Chapter Four: Regional integration and development –

with a focus on SDGs

Lots of evidence has demonstrated the impact of regional integration on
growth, poverty, and inequality,
• including examining the relationship between trade openness and
economic growth and inclusive growth.
Some evidence have explored the impact of regional integration on growth,
inequality, and poverty using a multidimensional approach (ie using the
Multidimensional RI index),
• and comparing the role of regional integration with that of trade
openness.
Although it is rather widely believed that international trade promotes
economic growth, empirical evidence on the openness and growth nexus has
been indefinable.
Don’t forget, considering only one dimension in empirical analysis, such as
trade, may not fully capture the impact of regional integration in promoting
economic growth and reducing poverty and inequality (Cyn-Young and
Racquel, nd). Studies on the impact of ARII on major outcomes in Africa are
still emerging
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 Let’s start by examining why economic integration is attempted and what motivates
governments to sign regional trade agreements.
 Given that it defines the relations among member states and has a diplomatic
impact on non-member countries, governments do not necessarily seek economic
benefits alone.
 Thus we are going to look at the motivations for regional integration from a politico-
economic perspective:

A) Motivations for Regional Integration

A.1)Political motivations (based on Ravenhill, 2005)

① Increased trust among member countries: Economic cooperation boosted by trade

agreements may serve as a core factor in the process of building confidence among
countries that have been at war or that have had no traditional partnership with one
another.
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② Dealing with non-traditional security: Regional integration/cooperation between
nations makes it easier to tackle non-traditional security issues, including
environmental damage, illegal migration, organized crime, drugs and terrorism.
③ Increased bargaining power: Regional integration increases the bargaining power
against multinational enterprises and trade partners outside the region.
 It may also serve as a means of obtaining aid in the case of regional integration
between developing countries.
 It may occasionally give member states greater diplomatic status based
on/backed by regional integration.

4) Politically facilitated economic deregulation: Compared with the case of unilateral

deregulation under WTO agreements,
 regional integration makes it politically easier to implement deregulation
because its member states can emphasize the concessions won from
negotiating partners.
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5) Mechanism for entrenching reform: Commitment to reform in the regional trade
agreement reinforces the reliability of domestic economic reform execution.
 Developing nations can bolster their reliability in executing economic reform,
especially by signing agreements with developed countries.
 This is because the fulfillment of their commitment is more closely monitored by
a smaller number of neighboring member states under a regional agreement
than under multilateral agreements as in the WTO.

⑥ Easier negotiation and enforcement of the agreement: At the regional integration

level, we have fewer negotiating partners involved and it is easier to monitor
observance than in the case of multilateral agreements in the WTO and other
frameworks.
 Regional integration makes it possible for member states to make concerted
efforts to attain more extensive deregulation and system harmonization than
WTO and other multinational agreements do, such as initiatives on the
environment, direct investment, domestic competition and intellectual property
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A.2) Economic motivations
① Stimulating trade creation: The removal of tariff and non-tariff trade barriers
among member states creates new trade in the region.
② Escalating trade diversion: Preferential treatment for intra-regional trade
discourages member states from importing efficient products from non-member
states and encourages them to import less efficient goods from other members.
③ Improving terms of trade: Integration amplifies trade volumes (exports and
imports) and thus makes trade conditions more advantageous to member states.
④ Expanding market: The market is expanded to produce economies of scale and
business growth.

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⑤ Boosting competition: An influx of low-priced products and foreign-owned
entrants into the market intensifies competition.
 Domestic oligopolistic structures are now faced with increasingly competition.
This is expected to enhance economic efficiency (products are sold at prices
closer to their MC of production), and consumer welfare.
⑥ Cutting tariff revenues: For many developing countries, tariff revenues are a major
source of fiscal income.
 Reducing tariff rates means that they may no longer be able to rely on this
source of revenue.
 Many LDC governments— particularly in Africa— rely heavily on trade taxes, which represent
21.1 percent of total national revenues on average.
⑦ Accelerating technology transfer: In the case of regional integration involving
African countries at different technological levels, trade and direct investment are
expected to accelerate technology transfer and improvements in total factor
productivity.
⑧ Encouraging domestic reforms: Domestic policies and systems are coordinated in
accordance with progress in negotiations for regional agreement and the provisions of
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the agreement. This facilitates domestic economic reforms.
⑨ Attracting more investment: Expansion of markets and enhancement of the
system of joint acceptance of investment increases the influx of direct investment.
⑩ Hub effect: If a country acquires a hub position by signing regional integration
agreements with many states on a bilateral basis, it is able to enjoy greater economic
and diplomatic advantages than other “spoke” countries.
⑪ “Spaghetti Bowl” effect: If many countries execute bilateral regional trade
agreements with numerous other nations, it is presumed that terms and conditions
will vary from agreement to agreement.
 In this case, they stipulate different manners of dealing with trade. The
administrative costs and the costs incurred by companies to which these
different procedures are applied are very high.
 Can regional integration reduce such costs? Yes, it uplifts tariff & non-tariff
barriers for all members; reducing administrative costs.

