Role of Regional Economic Groupings in the Devlopment Process

Topics: International trade, Africa, Economics Pages: 21 (6880 words) Published: June 19, 2013


REGIONAL ECONOMIC GROUPINGS (REGs) aim to create larger economic units from smaller national economies and for this purpose, they aim to remove trade barriers and establish closer co-ordination and co-operation among the countries involved (Parsons, 2000: 1). They have also been recognized as a means towards expanding trade and investment opportunities, and for promoting economic growth and sustainable development (United Nations, 2007). Such groupings are therefore playing an increasingly influential role in shaping economic futures, mainly in developed countries (Parsons, 2000: 1) and thus the need to explore the potential benefits these trade arrangements hold for developing countries and establish their role in the development process. Regionalism has become part of the global economic environment and thus affects developing countries as well, whether or not they participate in it. Understanding its implications can only help them to better cope with it. Leading writers on international trade such as Appleyard and Field are of the opinion that for developing countries, regional economic integration offers advantages such as larger markets and possible economies of scale (Appleyard and Field, 2001: 357). However, they feel that the ability to take advantage of such benefits lies in countries’ willingness to give up some national economic control and on solving the basic problem of how to distribute the benefits amongst members. To clearly understand how regional economic integration can support the development process of less developed countries, there is great need to first explore the underlying structures and the different forms of regional economic groupings. This would help in understanding how these groupings work as well as their potential benefits. As a matter of study, looking at how well these groupings have done elsewhere, particularly in the regions of developed countries where they have been most successful, will also help establish how regional economic integration can be made to function with greater success in developing countries. This research will also look at how developing countries can also benefit from new aspects of regional cooperation such as trade in services, labour standards, technology, as well as co-ordination of monetary, fiscal and economic policies. This is given the welfare improvements that are made possible for member states and their citizens through these new aspects of integration and thus adding to their development.


Depending upon the level of integration, regional economic groupings may be classified into six major groups as follows:

1. Preferential trade areas;
2. Free trade areas;
3. Customs unions;
4. Common markets;
5. Monetary unions;
6. Economic unions.

The weakest form of economic grouping is a preferential trade area. In this trade arrangement the member countries only reduce customs tariffs in particular product categories. A preferential treatment is applied to some groups of goods from the member countries in comparison to non-member goods from the rest of the world (JEC, 2000: 69). However, higher tariffs are maintained for all other remaining product categories. The most common type of economic integration is the free-trade area (FTA). All members in this trade arrangement remove tariffs on the other’s goods, but maintain independence in establishing trading policies with countries outside the membership (JEC, 2000: 70). This arrangement usually applies to most of the goods between the member countries but there is also an option of a mix between free trade and protected trade in other goods. The following level of economic integration is a customs union. At this level all tariffs are removed between members and the grouping adopts a common external trade policy for non-members (JEC,...

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