A Comparative Analysis of Trade and Economic Integration in East Asia and Latin America

This paper provides an analysis of the two channels of regional integration: integration via markets and integration via agreements. Given that East Asia and Latin America are two fertile regions where both forms of integrations have taken place, we examine the experiences of these two areas to illustrate our conclusions. There are three related results. First, East Asia has been integrating via the markets long before formal agreements have been in vogue in the region. Latin America, on the other hand, has primarily been using formal regional trade treaties as the main channel of integration. Second, despite the relative lack of formal regional trade treaties until recently, East Asia is more integrated among itself than Latin America. Third, from a purely economic and trade standpoint, the proper sequence of integrations seems to be first integrating via the markets and subsequently via formal regional trade agreements. One interpretation of the relative success of the East Asian approach is that regional trade agreements often serve multiple constituents. Integrating via markets first can be helpful because this can give a stronger political bargaining power to the outward-looking economic-oriented forces within the country.