Regional Trade Agreements: Theory, Aspirations, and Realities

The chapter discusses the theory, aspirations, and realities of regional trade agreements. The discussion begins with the two disciplinary sources of integration theory—namely economics and political science. Economic theory on integration originated from Ricardo’s theory of comparative advantage, which implied that cooperation between countries would benefit the countries involved. The interest of economists in integration grew following the transformation of the European Coal and Steel Community into the European Economic Community, after World War II. Initial work on the formation of customs union showed two main effectstrade creation and trade-diversion effects. Subsequent work identified different types of economic integration including free-trade areas, customs unions, common markets, an economic union, and economic integration. Integration theory from political science is more expansive and includes federalism, functionalism, neofunctionalism, neo-institutionalism, intergovernmentalism, and post-neo-functionalism. Following the economic tradition, the chapter traces the origins of regional trade agreements and discusses critical issues including whether regional trade agreements generate or divert trade among its members, and whether regional trade agreements are building or stumbling blocks for a wider multilateral trade organization. What makes regional integration effective is also discussed from both conventional as well as political economy perspectives. First, RTAs are supposed to increase trade volumes among member states by removing trade barriers. Second, they are also expected to form building blocks for larger multilateral trade organizations. Third, geographic proximity, similarity in culture and political history among member states should lead to effective RTAs. Fourth, RTAs are also supposed to lead to convergence in economic well-being of member states. Based on these findings, the chapter ends with a series of questions about why regional trade agreements have not worked as expected in Africa and sets the stage for the case studies in the rest of the book.