradeand reviews the experience of developing countries with discriminatoryregional trading arrangements. It contends that the case forspecific policies to promote South-South trade is not convincingand that experience with discriminatory arrangements is notencouraging. The expansion of South-South trade can be expectedto continue in the context of multilateral trade expansion,and the potential gains are likely to be greater if this processis allowed to evolve freely in a multilateral setting.      

WHEN DO STRATEGIC ALLIANCES CREATE SHAREHOLDER VALUE?

This article reports the findings of the authors' study of the stock market reaction to 345 strategic alliances announced during the period 1983-1992. The study reports statistically significant gains that, when translated into dollars, are divided roughly evenly between the larger and smaller partners (though the smaller partners experience larger percentage gains). Moreover, the value gains are largest in those cases in which two high-tech firms ally to develop or apply new technology, while the market shows less enthusiasm for non-technical or marketing alliances.
The underlying rationale for strategic alliances is that each partner contributes its expertise to the relationship and gains access to some special resource or competence that it lacks—but without incurring the costs associated with creating a larger organization through a merger or joint venture. Consistent with this argument, the authors report that alliances are relatively long-lasting, and are not preludes to merger or formal creation of joint venture entities.     

Tracking NAFTA's Shadow 10 Years on: Introduction to the Symposium

The North American Free Trade Agreement (NAFTA) is arguablythe first "case study" of what might be expected from the increasingnumber of preferential trade agreements involving both developedand developing economies. Ten years after the treaty’sinception, it is time to assess how its outcomes compare withinitial expectations. The articles in this symposium issue provideinsights into the effects of NAFTA on economic geography, trade,wages and migration, and foreign investment from Mexico’sperspective. The contributions paint a complex post-NAFTA realitycharacterized by persistent intrabloc trade barriers, interregionalinequality within Mexico, labor market outcomes that seem closelytied to migration patterns and international trade and investment,and foreign investment flows that appear weakly related to tradeagreements. NAFTA seems to be the first trade agreement in historyfor which the traditional static trade creation or diversioneffects are likely negligible—and hard to identify inany case.     

Economic Reform and Labor Unions: A General-Equilibrium Analysis Applied to Bangladesh and Indonesia

Noting the trend toward more independent trade unions in developingcountries, this article examines whether the presence of unionsstrengthens or weakens the benefits to be gained from economicpolicy reform. We show that the presence of "passive" unions—onesthat choose their wage-employment contract given the firm'scost-minimizing strategy—increases the welfare gains fromtrade liberalization, because trade reform lowers the wage premiumenjoyed by the unionized sector, reducing a distortion in thelabor market. These gains are amplified when the unions are"active", namely, when they negotiate a contract with the firmthat is off its labor demand curve. Such a contract resultsin featherbedding—paying workers more than their marginalproduct—and trade reform reduces the amount of featherbedding.The policy implication for Bangladesh—a country with strongtrade unions and a protected unionized sector—is thatthe benefits of further trade liberalization may be greaterthan otherwise predicted. In Indonesia, where both unionizationand import tariffs are low, allowing greater independence tounions may preserve flexibility and reward workers better thanthe current minimum-wage policy.     

"新地区主义"对中国-东盟区域经济合作的影响

中国—东盟的区域经济合作是在一种新的意识即“东亚意识”上产生的,而其推动力量是新地区主义思维在东亚的出现。新地区主义不但影响和改变着东盟区域经济合作的战略思维,而且也影响着中国区域经济合作的思维方式和战略走向。中国—东盟区域经济合作的产生与发展就是在东亚新地区主义的影响和推动下而产生和发展起来的。     

十年来香港地区与大陆之间贸易与资本流动的结构性变化——基于国际收支框架的分析

近10年来,香港地区与大陆均经历了若干重大的内部变化与外部冲击,香港与大陆之间也签订了一系列CEPA协议。这些内部变化、外部冲击与制度性安排必将对两地之间的贸易与资本流动产生重大影响。本文从国际收支表框架出发,系统梳理了近10年来两地之间在商品贸易、服务贸易、FDI与证券投资等方面的资金流动趋势,并利用余额法估算了两地之间的其他跨境资本流动。结果表明,两地之间的贸易和投资在规模增长的同时也发生了一些显著的结构性变化,而其他跨境资本流动的变化则反映了两地之间可套利机会的变化。     

