Transcript Deep and Shallow Integration in Asia

Evaluating Regional Trade
Agreements:
Deep and Shallow Integration
David Evans
Peter Holmes
Michael Gasiorek
Tomek Ivanow
Leo Iacovone
Karen Jackson
Sherman Robinson
Jim Rollo
February 2006
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Evolution of the World
Economy since the 1960s and
Implications for Policy
Orientated Research
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RTAs in Force by Year of Entry
200
180
160
140
120
100
80
60
40
20
0
19
58
19
62
19
66
19
70
19
74
19
78
19
82
19
86
19
90
19
94
19
98
20
02
No. of RTAs
Fig. 1- RTAs in force by year of entry into force
Source: World Trade Organization.
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• An RTA that considers only border protection measures
is described as involving only “shallow integration”. Such
an RTA generates “trade diversion” as countries within
the bloc trade more with one another and less with
potentially lower-cost countries outside the bloc, which
will potentially lower welfare within the bloc. The lower
barriers also generate new trade, or “trade creation,”
which should be welfare enhancing. Whether the RTA is
net welfare increasing or decreasing depends on the
relative strengths of these two effects, and requires
empirical analysis to determine the outcome
• Most of the new wave of RTAs have involved much more
than removing border policies that limit the sale of
commodities across international borders. The analysis
of these new RTAs requires consideration of the
elements of “deep integration” they incorporate, and
what is their potential effect on trade and welfare.
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• What are the empirical characteristics of these new
RTAs that distinguish them from earlier “shallow” RTAs?
• To what extent do the elements of “deep integration”
incorporated in new RTAs lead to economic impacts of
the RTA that go beyond the “gains from trade”
considered by standard trade theory?
• Can we draw on insights from recent work on “new trade
theory”, on “Smithian trade induced division of labour”
and on “new regionalism” to analyse these new RTAs?
• In particular, are there elements of “deep integration” that
generate links between expanded trade and productivity
growth?
• What are the major knowledge gaps, both empirical and
theoretical, that need to be addressed for better analysis
of new regionalism?
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• TRENDS IN REGIONAL INTEGRATION: 1960-1990.
• The analysis of historical trends in regional integration is based on e
method used to find trading take a 3-year average of imports and
exports from the UN COMTRADE data for each of 67 trading
regions for the 1960s, 1970s, 1980s and 1990s. The data were
aggregated into three-year averages of export and import shares
centred on 1967, 1977, 1987, 1997.
• A mathematical clustering technique was used to analyse the data to
find regional groupings or trade blocs that maximise the trade flows
within blocs and minimise the trade flows between blocs.
• The bloc memberships for each period are given in tables below,
and a summary visual representation of the changing patterns of
regionalisation is shown in Figure 1, which also includes charts
showing average trade shares between blocs.
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1. The 1960s: Europe and the US
in a bipolar world
1960s
Europe +
US +
Switzerland
CA&Carib
Rest EFTA
Colombia
Hungary
Peru
Poland
Venezuela
Turkey
Rest Andean
Morocco
Argentina
Rest N Afr
Brazil
SAfrica+
Chile
Malawi
Uruguay
Mozambique Paraguay+
Zambia
N America
Zimbabwe
Rest S Afr
Rest SSA
EU-15
Asia-UK
Australia
New Zealand
China
Hong Kong
Malaysia
Singapore
India
Sri Lanka
Rest S Asia
Rest MENA
Uganda
ROW
Asia-US
Japan
Korea
Taiwan
Indonesia
Phillipines
Thailand
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2.The 1970s: Restructuring
world trade
1970s
Europe + N America + E&SE ASIA
SwitzerlandCA&Carib
China
Rest EFTA Venezuela
Hong Kong
Hungary N America
Japan
Poland
Korea
Morocco
Taiwan
EU-15
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Rest MENA
S America
Colombia
Peru
Rest Andean
Argentina
Brazil
Chile
Uruguay
Paraguay+
Rest
Australia
New Zealand
Bangladesh
India
Sri Lanka
Rest S Asia
Turkey
Rest N Afr
SAfrica+
Malawi
Mozambique
Zambia
Zimbabwe
Rest S Afr
Uganda
Rest SSA
ROW
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3. The 1980s: Consolidation
Europe +
Switzerland
Rest EFTA
Hungary
Poland
Morocco
Rest N Afr
EU-15
1980s
N America +
E&SE ASIA
CA&Carib
Australia
Venezuela
New Zealand
N America
China
Hong Kong
Japan
Korea
Taiwan
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Mozambique
ROW
S America
Colombia
Peru
Rest Andean
Argentina
Brazil
Chile
Uruguay
Paraguay+
Rest
Bangladesh
India
Sri Lanka
Rest S Asia
Turkey
Rest MENA
SAfrica+
Malawi
Zambia
Zimbabwe
Rest S Afr
Uganda
Rest SSA
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4. The 1990s: Consolidation and
diversification
Europe +
Switzerland
Rest EFTA
Hungary
Poland
Rest USSR
Turkey
Morocco
Rest N Afr
Uganda
EU-15
1990s
N America + MERCOSUR
CA&Carib
Argentina
Colombia
Brazil
Venezuela
Uruguay
N America
Paraguay+
E&SE ASIA
Australia
New Zealand
China
Hong Kong
Japan
Korea
Taiwan
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
ROW
Rest
SAfrica+
Malawi
Mozambique
Zimbabwe
Peru
Rest Andean
Chile
Bangladesh
India
Sri Lanka
Rest S Asia
Rest MENA
Tanzania
Zambia
Rest S Afr
Rest SSA
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Figure 1. Emerging Patterns of
Regionalisation Summarised
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In the 1960s, the European Union and United States dominate trade…
1960s
60
52.7
A sia-US
A sia-UK
50
US +
40
E urope +
29.9
% 30
20
10.3
7.1
10
0
Europe +
US +
Asia-UK
Asia-US
… but by the 1970s, Japan and Korea begin to lead an East Asian bloc…
1970s
50
44.9
Rest
South A merica
40
East Asia
North America +
30
24.1
Europe +
%
19.7
20
10
2.7
0
Europe +
N America +
E&SE Asia
S America
… a decade later, the East Asian Tigers, ASEAN countries, and Australia consolidate the East Asia bloc…
1980s
60
50
48.3
S outh America
Rest
East A sia
North America +
40
Europe +
% 30
23
18.8
20
10
2.8
0
Europe +
N America +
E&SE A si a
S America
and in the 1990s, ECA emerges and East Asia trades more with itself than with the U.S. and EU.
