Constraints on convergence policies in low-income countries: the limits of developmental regionalism

Regional arrangements have dramatically increased over the past three decades. Despite its numerous shortcomings, the European Union was a model for most of these. In particular, the objective of fostering income convergence across member countries is an important element of the regional integration process, for example via regional policies and various funding instruments. The paper argues that this central dimension of regionalism is de facto inherently difficult in developing countries, despite the de jure existence in the treaties of objectives of income convergence and funding institutions, and that this represents an important curb on regional integration. A series of reasons are demonstrated via examples from Sub-Saharan Africa: i) arrangements are firstly trade agreements; ii) member countries are low-income economies that are structurally affected by fiscal crises, since revenues depend on the volatile prices of commodities, in contrast with industrialised countries; iii) aid dependence externalises decisions and aggravates revenues volatility; iv) markets and export structures are characterised by economic asymmetries and lack of complementarities, particularly in poor landlocked countries, which makes it so that competition policies may be inefficient and trade integration trade diverting; v) rather than South-South arrangements, North-South ones are viewed as more efficient for developing countries: growth here, however, comes from policies decided outside the country and not from policies elaborated within the group of developing countries, with the associated uncertainty and possible policy reversals; vi) funding instruments are vulnerable to political economies that are often characterised by secrecy, lack of transparency, weak governance and informal cross-border flows, all of which lead to leakages of funds and limited implementation of decisions at the lower levels. These constraints in turn weaken the efficiency of other objectives of regionalism, such as trade enhancing.