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Reshaping Economic Geography Messages on Regional Integration

Reshaping Economic Geography Messages on Regional Integration. Main points. A country’s neighborhood matters for its development prospects Trade, labor and capital mobility are channels allowing growth to spill over a neighborhood

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Reshaping Economic Geography Messages on Regional Integration

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  1. Reshaping Economic GeographyMessages on Regional Integration

  2. Main points • A country’s neighborhood matters for its development prospects • Trade, labor and capital mobility are channels allowing growth to spill over a neighborhood • Regional and global integration are complementary: regional integration helps to scale up supply - global integration helps to scale up demand • Basic principles in pursuing regional and global integration: (i) Think Global; (ii) Start Small; (iii) Compensate the least fortunate members

  3. Number of land borders between nation-states Persisting Divisions Increasing number of borders

  4. Persisting Divisions many borders restrict flow of good, people and capital

  5. Persisting Divisions countries with thick borders have low per capita GDP

  6. Spatial Transformations economic activities are concentrated globally (2006 data)

  7. Spatial Transformations the convergence process is non-linear and takes time Coefficient of variation in per capita incomes Per capita incomes

  8. Drivers of concentration and convergence transport and communication costs are essential • Decreasing communication costs intensify intra-industry trade by reducing the cost of customer-producer interaction on product characteristics • Decreasing communication costs facilitate the vertical disintegration of production processes, outsourcing and foreign direct investment • Decreasing transport costs induce a cumulative process of intensified trade and decreasing transport cost

  9. Drivers of concentration and convergence increasing Intra-Industry Trade (IIT)

  10. Drivers of concentration and convergence IIT essentially in developed neighborhoods

  11. Market access helps to classify the developing world’s neighborhoods Market access differs greatly, depending both on geography and governance

  12. The developing world’s neighborhoods, classified by economic geography Density, distance, and division can be used to characterize the difficulty of international integration for countries in different regions of the world

  13. Policy instruments the 3 “I”s

  14. A rule of thumb for policy actions an “I” for a “D”

  15. Some policy options for “3D”s regions think global, start small and compensate the least fortunates • Establish strong Regional Economic Areas in “natural” neighborhoods to move forward domestic and regional institutional reforms • Invest in relevant cross-country infrastructures, with a particular focus on development corridors and cross-border initiatives • Diversify/expand export base by developing export processing zones in large urban centers

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