DP2528 Winners and Losers from Regional Integration Agreements

Author(s): Anthony J Venables
Publication Date: August 2000
Keyword(s): Customs Union, Regional Integration, Trade Creation, Trade Diversion
JEL(s): F10, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2528

How are the benefits - and costs - of a customs union divided between member countries? Outcomes depend on the comparative advantage of member countries, relative to each other and to the rest of the world. Countries with a comparative advantage between that of their partners and the rest of the world do better than countries with an 'extreme' comparative advantage. As a consequence, integration between low income countries tends to lead to divergence of member country incomes, while agreements between high income countries cause convergence. Results suggest that developing countries are likely to be better served by 'north-south' than by 'south-south' free trade agreements.