Globalization Versus Regionalization: And the Winner Is…

ABSTRACT

This study attempts to assess the forces of globalization versus the forces of regionalization on a macro level, rather than the usual micro (firm and industry) one. In order to find out which syndrome (globalization or regionalization) does prevail, this study estimates the effects of both syndromes on economic welfare and their causes, respectively, by borrowing from two theories: the new growth and the gravity. Within this context, globalization is represented by the proxy extra-regional trade (or trade by individual blocs to the rest of the world), whereas regionalization is measured by the proxy intra-trade (or trade within individual blocs). It examines a comprehensive sample of all 32 registered blocs. Findings reveal that, in terms of economic impact, regionalization wins over globalization in affecting regional economic welfare at a ratio of 3 to 2. Additional results show that 28 blocs have a statistically significant and positive impact on regionalization, whereas 19 blocs have a significant and positive one on globalization. The findings of this study tend also to support the “semiglobalization” hypothesis of Ghemawat (2003).

KEYWORDS:

• Globalization
• regionalization
• regional blocs
• growth
• intra-trade
• extra-trade

Notes

Note: The dates given for each RIA are the respective “before” and “after” implementation dates.

Andean Pact I refers to the original 1969 agreement and Andean Pact II to the revived agreement (1991).

Source: World Bank data.

Note: ∗∗∗ denotes less than 1% level of significance; ∗∗denotes less than 5% level of significance; and ∗ denotes less than 10% level significance. Sample size is 320. UMA bloc is the reference group. Standard errors are reported in parentheses. Regionalization and globalization are the respective dependent variables for model 1 and model 2.

Note: ∗∗∗ denotes less than 1% level of significance; ∗∗denotes less than 5% level of significance; and ∗ denotes less than 10% level significance. Sample size is 320. UMA bloc is the reference group. Standard errors are reported in parentheses. Gross regional product is the dependent variable.

Source: Author's calculations.

The gravity theory stipulates that bilateral trade flows are a function of the size of the economy (so-called gravity variable), the size of the population, and the distance between them. Note here that it is assumed that distance is endogenously determined because countries within close geographic proximity tend to form the investigated regional blocs [for further discussion, see J. Bergstrand, 1987]. Alternatively, the new growth theory postulates that economic growth is a function of the initial level of industrialization (a proxy for the level of physical capital), growth in population, and trade, among other determinants. The convergence hypothesis, as represented in Robert Solow's neoclassical model of growth, explains that less industrialized economies tend to grow faster than industrialized ones, ceteris paribus. For further detail on the neoclassical and the new growth models, see R. Solow, 1956 and R. Barro, 1997.

In this context, trade within the bloc (i.e., intra-regional trade) represents the regionalization forces/syndrome. Alternatively, trade by the bloc to the rest of the world (i.e., extra-regional trade) denotes the globalization forces/syndrome.

Additional information

Notes on contributors

Rock-Antoine Mehanna

Rock-Antoine Mehanna, PhD, is Director of Graduate Programs and Associate Professor of Management, Faculty of Business and Economics, Notre Dame University, Zouk Mosbeh, Lebanon.