The Limits to Integration

31 Pages Posted: 12 Mar 2009 Last revised: 12 May 2014

See all articles by Michele U. Fratianni

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Francesco Marchionne

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Università Politecnica delle Marche - Department of Economics

Date Written: March 12, 2009

Abstract

Distance and national borders are a big hurdle to the expansion of cross-border trade. Further constraints on integration come from heterogeneity in culture and institutions and from the forces of geography, defined as continents and oceans. Of the three sets of factors, the forces of geography are the most potent on integration. Continents act as 'natural' integrators and oceans as common water border. Countries in the same continent trade a quarter more than those located in different continents; and countries sharing the same ocean trade a half more than those that do not have a common water border. A certain degree of substitution exists between the effects on trade of continents and regional trade agreements (RTAs). This substitution is most evident in the presence of political blocs like the Soviet Union. With an active political bloc, the continent loses some of its integration property, leaving more room for the sub-continental RTA to enhance trade. When the political bloc withers away, on the other hand, the continent rises as an integration force relative to the RTA.

Keywords: integration, continental blocs, culture, geography, institutions, regional trade agreements

JEL Classification: F13, F15, F18

Suggested Citation

Fratianni, Michele and Marchionne, Francesco, The Limits to Integration (March 12, 2009). Available at SSRN: https://ssrn.com/abstract=1358442 or http://dx.doi.org/10.2139/ssrn.1358442

Michele Fratianni (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

Francesco Marchionne

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

1309 East Tenth Street
Bloomington, IN 47405-1701
United States
01 812 855-3756 (Phone)

HOME PAGE: http://kelley.iu.edu/BEPP/Faculty/page14113.cfm?ID=47081

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, 60121
Italy
+39 071 2207120 (Phone)

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