1990s
50
45.8
Rest
Andean
South Africa+
40
East Asia
MERCOSUR
North A merica +
30
%
27.2
Europe +
19.9
20
10
1.6
0
E urope +
N America +
Source: GTAP data, GAMS program
E&S E Asia
MERCOSUR
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This historical analysis: RTAs in
three categories:
•
•
•
Bloc formation agreements. Examples include the European Union (EU),
NAFTA, and Mercosur. In the case of South Africa, the regional customs
union SACU (consisting of South Africa, Botswana, Lesotho, Swaziland, and
Namibia) was originally formed in 1911. With the opening of South Africa,
and increased trade in the region, SACU has become potentially more
important as a focus of trade expansion.
Bloc expansion agreements. The major example is expansion of the
European Union to include new members in its periphery. The proliferation of
regional agreements between the EU and countries in Eastern Europe were
clearly part of the process of preparing these countries for integration into the
EU, and should be viewed as part of the process of EU expansion. The
NAFTA agreement has not been expanded to include new members, but the
recent Central American Free Trade Agreement (CAFTA) can be seen as
part of the process of consolidating the North American bloc. However, the
North American bloc has not yet evolved into deeper integration—for
example, there is little discussion of even forming a customs union in the
region.
Market access agreements. Most of the recent trade agreements under
discussion, many of them involving bilateral agreements between either the
US or EU and particular developing countries, are not part of expansion of an
existing bloc, but instead are designed to provide additional access to
markets.
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Typology of Trade Blocs
Shallow
Deep
Bloc formation
Yes
Evolutionary
Bloc expansion
Yes
At time of accession
Market access
Yes
Likely to be limited to “negative
integration” (e.g. removal of
technical barriers to trade)
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Level of development of RTA
members:
Type of integration
Type of integration
Level of Development
Shallow
Deep
1.
North-North
yes
yes
2.
North-South
yes
some deep
3.
South-South
yes
no
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The standard arguments for
gains from RTAs: Shallow
Integration
• potential gains from RTAs, are from the Ricardian and
Heckscher-Ohlin (H-O) theories of comparative
advantage. Ricardian gains from trade arise because of
between-country differences in technology, whilst H-O
theory points to between-country differences in factor
endowments.
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Sources of Gain from New
Regionalism and RTAs: Deep
Integration
•
•
•
•
•
•
•
•
•
technology and knowledge transfers, and technology diffusion, especially
from developed countries to developing countries, that increase productivity,
dynamic comparative advantage and “learning by doing” efficiency gains
through increased demand from expanded trade,
elimination of wasteful rent seeking activities through trade liberalization,
pro-competitive gains from increasing import competition in an environment
of imperfect competition, allowing exploitation of potential economies of
scale in production,
increased geographical dispersion of production through trade that supports
(1) exploitation of different factor proportions for parts of the production
process (Ricardian efficiency gains) and/or (2) local economies of scale
through finer specialization and division of labour in production (“Smithian”
efficiency gains).
increased foreign direct investment that carries with it advanced
technologies and hence increases in productivity,
“challenge-response” increases in efficiency through increased competition
due to expanded involvement in world markets,
Schumpeterian innovation and “creative destruction” induced by increased
competition arising from expanded trade, and
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externalities and productivity
Estimating Gains
• Multi-country CGE model studies of shallow
integration in many RTAs found that trade
creation dominates trade diversion, with static
welfare gains of 1-2% of GDP.
• Asymmetric hub-and-spokes eg CGE model of
Egypt-EU FTA give different results:
– Trade diversion in EU-Egypt RTA dominates.
– Welfare loss for Egypt over 1% of GDP, except in the
presence of...
• significant trade-productivity links
• concomitant unilateral MFN tariff reductions
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Implications for Trade and Poverty
• Not much in links of poorest to global economy
unless producers have access to world markets
ie do not produce nontraded goods
• Where global economic links are via shallow
integration gains likely to be small
• Not much deep integration of poorest producers
into global economy
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Implications for empirical work on
trade and poverty
• More modelling of shallow integration has limited
role except where initial trade barriers high and
where issues of trade creation and diversion
important
• Micro work on trade and poverty links and deep
integration is were the action is. Formal
modelling only useful where good econometric
estimates of trade-productivity links.
• Negotiation of institutional change to facilitate
deep integration more likely at RTA rather than
WTO level
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