Regional Economic Integration and the Volume of Intra‐Regional Trade: A Comparison of Developed and Developing Country Experience

Abstract

SUMMARY We examine the effect of five regional integration schemes on the volume of intra‐member trade by means of a gravity model of trade. Parameters for the model are estimated from observations on bilateral trade flows among 46 developed and developing countries from 1954 to 1977. We find that two developed country schemes, the EEC and EFTA and one developing country schema, the Central American Common Market increased intra‐member trade by a factor of four. The Andean Pact and the Latin American Free Trade Area had no effect on intra‐member trade. The ability of integration schemes to increase intra‐member trade is shown to vary directly with the per capita incomes of the integrating countries and inversely with the distance between them.