THE BLOG

Economic Integration: A Quasi-Common Economy Approach

Europe and Asia provide two different models of integration and growth. The former relied on political willpower to create a unified common market; the latter based its integration on a buildup of regional trade, investments, and production networks -- eschewing a formal link-up in political or monetary terms. Interestingly, although economic integration has occurred along different lines, both regions have attained high internal trade intensity. Against this background, is it possible to say that one model of regional integration is more effective than the other? Is de jure integration better than de facto cooperation?

The case of East Asia would suggest not. In comparison with its neighbors to the west, Asia can be said to have a quasi-common economy (QCE). As such, the region has a high level of physical integration, minimal barriers to intraregional trade, interlinked and interdependent production structure, and no formal or centralized body for coordination of the entire region's economic policies. The rise of the Asian QCE was neither abrupt, nor was it micro-planned. Rather, factors such as advantageous geography, high infrastructure investment, technological diffusion, an export-led growth model, and economic openness led to the development of the region's QCE.

This begs the question: Is there a way other regions can reap the benefits of integration, in the absence of supranational governance? In the newest edition of the Economic Premise series, Manu Sharma and I argue that such integration is indeed possible, and perhaps preferable, for other regions of the world, most notably Latin America. But does the shoe fit? How is the South American region better suited to a QCE approach, rather than ambitious, top-down, full-fledged economic unions?

In "Asia and South America: A Quasi-Common Economy Approach," our research indicates that a QCE would indeed be the best path to pursue. Despite the idiosyncratic geographic, political, and economic features of Asia and South America, there are lessons that South America can learn from its neighbors to the East. In an effort not to put the cart before the horse, we argue that South American governments should spend political capital on front-loading cross-border infrastructure investments, rather than on complex, detailed, treaty-like negotiations before the emergence of corresponding economic ties.

For more detailed comparisons between the regions, and for specific policy recommendations, be sure to check out our Economic Premise today.

This blog was originally posted on the World Bank Institute Growth and Crisis website.