Trading Arrangements and Industrial Development

This article outlines a new approach for analyzing the roleof trade in promoting industrial development. It offers an explanationas to why firms are reluctant to move to countries with lowerlabor costs and shows how trade liberalization can change theincentives for firms to locate in developing countries. It modelseconomic development as the spread of concentrations of firmsfrom country to country. Different trading arrangements mayhave a major impact on this development process. By changingthe attractiveness of countries as a base for manufacturingproduction, they can potentially trigger—or postpone—industrialdevelopment. The analysis shows that unilaterally liberalizingimports of manufactures can promote industrialization but thatmembership in a preferential trading arrangement is likely tocreate larger gains. South-South preferential trading arrangementswill be sensitive to the market size of member states, whileNorth-South arrangements seem to offer better prospects forparticipating southern countries, if not for excluded countries.     

Southeastern European Trade Analysis: A Role for Endogenous CEFTA-2006?

The objective of this paper is to analyze the impact the Central European Free Trade Agreement of 2006 (CEFTA-2006) has had on trade and provide quantitative comparison with the original CEFTA and with trade liberalization under the EU integration process. The paper belongs to the strand of literature analyzing a free trade agreement in a gravity framework but treating the agreement as being potentially endogenous. The empirical evidence suggests that CEFTA-2006 exerted a positive, significant, and large effect on trade in Southeast Europe. This finding can be largely attributed to the distracted trade flows in the region over the 1990s. The effect of CEFTA-2006 has been estimated to be larger than the effect of the stabilization and association agreements. This counteracts the concern that the EU and the Southeastern European countries formed a "hub-and-spoke" structure in terms of trade.     

Trade and investment liberalization as determinants of multilateral environmental agreement membership

Environmental agreements represent voluntary coalitions which mostly regulate emissions and the exhaustion of natural resources. The analysis of why and under which conditions countries (or policy makers) may be inclined toward ratifying such agreements or not has been the focus of a body of theoretical work at the interface of environmental economics and the economics of coalition games. Traditional theoretical work predicted that environmental agreements are hard to sustain due to the lacking enforceability of associated contracts and the incentive to free-ride. This hypothesis is at odds with the enormous surge of such agreements in reality over the last few decades. Recent work by Rose and Spiegel (J. Money, Credit Bank. 41:337–363, 2009) suggests that environmental agreements will be signed and are stable, because they work as a signal and help economies to get access to export (and possibly other) credits. Hence, the reason for a ratification of such agreements is their interdependence with other policies, especially ones that are related to international business. This paper sheds light on the determinants of multilateral environmental agreement (MEA) participation. In particular, we pay attention to the role of a country’s international openness by means of chosen trade and investment policies for such participation. The results support the view that wealthier countries with a strong inclination towards trade and investment liberalization are more in favor of committing themselves voluntarily to environmental standards, pollution reduction, and other means of environmental protection through MEA memberships than other countries, all else equal.     

Destination taxation and evasion: Evidence from U.S. inter-state commodity flows

Tax evasion has been an important issue in the accounting literature for several decades, but the focus has been on corporate income taxes. We develop a new way to examine tax evasion that focuses on corporate transactions, rather than corporate profits. Specifically, we examine how commodity flows respond to destination sales taxes, allowing for tax evasion as a function of distance between trade partners. After accounting for transportation costs, we find that the effect of taxes decreases as distance increases. This is consistent with the notion that longer distances between trade partners hinder government oversight and increase the likelihood of successful tax evasion. Our results are robust with respect to outliers, strategic neighbor effects, information sharing agreements and other re-specifications. These results are important to policymakers because they evidence the difficulty of enforcing destination taxation in open economies such as U.S. states and the European Union.     

中国自贸试验区政策试点对地区外商直接投资的影响 ——基于双重差分法的验证

基于2007-2017年中国城市面板数据,利用双重差分法(DID)研究中国自贸试验区政策试点对地区外商直接投资(FDI)的影响,并对多期DID的适用性和稳健性进行检验.结果显示:自贸试验区的设立能够显著地促进地区FDI的增长,并对地区FDI增长的促进作用随着城市等级的升高呈现出"边际效应递减"的规律;相比于沿海试点城市,自贸区政策对地区FDI增长的促进作用在内陆试点城市更明显.