Addressing Global Growth Asymmetries through Regional Trade Integration: Some Explorations

Abstract: Globalization process has entailed trade openness, greater emphasis on foreign direct investment, stabilization policies, redefining the role of the state, among others. Given that another major global trend observed is one of regional trade integration, the paper explores whether due to this trend there has been any concrete relationship with the growth convergence/divergence outcomes. Tests of Beta-convergence under different model specifications suggest that over time developed and developing countries have not converged in terms of their real per capita GDP though they have converged within their own groups of developed and developing countries. Thus, it is concluded that regional trade integration leads to growth convergence regionally and both openness to global trade and regional trade openness are important. However, the results of the paper need to be interpreted with caution due to the presence of non-stationarity, though the problem is not uniform across variables, tests and regional groupings. A policy inference that can be drawn is that at the global level ‘economic cooperation for economic growth convergence’ needs to be flagged and appropriate institutional mechanisms created to intensify the processes of trade and FDI integration. Broadly, the results are in consonance with the predictions of the New Growth Theories

Discussion Paper 116