CHAPTER 2: THEORY AND PRACTICE OF REGIONAL COOPERATION – A REVIEW
The purpose of a theory and practice review is to investigate the theoretical and practical base of issues discussed in the research problem. A broad range of theory and practice of regional cooperation foundations of the research study was considered. The major aim was to determine whether existing theory and practice could explain or shed some light on the hypotheses under consideration. This chapter is divided into two parts. The first part covers some of the definitions of regional cooperation as defined by various authors. The case for regional cooperation, the historical perspective, and its evolution will also be covered in the first part. The second part deals with the regional cooperation initiatives in Asia, Europe, the Americas, Africa, and the Indian Rim.
Definitions of Regional Cooperation
There are various definitions of regional cooperation that have been observed from different sources. Some are listed below:
» Regional cooperation (according to ADB, 2005; Haarlov, 1997; Schirm, 2002) is defined as the process/initiatives whereby nation states in common solve tasks and create improved conditions in order to maximise economic, political, social, and cultural benefits for each participating country. The emphasis is on nation states voluntarily agreeing on joint action in certain areas where they reckon that each country may achieve an outcome that is more favourable than if it had acted on its own. The cooperative efforts take place on a continuum stretching from a systematic framework,aiming at continuously increasing the level of cooperation, to an episodic style where cooperation is limited to scattered projects created more by coincidence than intent.® According to Axline (1994), the premise is that regional cooperation is the product of negotiations among a group of states, which result in common policies that satisfy the national interests of those states. Essentially, regional cooperation is the result of an agreement among these to pursue their interests through regional policies, often within a regional organisation. The type of organisation created for regional cooperation will depend, in part, on the interests the regional countries have in common, and the activities pursued by the organisation will depend on these interests. Ultimately, the success of regional cooperation will be determined by the ability of the organisation to satisfy those interests for each member state better than they can be satisfied by other means (for example, bilateral relations).® Regional cooperation is seen by Mohanty (2000) as a fruitful way of tackling the problems arising out of a particular region. It owes its birth in a given region, in the face of a common challenge, to their economic and political stability or their shared ideology. Region, in the language of international politics, implies that the states in the group are interdependent in several respects, mainly because of their geographical relatedness, that this relatedness is a source of cultural and other affinities between these states, that consciousness of area identity can motivate some or all of those states to deal collectively with outside powers, and that policies towards any state in the group should take account of the likely reaction of its neighbours. Thus, the basis of regional cooperation begins with the geography, felt cultural and other affinities, and perceived interdependencies.® Matlosa (2003) states that regional cooperation is a wide and open-ended concept referring to a variety of situations in which individual states and peoples, in a specific and well-defined “region”, deliberately interact through formal and informal schemes and networks across boundaries for mutual gain. Such interactions are theoretically driven by imperatives of economic reciprocity (mutual economic gain) among states,pooling of sovereignty by giving allegiance to, and abiding by, rules set out by supranational institutions (mutual political gain), and daily survival of the ordinary peoples of a region. It can also be perceived as an attempt by nation states to control,at the regional level, what they have increasingly failed to manage at the national and multilateral levels.The definition by ADB (2005), Haarlov (1997), and Schirm (2002) will be the primary focus of the research study. The definition incorporates interventionism and affirmative action designed to reduce spatial and structural inequalities in order to assist underdeveloped countries of the region and their peoples, it concentrates on the benefits to be derived from adopting a more interventionist and developmentally oriented approach to regional cooperation. It promotes efforts to coordinate regional development, the establishment of regional funds giving special priority to the least developed members of the region.
The Case for Regional Cooperation
Regional cooperation (for example in Haarlov, 1997; Mhone, 1993; Schirm, 2002) is based on the general case for free trade where efficiency merits in minimising domestic resource costs and maximising welfare benefits for trading partners are well grounded in economic theory and ex post-empirical evidence, although the predictive value of the theory has been rather weak. The explanations or theories of why trade occurs and how it benefits the trading partners range from the classical Ricardian comparative advantages to the new theories as follows:
• The Ricardian theories on differential resource endowments: the focus is on the underlying differences between economies that can lead to differences in autarky price ratios, thereby leading to trade. Countries can exploit these differences, with each country specialising in goods in which it has a comparatively better technology and exporting those goods in exchange for the goods in which it has a comparatively poor technology.
• The Heckscher-Ohlin theorem based on differential factor intensities: a country will export the commodity that uses the well-endowed factor more intensively. Thus, the comparative advantage is determined by the structure of factor endowments in conjunction with relative factor intensities of commodities.® Linder’s theory on minimum demand thresholds and similarities in levels and structure of demand among trading partners: countries with the most similar demand patterns for manufactured goods will tend to be those with similar per capita incomes. People in countries with lower per capita incomes may wish to buy relatively simple products.However, people in countries with much higher per capita incomes may want more sophisticated devices.® Product life cycle theories: long-term patterns of international trade are influenced by product innovation and subsequent diffusion. A country that produces technically superior goods will sell first to its domestic, then to other technically advanced countries. In time, developing countries will import and later manufacture these goods,by which stage the original innovator will have produced new products. ® Learning-by-doing theories: improving the methods of production through experience,by increasing the productivity of workers, learning by doing overcomes the law of diminishing marginal productivity.
• Stages theories of comparative advantages: each country will export those goods that it produces relatively more efficiently and import those goods that it produces relatively less efficiently in comparison to the other country.
• Product differentiation theories: most products are not regarded as absolutely identical by all consumers. When there are different varieties of a product, the product is called a differentiated (or heterogeneous) product. In some cases, different varieties of a product are technically different. However, the decision as to whether a product is homogenous or heterogeneous ultimately rests with the consumers. While the Ricardian theory tends to be rather static and restrictive in its ability to explain patterns in modern-day trade, the rest of the theories are amenable to dynamic interpretation or are, by intent, dynamic. With newer theories, the possibilities of beneficial trade under a wide range of possibilities can be visualised as well as the ability for a country to climb up the comparative advantage ladder or to reverse its role in the international division of labour. It may be noted that the applicability of newer theories can be at various levels of disaggregation such as by country, sector, industry, or product group. More generally, it can be stated that the various theories are not so much competitive as they are different in explaining particular patterns of trade. In other words, mutually beneficial trade can arise as a result of any one of them, and any combination of them may apply to different traded commodities in a given country and during different historical periods.
Table of contents
List of chapters
List of tables
List of figures
List of appendices
List of abbreviations