Regional Integration and International Trade: Analytical Models for Latin America and ASEAN PDF

Preview

Summary

REGIONAL INTEGRATION AND INTERNATIONAL TRADE: ANALYTICAL MODELS FOR LATIN AMERICA AND ASEAN MARIO ARTURO RUIZ ESTRADA FACULTY OF ECONOMICS AND ADMINISTRATION, UNIVERSITY OF MALAYA JANUARY 2006 Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, M...

Description

REGIONAL INTEGRATION AND INTERNATIONAL TRADE: ANALYTICAL MODELS FOR LATIN AMERICA AND ASEAN

MARIO ARTURO RUIZ ESTRADA

FACULTY OF ECONOMICS AND ADMINISTRATION, UNIVERSITY OF MALAYA JANUARY 2006 Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

REGIONAL INTEGRATION AND INTERNATIONAL TRADE: ANALYTICAL MODELS FOR LATIN AMERICA AND ASEAN

BY MARIO ARTURO RUIZ ESTRADA

A THESIS SUBMITTED IN FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN THE FACULTY OF ECONOMICS AND ADMINISTRATION UNIVERSITY OF MALAYA JANUARY 2006 Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

Content Content

i.

Content of Tables, Figures, Diagrams and Programs

viii.

Acknowledgment

xii.

Abstract

xiii.

Chapter 1:

Introduction

1.1. Rationale of Research

1.

1.2. Hypotheses of Research

2.

1.3. Methodology of Research

3.

1.4. Objectives of Research

4.

1.5. Organization of the Thesis

5.

1.5.1. Section 1: Regional Integration 1.5.1.1. Regional Integration Evaluation Methodology (RIE-Methodology) 5. 1.5.1.2. Regional Cooperative Scheme (RC-Scheme) Theoretical Framework 6. 1.5.2. Section 2: Trade Liberalization 1.5.2.1. Trade Liberalization Evaluation Methodology (TLE-Methodology)Theoretical Framework 7. 1.5.2.2. Openness Growth Monitoring Model (OGM-Model) 1.5.2.3. The External Sector Development Index (SXi) 9. 1.5.3. Section 3: Economic Methodology 1.5.3.1. The Multidimensional Cartesian Space Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

8.

(MD Cartesian Space) Literature Review

10.

2.1.

Introduction

11.

2.2.

Globalization, Regionalism and Regionalization

11.

2.2.1. Globalization

12.

2.2.2. Regionalism

15.

2.2.3. Regionalization

16.

2.3.

Regionalism and Multilateralism

17.

2.4.

Analysis of Custom Union Theory and Trade Liberalization Literature Review

25.

Background Research and Analysis of Different Fields of Research in the Study of Regional Integration

33.

Application of Different Type of Cartesian Spaces in Economics

38.

Chapter 2:

2.5. 2.6.

SECTION 1: REGIONAL INTEGRATION Chapter 3: Regional Integration Evaluation Methodology (RIE-Methodology) 3.1. Introduction

41.

3.2. The Regional Integration Evaluation Methodology (RIE-Methodology)

43.

3.3. The Domestic System Development Concept

44.

3.4. Phases in the Regional Integration Evaluation Methodology (RIE-Methodology)

46.

3.4.1. Phase I: Design of the Multi-Input Database Table

46.

3.4.1.1. Rational Selection of Sub-variables in each Multi-input Database Table

48.

3.4.1.2. Types of Multi-input Data Base Table

53.

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

3.4.2. Phase II: Measurement of Regional Development Indexes (Xi) 3.4.2.1. Steps to Obtain Regional Development Indexes (Xi)

54. 69.

3.4.2.2. Introduction to the Analysis of Regional Development (RD) and Regional Integration Stage (RIS) Index 69. 3.4.3. Phase III: Measurement of the Regional Development (RD) Index 71. 3.4.3.1. Steps to Obtain the RD Index

71.

3.4.3.2. Analysis of RD Index

73.

3.4.4. Phase IV: Measurement of the RIS Index 3.4.4.1. Analysis of RIS Index 3.5.

Application of the RIE-Methodology in a Single Trade Bloc

75. 76. 80.