Looking the economic effects discussed above, the first, third, fourth, fifth, eighth and
ninth are presumably helpful to member
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are adverse.
B) Regional integration and development

B.1)Trade Effects of Regional Integration

 RI leads to trade creation effect (+ve) and the escalates trade diversion effect (-
ve).
 It creates a regional market which was larger than the market of any single
country.
 It gives member countries an opportunity to produce alternative goods for
exportation to other countries in the region.
 Evidence argue that the trade benefits that lead to expansion of technology and
increased productivity are more feasible in regional integrations (Schiff and
Wang, 2004).
 Increased exports as a result of RI will promote SDG8 (economic growth).

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Trade Effects…

• B.2) Regional economic integration and Human development

 Human development according to the UNDP’ refers to enlarging
people’s freedoms to live lives they value (proxied by the Human
development Index, which covers
income and access to health and education services)
 Let’s look at some transmission channels from economic integration
to different facets of human development.

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According to the UNDP, the HD facets are:

We will assess how regional integration

8/29/2022 by Dr can
Ndamsapromote
Dickson, PAU each of these facets.
Income & RI
 Income is driven primarily by employment and the productive capacities of people,
moderated by the prices of goods and services that people demand.
 Regional economic integration will have an impact on employment.
 RI spurs competition and entrepreneurship (promoting SDG9_industry,

innovation) in traditional and new sectors and hence generating jobs

(employment).
 On the contrary, investment may occur primarily in capital-intensive sectors linked
to natural resource extraction, leading to the phenomenon of jobless growth.

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Income & RI…

 RI can allow new dynamic comparative advantages to develop,

enabling additional employment opportunities to open up in the
region.
 Note, the employment effects of economic integration, both positive
and negative, will not be uniform across geographical areas, sectors
or types of worker.
These differentiated employment effects will condition the impact on human
development.

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 Youth employment is a huge challenge in Africa, due to their stage in the
demographic transition.
 Whether or not growth and entrepreneurship resulting from regional integration
will have a specific impact on youth unemployment is still an open research
question in Africa.
 The positive employment effects of RI will promote SDG8 (decent work).
 Though strong empirical evidence is required to buttress the projected effect on
decent jobs.

Access to services & RI

 Economic integration can affect incentives around the provision of and access to
services.
 Key among these services is education.
 Since the productivity of individual employees and the labour force in aggregate,
and hence the ability to take up expanded employment and entrepreneurship
opportunities, relates to the availability and prices of potable water, sanitation,
education and health services; promoting SDG3 (good health), 4 (quality education), 6(clean
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wather) &7 (affordable energy).
Access to services…

Member states have as incentive to make these services available in

order to keep their workers productive and hence the country
competitive.
NB: since RI brings about competition, it can encourage quality
service delivery.
Empowerment and RI
Economic integration and trade has the potential to increase
employment and contribute to empowering people.
Increased economic opportunities for youths & women can empower
women and contribute intrinsically to human development;
promoting SDG 8 & 5 (gender equality)

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  and have multiplier effects across other aspects of human development,
including nutrition and access to health and education.
 The empowerment of youth through employment is likely to contribute to a
decline in negative social behaviour such as gang formation, violence and crime.
 However, empowerment can be decreased if jobs are not fulfilling or if workers
rights are eroded because of asymmetric power relations in integration processes.
 Increased competition—whether regionally or further afield— can also
contribute to increased risk and insecurity for companies and workers.
 This is compounded by a general lack of welfare systems, including social
protection or insurance mechanisms.
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Empowerment can also be increased through the opportunity to freely migrate and
take up employment opportunities in other member countries.
Again, integration with other countries can increase the incentives and pressure for
economic and political stability as countries are locked into systems that require or
benefit from stability. These systems may be more accountable to citizens, giving
greater opportunities for participation.

