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Regional integration agreements - a force for convergence or divergence?

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  • Venables, Anthony J.

Abstract

The author examines how benefits - and costs - of a free trade area are divided among member countries. Outcomes depend on the member countries'comparative advantage, relative to one another and to the rest of the world. The author finds that free trade agreements between low-income countries tend to lead to divergence in member country incomes, while agreements between high-income countries tend to lead to convergence. Changes introduced by comparative advantage may be amplified by the effects of agglomeration. The results suggest that developing countries may be better served by"north-south"free trade agreements, because"north-south"agreements increase their prospects for convergence with high-income members of the free trade area. In"north-south"free trade agreements, additional forces are likely to operate. The agreements may be used, for example, as a commitment mechanism to lock in economic reforms (as happened in Mexico with the North American Free Trade Agreement and in Eastern European countries with the European Union). A free trade agreement may also - through its effect on trade and through foreign direct investment - promote technology transfer to lower-income members.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2260.

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Date of creation: 31 Dec 1999
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Handle: RePEc:wbk:wbrwps:2260

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Related research

Keywords: Environmental Economics&Policies; Payment Systems&Infrastructure; Labor Policies; Income; Economic Theory&Research; Economic Theory&Research; Environmental Economics&Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Trade and Regional Integration; Inequality;

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References

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  1. Coe, D.T. & Helpman, E., 1993. "International R&D Spillovers," Papers 5-93, Tel Aviv.
  2. Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander W, 1997. "North-South R&D Spillovers," Economic Journal, Royal Economic Society, vol. 107(440), pages 134-49, January.
  3. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
  4. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
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Citations

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Cited by:
  1. Nicole Madariaga & Sylvie Montout & Patrice Ollivaud, 2004. "Regional convergence, trade liberalization and agglomeration of activities : an analysis of NAFTA and MERCOSUR cases," Cahiers de la Maison des Sciences Economiques bla04069, Université Panthéon-Sorbonne (Paris 1).
  2. Xubei Luo, 2004. "The role of infrastructure investment location in China's western development," Policy Research Working Paper Series 3345, The World Bank.
  3. Alejandro Diaz Bautista & Mauro Diaz Dominguez, 2004. "Capital Humano y Crecimiento Económico en México (1970-2000). Human Capital and Economic Growth in Mexico," Urban/Regional 0405008, EconWPA.
  4. Iván Martín, 2004. "La inversión extranjera directa en los países del Maghreb en el marco de la Asociación Euromediterránea: ¿el eslabón perdido?," International Trade 0405001, EconWPA.
  5. Pablo Sanguinetti & Iulia Traistaru & Christian Volpe Martincus, 2004. "Economic Integration and Location of Manufacturing Activities: Evidence from Mercosur," ERSA conference papers ersa04p609, European Regional Science Association.
  6. Shafaeddin, Mehdi, 2008. "South-South Regionalism And Trade Cooperation In The Asia-Pacific Region," MPRA Paper 10886, University Library of Munich, Germany.
  7. Volpe Martincus, Christian & Siedschlag, Iulia, 2010. "The Impact of South-South Preferential Trade Agreements on Industrial Development: An Empirical Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 69-104.
  8. repec:idb:brikps:13858 is not listed on IDEAS
  9. FE, Doukouré Charles, 2010. "Réduction de Droits de Douane et Convergence Réelle dans l'UEMOA
    [Tariffs Reduction and Real Convergence in WAEMU]
    ," MPRA Paper 26763, University Library of Munich, Germany.
  10. Vladimir Gligorov & Mary Kaldor & Loukas Tsoukalis, 1999. "Balkan Reconstruction and European Integration," wiiw Balkan Observatory Working Papers 001, The Vienna Institute for International Economic Studies, wiiw.
  11. Petersson, Lennart, 2000. "The Theory of New Economic Geography and Industrial Location in SADC," Working Papers 2000:6, Lund University, Department of Economics.
  12. Matías Berthelon, 2004. "Growth Effects of Regional Integration Agreements," Working Papers Central Bank of Chile 278, Central Bank of Chile.
  13. L. Alan Winters, 2000. "Regionalism and Multilateralism in the Twenty-First Century," IDB Publications 8749, Inter-American Development Bank.
  14. Corinne Bagoulla, 2006. "Localisation industrielle et spécialisation. Les rôles des infrastructures, des coûts de production et de la taille de marché dans un cadre Nord Sud," Revue économique, Presses de Sciences-Po, vol. 57(4), pages 705-726.

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