Regional Integration and Economic Development: Optimal or Messy Networks?

Abstract

States join regional integration organizations (RIOs) hoping that membership will boost economic development. Such cooperation should improve the efficiency of economic factors via firm competition, which will promote development. We argue that economic growth is difficult to produce when states form overlapping memberships and join RIOs with economies of similar size and similar levels of development. While joining an RIO may be beneficial, many overlapping memberships tend to involve larger costs through added obligations, leading to low economic performance. Integrating with similarly sized economies is not as beneficial as integrating with larger, relatively wealthier partners. We support our hypotheses using 180 states from 1962-2014. Using social network and time-series analysis, we find that joining multiple RIOs tends to decrease GDP per capita growth. However, the effect is not uniform: the negative effect is stronger in lesser-developed countries and does not hold when RIO membership includes a large economic partner.