The Short and Long(er) of It: The Effect of Hard Times on Regional Institutionalization

Abstract

What are the implications of hard economic times for regional economic cooperation? Existing research is sharply divided on the answer to this question. Some studies suggest that economic crises encourage governments to strengthen their regional institutions, but others indicate that they lead to decreasing investment in such initiatives. Both sides overlook the possibility that the passage of time conditions these relationships, however. We aim to bridge these opposing perspectives by distinguishing between short-term and long-term effects of economic hard times on institutionalized regional cooperation. We argue that in the short-term economic crises impede regional institutionalization due to protectionist pressures, nationalistic public sentiments, and political instability. This effect is reversed in the longer-term, as interest groups and the public adopt more favorable attitudes towards regional economic organizations (REOs) and governments employ these institutions to demonstrate their competence and to improve economic conditions. We evaluate this argument in relations to regional institutionalization, which refers to the functional scope and structure of REOs. Using a data set that contains information on this dimension for thirty REOs over four decades, we find strong support for the theoretical framework: regional institutionalization remains stagnant in the immediate aftermath of economic crises, but increases in subsequent years.

Keywords: Economic crises; Regional Institutionalization; Regional Economic Organizations

JEL Classification: F15; F53; F55