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Making Regional Economic Integration Work

  • Agustin Carstens

    (International Monetary Fund, Washington, D.c.)

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    The world has been witnessing a wave of regionalism in recent years. Preferential trade arrangements (PTAs) have been a central element of most regional agreements. This paper looks at the growing international experience with PTAs. It first provides some basic facts on the extent of regionalism and discusses the motives for entering into regional arrangements. This is followed by an analysis of the impact of PTAs on trade, growth, and welfare, based on traditional and new trade theories. Although the paper finds that empirical studies seem to conclude that in practice PTAs are not harmful or necessarily very beneficial, the main conclusion of the paper is that regional integration can work if done right, and can be pursued in parallel with, or as a stepping-stone towards, multilateral trade liberalisation. The paper provides four major recommendations to ensure that PTAs have a positive impact on member (and nonmember) countries. These include: (i) a large and diverse membership; (ii) continued reduction in external tariffs; (iii) comprehensive product coverage, with simple and transparent rules of origin; and (iv) effective implementation.

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    File URL: http://www.pide.org.pk/pdf/PDR/2004/4/PartI/Agustin.pdf
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    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 43 (2004)
    Issue (Month): 4 ()
    Pages: 335-352

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    Handle: RePEc:pid:journl:v:43:y:2004:i:4:p:335-352
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    1. Paul Krugman, 1991. "The move toward free trade zones," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-58.
    2. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
    3. Arvind Panagariya, 2003. "The Regionalism Debate: An Overview," International Trade 0309007, EconWPA.
    4. Matías Berthelon, 2004. "Growth Effects of Regional Integration Agreements," Working Papers Central Bank of Chile 278, Central Bank of Chile.
    5. Florence Jaumotte, 2004. "Foreign Direct Investment and Regional Trade Agreements; The Market Size Effect Revisited," IMF Working Papers 04/206, International Monetary Fund.
    6. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
    7. Antonis Adam & James McHugh & Theodora Kosma, 2003. "Trade Liberalization Strategies; What Could South Eastern Europe Learn From Cefta and Bfta?," IMF Working Papers 03/239, International Monetary Fund.
    8. Jorge Iván Canales Kriljenko & Padamja Khandelwal & Alexander Lehmann, 2003. "Financial Integration in Central America; Prospects and Adjustment Needs," IMF Policy Discussion Papers 03/3, International Monetary Fund.
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