Empirical Analysis of the Effects of Integration

There have been many empirical studies that have attempted to measure the effects of economic integration. While most of these studies tried to estimate the growth of trade attributable to the formation of the integration per se , others attempted to measure the changes in welfare. The main goal of such measurements has always been to provide an empirical foundation on which to base discussions as to whether economic integrations are ‘good’ or ‘bad’. The problem is that the results obtained were not conclusive enough to provide strong support for either view. While in the last decade or so the techniques available for studying economic integration have improved significantly with the usage of computable general equilibrium models (CGE), it is still difficult to obtain reliable results. Today it is more important then ever to have these results in order to solidify the discussion on regionalism. However not many new studies look at the effects on non-members’ welfare. For example most of the studies completed on the effects of CUSTA or NAFTA were concerned with changes in the patterns of trade and the welfare of members rather than the welfare of non-members. The prospects of Western Hemisphere Free Trade Area (WHFTA), and any defensive or retaliatory bloc in the Pacific are seen as detrimental for world welfare (see for example Bhagwati, 1993, p. 161) but there are no reliable empirical results to support such a claim. While this chapter cannot survey all the issues involved in the empirical analysis of the effects of economic integration, we do summarise the main features of the methods used in empirical measurement, and outline earlier research.