Regional Cooperation

Economic Development

National borders do not necessarily reflect the best economic regional division. Through regional cooperation, countries or their sub-regions, can effectively combine to bring potential economic development into reality.

Regional cooperation opens up new opportunities for faster and more equitable economic development, and fosters regionally balanced economic growth in each participating country. This is particularly important for countries - or subregions within countries - that have limited access to markets and diverse resources.

When a regional cooperation program covers less developed regions of participating countries, the benefits of regional cooperation can directly reach poorer groups of people.

The recent trend toward rapid globalization also increases the need for more coordinated efforts among countries with similar interests.

There are many well-recognized economic benefits of regional cooperation, such as

• increased business opportunities and better economic efficiency
• increased trade and enhanced investment environment
• greater protection against external shocks

Increased business opportunities and better economic efficiency

Ironically, many goods are more expensive in less developed regions. This is mainly due to economic inefficiency and non-competitive market structure.

Regional cooperation can effectively resolve this problem by combining several countries or their sub-regions into one economic region. Integrating smaller economies into larger, regional economies expands the size of the market and reduces costs by harnessing the economies of scale that are possible through large-scale production.

The increased size of a regional economy provides better conditions for competitive market structure. A bigger market size makes business more profitable and, hence, increases the options for new businesses. Development of infrastructure - highways, railways, waterways, power grids, and telecommunication systems - can even upgrade these benefits as it decreases the transaction costs.

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Increased trade and enhanced investment environment

One of the key benefits of regional cooperation is the ability to fully exploit each economy's strength by creating trade among participating economies.

Regional cooperation has proven effective in reducing non-physical barriers to trade and investment, with countries working together to develop or streamline policies, procedures, and regulations; and to encourage and expand the movement of goods, services and investments across borders. A higher degree of trade also enables closer linkage to bigger markets or world markets and thus is more attractive to investors. With expanded trade, investment, and specialization, new technology and skills will come to the region, enabling sustainable regional economic growth.

Regional cooperation also allows the economies to eliminate physical barriers to trade and investment. Transport projects in particular can help expand some important engines of growth:

• regional trade and tourism
• foreign exchange earning capability
• employment intensive activities

Often, regional cooperation signifies the first cautious step by countries to open their markets to the world.

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Greater protection against external shocks

The rapid process of world economic integration may expose economies to unprecedented external shocks. After the series of financial crises in the late 1990's developing countries started to reevaluate the importance of policy cooperation.

A formal and tight regional cooperation unit can foster trust in the international community, as it increases the range of feasible policy options. In addition, regional cooperation itself can be a safety signal to the economy so that the shocks may not damage confidence in the economy.

A diversified economic structure and increased flexibility in labor and resource mobility through cooperation also provide more effective buffers to external shocks as internal resource adjustment can mitigate the negative effects from shocks.