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Benefits of Regional Economic Integration

Guest post by: African Development Bank

Article Overview: Regional economic communities are formed because of the expected benefits from them. An important feature of the higher levels of integration is free trade among members.

Benefits of Regional Economic Integration

Regional economic communities are formed because of the expected benefits from them.
An important feature of the higher levels of integration is free trade among members.
Free trade is expected to lead to rapid expansion of trade among members, which in turn
is expected to lead to rapid economic growth. These gains result from the dynamic effects
of a CU, which have been shown to overshadow the static effects, viz., trade creation,
trade diversion and terms of trade effect. The dynamic effects, which are cumulative in
nature, lead to growth. Indeed, the dynamic effects of a CU are often described as the
long-run consequences for the economic growth of member countries as a consequence
of increased market size and exploitation of economies of scale, increased competition,
learning by doing, and increased investment, Cooper and Massell (1965), Iyoha (1977)
and Kreinin (1964). Iyoha (1977) has shown that the larger the CU, the more likely it is
to lead to growth since the larger the CU, the larger will be the market created. Also, the
stronger the potential economies of scale are, and the more rapid the autonomous
productivity advances, the more likely will the CU lead to growth. Thus, the contribution
of a CU (or regional integration in general) to economic growth will be greater if the
exploitation of scale economies, made possible by increased market size, takes place pari
passu with learning by doing.

African Development Bank
Economic Research Working Paper Series
Enhancing Africa’s Trade: From Marginalization
to an Export-Led Approach to Development
Milton A. Iyoha
Professor, Department of Economics & Statistics
University of Benin, Nigeria
Economic Research Working Paper
No 77 (August 2005)

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Article Tags: african development bank, consequence, consequences, department of economics, dynamic effects, economic communities, economic research, marginalization, member countries, pari passu, productivity, professor department, rapid economic growth, rapid expansion, regional integration, scale economies, trade creation, trade diversion, university of benin, university of benin nigeria



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