The Central America Common Market (CACM) 3.5.1. The Growth Stage of Central American Regional Integration in the 1960’ s

80.

3.5.2. Recession Stage of Central American Regional Integration in the 1970’ s

82.

3.5.3. Crisis in Central American Regional Integration in the 1980’ s

84.

3.5.4. Emerging Stage of the Central American Regional Integration in the 1990’ s

85.

3.6. Application of the RIE-Methodology to Different Trade Blocs

88.

3.6.1. European Union: Advanced Regional Integration Development

88.

3.6.2. NAFTA: Constant Regional Integration Development

89.

3.6.3. ASEAN: Slow Regional Integration Development

90.

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

3.6.4. MERCOSUR: Fast Regional Integration Development 91.

3.6.5. Andean Community: Stagnation of Regional Integration Development Chapter 4:

93.

Regional Cooperative Scheme (RC-Scheme)

4.1. Introduction

97.

4.2. Regional Cooperative Scheme (RC-Scheme)

98.

4.3. Regional Cooperative Scheme (RC-Scheme) Modules

101.

4.3.1. Education and Technical Training Standardization Cooperation Module (M1)

101.

4.3.2. Social and Productive Infrastructure Cooperation Module (M2)

104.

4.3.3. Trade and Tourism Promotion Cooperation Module (M3)

106.

4.3.4. Public Administration Development Cooperation Module (M4)

109.

4.4. Prior to Application of RC-Scheme

111.

4.5. After Implementing the RC-Scheme

116.

4.6. RC-Scheme Modules Objectives

117.

4.6.1. Education and Technical Training Standardization Cooperation Module (M1) Objective

117.

4.6.2. Social and Productive Infrastructure Cooperation Module (M2) Objective

119.

4.6.3. Trade and Tourism Promotion Cooperation Module (M3) Objective

119.

4.6.4. Public Administration Development Cooperation Module (M4) Objective

120.

4.7. Considerations in the Application of RC-Scheme Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

120.

SECTION 2: TRADE LIBERALIZATION Chapter 5: Trade Liberalization Evaluation Methodology (TLE-Methodology) 5.1. Introduction

126.

5.2. The Trade Liberalization Evaluation Methodology

127.

5.3. Trade Liberalization Evaluation Methodology (TLE-Methodology) Phases

128.

5.3.1. Phase I: Design of the Multi Input Tariff Database Table

128.

5.3.2. Phase II: Measurement of the Trade Liberalization Index by Production Sector

130.

5.3.2.1. Steps to Obtain Each Trade Liberalization Index by Production Sector (Xi)

133.

5.3.3. Introduction to Analysis of Trade Liberalization Trend (TLT) Index and Trade Liberalization Stage (TLS) Index Based on Trade Liberalization Index by Production Sector (Xi) 134. 5.3.4. Phase III: Measurement of the Trade Liberalization Trend (TLT) Index 5.3.4.1. Steps to Obtain TLT Index

135.

5.3.4.2. Analysis of the TLT Index

138.

5.3.5. Phase IV: Measurement of the Trade Liberalization Stage (TLS) Index 5.3.5.1. Analysis of TLS Index Chapter 6:

135.

138. 140.

Openness Growth Monitoring Model (OGM-Model)

6.1. Introduction Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

143.

6.2. Steps to Apply OGM-Model

144.

6.2.1. Step-1: Measurement of the Degree of Openness Growth by Production Sector (Oi) 144. 6.2.2. Step-2: Measurement of Average Openness Growth Rate (Ō)

145.

6.2.3. Step-3: Measurement of Average of Openness Growth Rate ( Ō) 146. 6.2.4. Step-4: Measurement of Harmonization of Openness Growth Rate (HO) 146. 6.2.5. Step-5: Measurement of the Income Growth Rate (ΔY)

147.

6.2.6. Step-6: Plotting of Openness Diamond Graph

148.

