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Sequencing Trade and Monetary Integration

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  • Richard Pomfret

    (University of Adelaide, School of Economics)

Abstract

Regional integration for at least the last sixty years has focused on trade integration. Balassa’s canonical taxonomy of regional trading arrangements is often interpreted as a sequence from free trade area through customs union and common market to economic union. In the 1980s the concept of deep integration went beyond trade with its focus on policy harmonization, which came to include monetary integration, but it presupposed trade integration as the first step in the regional integration sequence. In Asia there has been very little trade integration through regional agreements - ASEAN is the most ambitious project, but even there actual achievements in trade integration have been limited. When discussion of monetary integration began in East Asia after 1997, it was in the absence of trade integration. The conventional view would see this as an obstacle to greater regional integration, but some proponents of Asian regionalism saw monetary integration as a step towards promoting trade integration, reversing the orthodox sequence. The two theoretical literatures (customs union theory and optimal currency area theory) were distinct and there remains a disconnect between the trade and monetary integration literature. This paper re- evaluates the global cross-country evidence on the relationship between trade integration and monetary union. It then applies the results to the prospects for monetary union before trade integration in East Asia, and to the consequences of monetary union for trade integration.

Suggested Citation

  • Richard Pomfret, 2005. "Sequencing Trade and Monetary Integration," Others 0502004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpot:0502004
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    References listed on IDEAS

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    Cited by:

    1. Richard Pomfret, 2011. "Regional Integration in East Asia," Chapters,in: International Handbook on the Economics of Integration, Volume I, chapter 16 Edward Elgar Publishing.
    2. Peter Wilson & Keen Meng Choy, 2007. "Prospects for enhanced exchange rate cooperation in East Asia: some preliminary findings from generalized PPP theory," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 981-995.
    3. Ito, Hiro, 2006. "Financial development and financial liberalization in Asia: Thresholds, institutions and the sequence of liberalization," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 303-327, December.
    4. Malgorzata Jakubiak & Anna Kolesnichenko & Wojciech Paczynski & John Roberts & Sinan Ülgen, 2007. "The New EU Frontier: Perspectives on Enhanced Economic Integration," CASE Network Reports 0071, CASE-Center for Social and Economic Research.
    5. Richard Pomfret, 2005. "Regional Trade Agreements," International Trade 0511002, University Library of Munich, Germany.
    6. Richard Pomfret, 2009. "Regionalism in the Asia-Pacific Region: How Wide, How Deep?," School of Economics Working Papers 2009-31, University of Adelaide, School of Economics.

    More about this item

    Keywords

    currency union; customs union;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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