Notes on Economic Geography of Regional Integration (Gill & Deichmann)

Notes on Economic Geography of Regional Integration (Gill & Deichmann)

BONUS LINK:  My entire (so far) grad school notes collection can be found here. 

"To Regionally integrate or not to regionally integrate"

Overall Summary

The authors argue that traditional assessment is debating the wrong issue.  They are typically arguing which is better—global trade agreements or more focused regional approaches. 

2 False assumptions:

- Debate also assumes regional integration is just about preferential trade access

- It’s not an “either or” choice—regional integration can act as a stepping stone allowing small states to scale up their supply capacity—eventually giving them access to world markets. 

- Developing countries must not only encourage transformation across its industries and services but also spatially within its borders—this means balanced growth in density, distance and division.  This spatial distribution can help alleviate the fates of the “bottom billion” that are still accumulating to urban centers that don’t have access to the global markets—exacerbating their situation in ever growing slums.  This requires thoughtful and intentional government planning at the 3 spatial levels:

            Connective Infrastructure

            Blind Institutions

            Targeted Incentives

What countries benefit most?

They are quick to point out that ALL countries can benefit from this type of integration—however—small countries located far from world markets can certainly benefit most.    This usually means countries in Africa and Central Asia. 

Why?

Regional integration allows: boosted supply capacity by providing regional public goods and maximizing specialization

3 key principles:  Start Small, Think Global, Compensate the least fortunate

Start Small—clearly defined narrow areas of cooperation—EU started out as agreement by six countries on coal and stell

Think Global—No Islands!  Access to global markets is the key!  Small poor landlocked countries MUST have regional integration to LEAPFROG them into the global scene

Compensate the Least Fortunate—development means specialization and drives population to those centers.  This must be balanced with remittances as well as explicit compensation for infrastructure and social services (to promote even spatial growth).  Also requires local effort and government policies like revenue sharing to compensate the landlocked countries.

This requires a tailored approach (all to overcome thick economic borders):

1. Regions close to major world markets

            Common institutions key (thin economic borders)

2. Regions with big economies far from world markets

Regional infrastructure to increase home market which also increases access for small countries (connect)

3. Regions with small economies far from world markets

            Bottom billion countries.  Need ALL THREE I’s:  Institutions, Infrastructure and Incentives (increased support for infrastructure development for instance).  

SUMMARY: 

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The authors basic argument is that most economists have been asking the wrong questions and making the wrong assumptions.  This boils down to two common false assumptions:

1. Regional integration is just about preferential trade access

2.  Regional integration and global trade agreements are an “either” “or” proposition. 

They argue that these assumptions ignore the relationship between the two methods and that the approach needs to be tailored to each nations geography (both physical and economic).  To that end they argue for three combined approaches:

1.  Institutions blind to the physical borders

2. Connective regional infrastructure to enable trade

3.  Incentives for the more isolated power countries. 

Using these approaches can boost a small nation’s supply capacity and allow for the maximization of specialization. 

            The authors are quick to point out that while small geographically isolated underdeveloped countries are the ones most likely to benefit from this approach (most African and central Asian nations), ALL nations can benefit.  The key for the small nations disconnected from the global market is spatially purposeful development—meaning spatial balance for density, distance and division.  The common propensity is for the population of developing countries to migrate to the urban centers.  But when these urban centers are isolated without access to the global markets this just creates slums.  This is one of the central problems described by Collier in Bottom Billion.  This phenomenon follows Kuznet’s widely accepted hypothesis that describes how poor localized agricultural economies experience a rapidly widening income gap when urbanization occurs.   

Regional integration then offers these nations a springboard by which they can develop evenly and gain access to global markets eventually. 

            The authors advocate three central principles.  The first is to start small. They give the example of the European Union which originally began as a trade agreement between three nations regarding coal and mining.  A narrow focus allows countries to develop evenly and to focus on full economic integration.    The next principle to think globally.  The end result is never solely regional integration but is instead using that connective infrastructure to leapfrog a small cutoff country into the global economy.  The last principle is to compensate the poor or disadvantaged.  This means that a government must be purposeful in balancing urban development by raising the baseline of the physical infrastructure in the nation.  Practically this means paving roads and ensuring an expansion of baseline social services.  This can also take place in the form of remittances sent back home to the countryside which when used well can spur development there.

            Overall, the authors stress the need to overcome the thick economic borders of many states.  They describe how large nations with access to the global economy benefit from integrated institutions.  They add that large nations far from the global market can expand their reach through a connective regional infrastructure.  Lastly they add that the small nations far from the global market can benefit a combination of institutions, infrastructure and incentives. 

LINK:
http://www.imf.org/external/pubs/ft/fandd/2008/12/deichmann.htm