6.2.7. Step-7: Creation Openness/Income Growth Rate (O:Y) Chart 149. 6.2.8. Step-8: Measurement of the Openness/Income Growth Rate (O:Y) Sensitivity Analysis 150. 6.3. Application of OGM-Model and Findings 6.3.1. Findings Pertaining to Correlation between Openness Growth and Income Growth

6.3.2. Finding Pertaining to Regional Integration Chapter 7:

153.

156.

The External Sector Development Index (SXi)

7.1. Introduction

161.

7.2. The External Sector Development Index (SXi)

162.

7.2.1. Step-1: Trade Volume Growth Rate (ΔTV) Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

163.

7.2.2. Step-2: Foreign Direct Investment Growth Rate (ΔFDI) 163. 7.2.3. Step-3: GDP Growth Rate (ΔGDP)

163.

7.2.4. Step-4: External Sector Main Variable (ESi)

164.

7.2.5. Step-5: External Sector Development Index (SXi)

165.

7.3. Application of the External Sector Development Index (SXi)

169.

SECTION 3: ECONOMICS METHODOLOGY Chapter 8:

The Multi-Dimensional Cartesian plane (MD Cartesian Space)

8.1. Introduction

172.

8.2. Comparison of 2-D, 3-D and MD Cartesian Space

173.

8.3. Application of the Multi-Dimensional Cartesian Space (MD Cartesian Space) 173. Chapter 9:

Conclusions

Bibliography

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

178. 183.

CHAPTER 1 Introduction 1.1. Rationale of Research The research in this thesis is carried out based on two general observations: First, the lack of alternative regional integration (RI) and trade liberalization (TL) monitoring models. Second is a new regional integration scheme theoretical framework proposal to integrate middle and low income countries 1)1. In recent years, there have been a large number of documents related to regional integration (RI) research. Usually, in the case of RI research is based on economics or political analysis (single-dimensional analysis) under different theoretical frameworks, models, methods and techniques of analysis. These

1

“ Middle-income country is a country having an annual gross national product (GNP) per capita equivalent to more than $760 but less than $9,360 in 1998. The standard of living is higher than in low-income countries, and people have access to more goods and services, but many people still cannot meet their basic needs. In 2003, the cutoff for middle-income countries was adjusted to more than $745, but less than $9,206. At that time, there were about 65 middle-income countries with populations of one million or more. Their combined population was approximately 2.7 billion.” “ The Low -income country is a country having an annual gross national product (GNP) per capita equivalent to $760 or less in 1998. The standard of living is lower in these countries; there are few goods and services; and many people cannot meet their basic needs. In 2003, the cutoff for low-income countries was adjusted to $745 or less. At that time, there were about 61 low-income countrieswith a combined population of about 2.5 billion people” (See: http://www.worldbank.org/depweb/english/modules/basicdata/datanotbasic.html).

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

analyses (economics or political) on RI do not offer multi-dimensional analysis based on specific monitoring models to show complex regional integration sequencing and timing for liberalization and integration. However, in the process of building new monitoring models for RI and TL, it is important to consider a conceptualization to be used. In our case we use two basic regional integration schemes, namely Custom Union (e.g. European Union) and Free Trade Area (e.g. NAFTA). However, the implementation of these two regional integration schemes in the regional integration process between middle and low income countries presents many difficulties and poor results. It is due to the above reasons that new regional integration (RI) and trade liberalization (TL) monitoring models are presented in this thesis to offer alternative analytical tools in the study of RI and TL. The new regional integration and trade liberalization monitoring models are intended for the evaluation of existing policies in these two categories of countries (middle and low income countries), and subsequently for the creation and implementation of new policies that fulfill the needs of these countries. 1.2. Hypotheses of Research There are two general hypotheses in this research. First hypothesis: “ The study of regional integration (RI) and trade liberalization (TL) research need to consider multi-dimensional analytical models (economic, social, political and technological analysis simultaneously) to understand the behavior of

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

different regional integrations and trade liberalization process around the world, especially in the case of middle and low income countries” . Second hypothesis: “ The regional cooperative scheme (cooperation creation effect) is a precondition to generate strong regional trade blocks (trade creation effect) between middle and low income countries into the same region” .

