Macroeconomic Implications of International Regional Settlement Corridors: Toward a New Financial Regional Integration in Eurasia

The ascendancy of emerging economies and the strategic proliferation of economic corridors are reshaping the contours of globalization through a resurgence of regionalism. As these corridors evolve into sophisticated platforms for cross-border integration, the incorporation of financial settlement mechanisms has become central to their institutional architecture. Settlement—the terminal phase of a secured financial transaction—facilitates the transfer of payments and assets, thereby ensuring transactional finality, reducing uncertainty, and upholding systemic trust. While the World Trade Organization (WTO) has long championed multilateral mechanisms for trade liberalization and dispute resolution, regional blocs increasingly deploy localized frameworks under Regional Trade Agreements (RTAs) to harmonize regulatory standards, minimize transaction costs, and reinforce autonomy from traditional financial intermediaries. This study investigates the macroeconomic ramifications of instituting a regional financial settlement mechanism within the framework of the International North-South Transport Corridor (INSTC), connecting India, Iran, and Russia. Leveraging a Financial New Keynesian Dynamic Stochastic General Equilibrium (FNK-DSGE) model, calibrated within a three-block framework capturing heterogeneous trade, financial contagion, domestic feedback, and shock persistence (ρ) channels, the analysis simulates the impact of sanction-induced uncertainty and trade disruptions on core macroeconomic indicators. The findings demonstrate that such mechanisms can enhance real GDP, investment, capital formation, monetary stability, and consumption for both pre (2014 to 2019) and post (2020 to 2023) periods of COVID-19. These improvements are observed in the short to medium run and dissipate over time as the economy converges back to its steady state. By bridging institutional economic theory with empirical macroeconomic modeling, the paper offers a novel analytical lens on corridor-based financial governance as a strategic vehicle for economic short run stability in a fragmented global order.