Reshaping Economic Geography Messages on Regional Integration

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Reshaping Economic GeographyMessages on Regional
Integration
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Main points

• A countrys 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

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Persisting Divisions
Increasing number of borders
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Persisting Divisions
many borders restrict flow of good, people and
capital
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Persisting Divisions
countries with thick borders have low per capita
GDP
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Spatial Transformations
economic activities are concentrated globally
(2006 data)
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Spatial Transformations
the convergence process is non-linear and takes
time
Coefficient of variation in per capita incomes
Per capita incomes
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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

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Drivers of concentration and convergence
increasing Intra-Industry Trade (IIT)
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Drivers of concentration and convergence
IIT essentially in developed neighborhoods
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Market access helps to classify the developing
worlds neighborhoods
Market access differs greatly, depending both on
geography and governance
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The developing worlds 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
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Policy instruments
the 3 Is
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A rule of thumb for policy actions
an I for a D
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Some policy options for 3Ds 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