1.3. Methodology of Research In the attempt to prove the above hypotheses, the research for this thesis is divided into two phases. The first phase is theoretical research and the second phase is technical research. In the theoretical research phase, strong theoretical frameworks based on different regional integration (RI), trade liberalization (TL) and economics analytical (EA) issues are identified to support the research. Thereafter, based on the results and observations derived from the different stages of the theoretical research frameworks, a series of new concepts and definitions are introduced. These new concepts and definitions can be appreciated in different chapters of this thesis. In the technical part of this thesis, several new RI and TL monitoring models based on new indicators and new types of graphs are introduced. These new monitoring models are: regional integration evaluation methodology (RIEMethodology), regional cooperative scheme (RC-Scheme) theoretical framework, trade liberalization evaluation methodology

(TLE-Methodology) theoretical

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

framework, openness growth monitoring model (OGM-Model), external sector development index (SXi) and multi-dimensional Cartesian space (MD-Space). The new monitoring models are supported by basic mathematics applications (rates, basic arithmetic functions, measurement of areas and basic geometry), statistical indicators (average) and methods (correlation and regression). The new types of graphs are based on new graphic concepts they are introduced in different chapters of this thesis. While the models are meant to function with both primary and secondary data, for demonstrations purposes, only secondary data is used in this thesis. Specifically, both qualitative and quantitative data are used in the regional integration evaluation methodology (RIE-Methodology); all the other models use quantitative data. 1.4. Objectives of Research This research is motivated by two-fold objectives: Firstly, the application of each monitoring model is demonstrated fully in the relevant sections of the thesis. The explanations and application of each monitoring model is supported by a small manual application. It is hoped that these new monitoring models will provide good support to economists, academicians and policy makers in their decision-making regarding regional integration and international trade issues. Secondly, it aims to present an alternative regional integration scheme proposal to integrate middle income and low income countries into a single trade bloc based on the concept of regional cooperative scheme (RC-Scheme). 1.5. Organization of the Thesis

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

The theoretical and technical research of this thesis consists three large sections. The first section is on regional integration issues. The culmination of this section is to propose an alternative regional integration scheme: Regional Integration Evaluation Methodology (RIE-Methodology). In the same section, we propose an alternative regional integration scheme theoretical framework proposal to help integrate middle income and low income countries, called “ Regional Cooperative Scheme (RC-Scheme) Theoretical Framework” . The second section of the research attempts to study all matters relating to international trade research. This section sees the introduction of three trade liberalization monitoring models: The trade liberalization evaluation methodology (TLE-Methodology) theoretical framework, openness growth monitoring model (OGM-Model) and external sector development index (SXi). The last section of the thesis highlights the multi-dimensional Cartesian space (MD-Space) as an alternative Cartesian space to visualize any economic phenomena in space and time from the multi-dimensional perspective. 1.5.1. Section 1: Regional Integration 1.5.1.1. Regional Integration Evaluation Methodology (RIE-Methodology) The RIE-Methodology presents a new model of analysis to study the trend of regional integration from a multi-dimensional perspective. This model is created based on the belief that it is necessary to study regional integration using political, social, economic and technological analysis simultaneously. The general objective of the RIE-Methodology is to offer policy-makers and researchers a

Unofficial Copy. Copyright under Mario Arturo Ruiz Estrada and University of Malaya/Faculty of Economics, Malaysia © 2006

new analytical tool to study the evolution and stages of any regional integration process from a multidimensional analysis based on a group of indexes and graphs. The RIE-Methodology is not intended to be a forecasting model in any case. However, its application is not limited to a specific group of countries or regions. It is also not constrained by issues of a region or the development stage of any member in the region that is interested in integrating into a single regional trade bloc. The RIE-Methodology, in effect, is a simple and flexible scheme, which can be applied to any case of regional integration.

1.5.1.2. Regional Cooperative Scheme (RC-Scheme) Theoretical Framework The RC-Scheme theoretical framework is intended to be a proposal to offer a new scheme for regional integration between middle income and low income countries. The RC-Scheme theoretical fra...