Regional Economic Integration: Learning from South Asia and the World
Diplomacy & Foreign Affairs, New Delhi, India, Volume 11, Issue 6, July 2013
8 Pages Posted: 11 Aug 2013 Last revised: 3 Sep 2013
Date Written: July 10, 2013
The framework of the theory of economic integration was laid out by Jacob Viner (1950) who defined the trade creation and trade diversion effects, the terms introduced for the change of inter regional flow of goods caused by changes in customs tariffs due to the creation of an economic union. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration.
The basics of the theory were summarized by the Hungarian economist Béla Balassa in the 1960s. As economic integration increases, the barriers of trade between markets diminish. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economically (via monetary unions) but also politically — and, thus, that economic communities naturally evolve into political unions over time.
Keywords: Bilateral Free Trade Agreement, Economic Integration, Regional Free Trade Area, Regionalism, SAARC, South Asia
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