Regional integration, growth and convergence: analytical techniques and preliminary results

Working and discussion papers
May 2008

This note is work in progress and examines empirically whether and how regional integration leads to convergence and growth amongst developing countries. Using standard growth models for nearly 100 developing countries over 1970-2004 we cannot establish robust growth effects of regional integration at the aggregated level of analysis even after using alternative measurements of regional integration. Yet, country-specific growth diagnostics do suggest that regional integration can be a key if not binding constraint to growth as "deep" regional approaches can help to address crucial rail, road, air and energy links amongst countries (e.g. in the EAC).

Preliminary findings further suggest that initially high levels of regional income disparities will lead to greater decreases in disparities. Whilst the level of intra-regional trade and incomes do not explain changes in income disparities, the presence of a regional DFI (e.g. CABEI, EADB) with a relatively high loan exposure to GDP ration tends to reduce regional income disparities suggesting a useful role for deeper integration in achieving regional cohesion. A one percentage point increase in development finance (DFI) exposure leads to a drop of about one percentage point.

Finally, while the macro economic literature on regional integration tends to highlight only limited expected effects of African regional integration, our work at the firm level in three African countries (Benin, Malawi and South Africa) is indicative of significant dynamic effects of RI for firm level productivity in Africa. We suggest that further growth analytical work is undertaken which combines the development of methods to examine the effects of regions and measurement of the various types of regional integration.

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