Regionalism : Developing a
Useful Analytical Framework
for Policymakers
Jim Rollo
Developing Countries and the
Challenge of Regionalism:
Assessing the Options
Centre for Analysis of Regional Integration
at Sussex and Sussex European Institute
28-30 September 2006
j.rollo@sussex.ac.uk
1
The Perceived Problem
• the boom in trade policy
– trade and development and the tensions between more open
markets and domestic interests
– the DDA
– the burgeoning of RTA - countries may be negotiating FTA with
one or more partners while also
• the boom in trade policy analysis
– big models, data and intellectual capital intensive
• the theory of the second best and the need for country,
sectoral, regional, social and environmental issues to be
assessed for both multilateral and preferential liberalisation
• the shortage of analytical capacity in trade and
development ministries mainly tho not solely in developing
countries
j.rollo@sussex.ac.uk
2
The Project Objectives
• first, to develop a framework of qualitative
questions and statistical indicators and derive rules
of thumb which allow busy and under-resourced
officials to assess likely economic impact of RTAs
• second, to test the framework on two cases
EU/Egypt and EU/ Caribbean and compare the
results with the more sophisticated analyses based
on econometric modelling, both partial and
general equilibrium
j.rollo@sussex.ac.uk
3
Analytical framework - the
justification
• trained people key binding constraint for any bureaucracy,
assessing new policy.
• Intention to create an easy to understand analytical
checklist on likely impact of specific RTA to help relax that
constraint
• three key elements
– looking at the details of the agreement - check list of the likely
elements and their implications
– 6 rules of thumb based on descriptive statistics to assess likely
impact of shallow integration on balance of trade diversion and
trade creation
– likely indicators for the potential for deep integration
j.rollo@sussex.ac.uk
4
the qualitative issues
• objective to check-off and analyse the actual
content of any proposed agreement in a systematic
way that reveals
– what is in and what is out
– the extent of proposed liberalisation and any exceptions
– remaining regulatory barriers and the elements of deep
integration proposed
– how it interacts with existing agreements including
WTO
– potential for impact on particularly politically sensitive
groups
j.rollo@sussex.ac.uk
5
Initial conditions - shallow
integration
–
–
–
–
–
–
–
–
–
–
–
summary of economic structure
measures of initial comparative advantage - RCA
trade shares by source
price dispersion - unit value differences among sources
similarity and differences in export structure across partners
- Finger -Kreinen
similarity in production structures
trade intensity indexes
trade propensity indices
herfindahl indices
tariff and non tariff barriers - averages and peaks
Framework describes the statistical indicators and how to
calculate them from easily available and cheap sources
(notably WITS and TRAINS databases)
j.rollo@sussex.ac.uk
6
Shallow Integration - some rules
of thumb
•
rules of thumb
1. The effects will be greater the higher are the initial tariffs.
2. The greater the number of RTA partners the more likely it is
that there will be trade creation as opposed to trade diversion.
3. Wide differences in comparative advantage likely to lead to a
welfare improving RTA provided the initial tariffs are not too
high.
4. The more similar is the product mix in the economies
concerned and the higher the elasticities of supply the more
likely there is to be Trade Creation
5. The higher the percentage of trade with potential partners the
more likely the RTA is to be welfare enhancing.
6. if trade is initially a small share of GNP, an RTA can be
considered more likely to be welfare improving.
j.rollo@sussex.ac.uk
7
Indicators of market integration, product
variety and potential for trade induced
productivity gains
• FDI
• common standards and/or recognition of
conformity testing and certification among
partners at sectoral level
• product variety and intra industry trade - GrubelLloyd indices and variants
• local scale economies
• public /private ownership & reduced rent seeking
• regulatory obstacles to trade or FDI expansion
j.rollo@sussex.ac.uk
8
the potential for deep integration
• no easily derivable composite indicators of likely
potential for and or welfare effects of deep
integration
• framework gives suggestions of where to look via
indicators of
• market integration
• product variety and intra industry trade
• opportunities for trade driven productivity improvements
• suggests the use of case studies in sectors where
regulation appears to be an obstacle to bilateral
trade
j.rollo@sussex.ac.uk
9
Conclusions
• the framework designed to systematically reveal
the key elements in an agreement
• benefits of minimising the potential for trade
diversion (lower mfn tariffs) and maximising the
potential for deep integration emerge strongly
from the theoretical considerations.
• empirical framework that needs to be tested which
case studies of Egypt and Caribbean attempt to do
• Question for Round Table of Officials on
usefulness, possible dissemination modes and
further research
j.rollo@sussex.ac.uk
10