Sustainability & RI
 The World Commission on Environment and Development in 1987 defined
‘sustainability’ as being able to meet present needs without compromising the
ability of future generations to meet their needs.
 It is true that regional economic integration can create opportunities for utilizing
and potentially over-exploiting natural resources.
 However, it can also contribute to improved stewardship and standards because of
pressure to develop standards in a regional context and through strong regional
institutions; promoting SDG11 (sustainable cities & communities)
 Such regional institutions can reinforce standards to fight the negative consequences of climate change.
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B.3) Regional integration and effective governance and structural transformation
 African researchers (Prof. Musibau Adekunle of Nigeria and Prof. Shingirirai Mashura of Zambabwe)
have highlighted that improved governance and structural transformation on the
continent will naturally depend on the advancement of regional integration initiatives.
 This was the key message presented at the 12th African Economic
Conference during a session titled “Deepening Regional Integration towards
Effective Governance and Structural Transformation”.
 The researchers indicated that successful regional integration will eventually bring
about the desired ease of movement of people and ease of doing business,
 as well as improvement of balance of payment through increased quality exports.
 In his paper focusing on ECOWAS, Nigerian researcher Musibau Adekunle indicated
that:
 “Regional integration ensures countries the advantages of economies of scale in
production and consumption.
 This is due to the fact that Africa contains small and fragmented economies with
low incomes and regional integration is one of the key factors that can bring
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PAU
B.4) Regional integration and growth and poverty reduction
 Regional integration has been used as a strategy to promote economic growth and
reduce poverty and income inequality for more than half a century.
 Its effects on employment discussed above have important bearings for poverty and
income inequality reduction in member countries; promoting SDG 1 (no poverty), 2
(zero hunger) & 10 (reduced inequalities).
 RI > Job opportunities > Increased Income > Reduced poverty.
 Again, RI brings about competition, it can possibly encourage quality products,
promotes consumer choice and welfare.
 Its effects on trade, exports, investments and labour mobility are good for economic
growth (SDG8).
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B.5) Regional Integration and Democratization
 It will be increasingly necessary to share the principles of the integration body as
integration deepens; the integration body (EAC, ECOWAS etc) could uphold
democratic principles.
 For instance, young democratic countries joining the body should be encouraged to
move towards some mature democratic countries in the body.
 For instance, in the EU, new member states are obliged to satisfy the political and
legal requirements of “having achieved stability of institutions guaranteeing
democracy, the rule of law, human rights and respect for and protection of
minorities,” which is set out as part of the Copenhagen Criteria.
 No candidate country failing to meet this criterion is allowed to join the EU.
 Note, the EU offers democratization support to help candidate states to clear this
hurdle.
 Such conditionality could be used in Africa regional integration in order to leverage
integration as a means to promote democracy.
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B.6) Regional Integration and Intra-Regional Disparities
 Our discussion has intimated that regional integration bodies with trade
agreements produce positive economic effects for the entire region.
 Unsurprisingly, these economic benefits will not be equally available to all
parts of the integration.
 The advantages of integration could potentially be monopolized by limited
countries to aggravate intra-regional differences.
 Empirical studies on this subject are still scanty (research opportunity for you).
 There is also another view that economic integration among developing countries
helps widen disparities among member states
 because the trade diversion effect leads to a concentration of businesses in
those member states that are richer in capital, in accordance with the
principle of comparative advantage in a region with heavy external tariffs.

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 Success in regional integration cannot be achieved without constructing a
system for redistributing the benefits of integration. (this is a task for the
results-based M&E developed above)
 To redress intra-regional disparities, the EU, for example, offers some assistance.
 This includes aid from its Structural Fund and Cohesion Fund under
European Commission (EC) and
 loan financed by the European Investment Bank in improving social
infrastructure, human resources development and modernization of
agriculture and fisheries in nations and areas with low income levels.

NB: make statements on how each of the above benefits of RI promotes SDGs

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Scientific writing
Scientific writing: Each student should prepare a Term Paper on any of the
following topics:
• NB: you could focus your term paper on the whole Africa or a particular
region.
• Regional Integration and Sustainable Development
• regional integration and inclusive growth
• Regional integration and democracy
• Regional integration and political reforms
• Regional integration and Peacekeeping
• Regional integration and economic transformation
NB: Term paper is ‘any type of research-intensive paper authored by
students over the course of an academic term. This paper typically accounts
for a large part of their final course grade.”

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Term paper format:
 Title of paper
 Author and institutional affiliation
 Abstract
 Introduction
• a brief overview of the paper (stylized facts about concepts and overview of study area)
• Present the questions/objectives that your paper will answer as well as hypotheses
 Literature Review
• Review of concepts, theories and empirical studies
 Methods and procedures
• Explain your research methodologies and any procedures that will be used for implementing the
research.
• Measurement of variables
 Conclusions
 References
 Appendices
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Bibliography/references
• UNECA (united nations Economic commission for Africa) (2004).
Assessing Regional Integration in Africa I: ECA Policy Research Report,
Addis Ababa.
• UNDP (united nations development programme) (2010). Regional
Human Development Report for Latin America and the Caribbean,
Acting on the future: Breaking intergenerational transmission of
inequality, new york.
• The UN Sustainable Development Goals Report 2019.

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