APEC and Its Developing Members: An Applied General Equilibrium Analysis of Regional Trading Arrangements

Abstract

Having observed a parallel advancement of globalization and regionalization, this paper first reviews new motives behind the new breed of regional trading arrangements (RTAs). This paper then analyzes the factors of the South's regional integration in the past and shows that the economic gravity such as economic dynamism, supply of capital, and complementarity has been the key for regional integration. As this economic gravity often lies in the North's markets, an open trade framework that connects the South with the North is recommended. This paper thus supports the general superiority of a North-South RTA over a South-South RTA. Simulation analyses conducted with a computable general equilibrium world trade model suggest, however, that membership in a RTA, even a large North-South RTA such as APEC does not guarantee welfare gains for the developing countries. This paper asserts that, from the viewpoint of the developing countries, complementary domestic and border reforms supported by the new motives for RTAs should be viewed as prerequisites for welfare gains from a membership in such a regional arrangement.