Mainstream economists simply do not understand why so many developing countries participated to regional integration processes.
In fact, according to neo-classic economists, Regional and Free Trade Agreements are only a second best solution compared with global free trade. Moreover, often they create trade diversion and they decrease overall welfare.
To understand the reasons and potential opportunities that regional integration we should remember two important elements:
- Economic development works not as mainstream economists tell us. I explain more broadly the real connection between trade and development in another post.
- Regionalism it is mainly about politics and regulating more effectively the global economy.
Regarding the political dimension, there are two quotations that help us to understand why developing countries pursue a regional agenda:
The myriad of forces that are present in “globalization” generate uneven impacts and opportunities both within and between states. One reaction to such unevenness is to advance regionalism to both contain and exploit globalization. Boas, Marchand and Shaw (2005, p. 168)
In a globalized economy, where countries individually have reduces options for national economic policy-making and where the multilateral institutions framework is insufficient or lacks a strong development dimension, the creation of regional institutions may very well be a pragmatic response, and its success would extend the principle of “adaptative efficiency” (1) to cross-border relations. UNCTAD (2007, p. 40)
In conclusion, mainstream economists should remember that in order to understand the reality we should adopt and interdisciplinary model based more on empirical evidence than on mathematical models. The consequence is that mainstream economists fail to aknowledge the large number of potential positive impacts of regionalism for sustainable development.
Footnotes
(1) According to UNCTAD “adaptative efficiency” is the strategy that was adopted by successful economies that means: “the capacity to develop institutions that offer a stable framework for economic activity, but at the same time are flexible enough to provide the maximum leeway for policy choices, at any given time and in any given situation, in response to specific challenges” (idem)
UNCTAD, Trade and Development Report, Regional Cooperation for Development, Geneva, 2007
regionalism trade and developmant globalization
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