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Economic Integration: A Quasi-Common Economy Approach

Otaviano Canuto's picture

Photo: © Dana Smillie / World BankEurope and Asia provide two different models of integration and growth. The former relied on political willpower to create a unified common market; the latter based its integration on a buildup of regional trade, investments, and production networks—eschewing a formal link-up in political or monetary terms. Interestingly, although economic integration has occurred along different lines, both regions have attained high internal trade intensity. Against this background, is it possible to say that one model of regional integration is more effective than the other? Is de jure integration better than de facto cooperation?

The case of East Asia would suggest not. In comparison with its neighbors to the west, Asia can be said to have a quasi-common economy (QCE). As such, the region has a high level of physical integration, minimal barriers to intraregional trade, interlinked and interdependent production structure, and no formal or centralized body for coordination of the entire region’s economic policies. The rise of the Asian QCE was neither abrupt, nor was it micro-planned. Rather, factors such as advantageous geography, high infrastructure investment, technological diffusion, an export-led growth model, and economic openness led to the development of the region’s QCE.

This begs the question: Is there a way other regions can reap the benefits of integration, in the absence of supranational governance? In the newest edition of the Economic Premise series, Manu Sharma and I argue that such integration is indeed possible, and perhaps preferable, for other regions of the world, most notably Latin America. But does the shoe fit? How is the South American region better suited to a QCE approach, rather than ambitious, top-down, full-fledged economic unions?

In “Asia and South America: A Quasi-Common Economy Approach,” our research indicates that a QCE would indeed be the best path to pursue. Despite the idiosyncratic geographic, political, and economic features of Asia and South America, there are lessons that South America can learn from its neighbors to the East. In an effort not to put the cart before the horse, we argue that South American governments should spend political capital on front-loading cross-border infrastructure investments, rather than on complex, detailed, treaty-like negotiations before the emergence of corresponding economic ties.

For more detailed comparisons between the regions, and for specific policy recommendations, be sure to check out our Economic Premise today.

 

 

Comments

Submitted by Henri Kistler on
It is very interesting to notice how weak the practical side economic integration of South America persists. From local governments, more infrastructure, less bureaucracy, trade facility and rules stability are expected. It is naïve to think an economic actor wishes to build a supply chain using competitive advantages of different countries knowing that rules are not stable and cargo queues are formed at the border of countries such as Brazil and Argentina. Concerning the formal integration process, the Andean Community weakened as local politics became more important than integration. Mercosul and its more than 50 groups/subgroups/committees became more a Political Pyramid than an economic integration process, especially after Venezuela entered without fulfilling basic trade and services agreements. Unasul on its turn, was created only as a political tool. A simple return from Mercosul to a free trade area concept, could allow better results, even a merger between Mercosul, Andean Community and Chile. This would provide a far better basis for further integration than current building block process based on building more over weak structures full of holes, more alike slungs growing two stores high in detriment of urban planning.

Submitted by Arvin Vicente P... on
Intra-regional trade has long been existent prior to the entry of European colonizers. People trade because they want to maximise profits and acquire goods that are scarce in the region. Some hidden benefits of trade would also involve the utilization of resources of one country or region while pursuing large scale production of commodities that would sell higher. One particular case would be mining. The need for precious metals like gold and silver does not diminish including metals like copper, silver and nickel which are precious raw materials in the production of electronic gadgets and electrical parts used in cars and computers. Whether the trade goes by government channels which often is tainted with red tape or through private firms, as long as the demand is high it will continue to proliferate. De jure integration is vital to protect the patrimony of any nation or region.

Submitted by Rachel Kasumba on
East African Community Integration: the 5 member countries that currently make up this community are Burundi, Kenya, Rwanda, Tanzania, and Uganda. Based on Dr. Canuto's two classification of integration above, the community has been using a mix of both the de facto and de jure models. For decades now, the people of this region have been conducting business informally across borders, with Kenya exporting the most to her neighbors due to her more advanced economic development. With 3 out of these 5 countries landlocked, the 2 main ports of Mombasa (Kenya's) and Dar el Salaam (Tanzania's) continue to play a significant role as the main exit and entry points of the regional exports and imports. In this regard, this would fall under the de facto cooperation model experienced in South East Asia's Economic Integration. Ambitious entrepreneurs and similar minded professionals of every kind, have always found a way around to "following the money" and so are always instrumental in making sure that they look for the best deal for their goods and services, even before waiting for the regional governments' formal intervention. These loose connections have laid the ground work for a lot of personal and business networks that have gone a long way in educating the public about the different cultures and languages of doing business. That said, the regional leaders, policy makers, the public, and indeed the international community are happy to note that a de jure system has also been implemented to promote not only national but regional interests for the benefit of all. These formal structures are necessary to ensure political and economical stability, a smooth transition of the people of the region to stop viewing each other as competitors but rather as members of one regional trading bloc. A lot of work is still being finalized to ensure that these and other plans for the region succeed. If these two models are pursued well, they seem poised to provide the best of both worlds. Indeed, the future of the region looks so bright that there are plans to expand the community to include other neighboring countries, including the world's newest country, Southern Sudan, whose people already have economic and family ties in the region!

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