The regional dimension of economic integration should be seen as complementary to the integration to the world economy and may bring about substantial benefits to developing and transition countries if adequately managed, including with respect to their competitiveness base and benefitting from economy of scale.
The benefits from accrued intra-regional trade are well known: the importing country is in a position to meet its demand for consumption and production without having to ship in goods from great distance, while the exporting country gains without incurring large transport costs and by enlarging the scale of its production, which reduces costs.
Furthermore, from an investment point of view, many low-income countries do not have the necessary economic size to be sufficiently attractive for foreign investment. The preferential access to neighbouring markets – both for goods and services – which can be established through the negotiation of free trade agreements or customs unions enable partner countries to make use of regional specialisation and increase the size of their internal market, thus becoming potential trade hubs throughout the region.
To ensure the highest possible “development friendliness” of regional integration vehicles, both the external and the internal dimensions of regional integration should be addressed carefully. Internally, the adequate institutional structure ensuring an efficient functioning should be designed and implemented. Externally, the right “mix” and sequencing of foreign trade instruments should be assessed and negotiated with the trading partners so as to sustain the economic developments of the countries involved, and not – on the contrary – to limit the necessary policy space for their sustainable development.