Regional Disparities in Regional Blocs: Theory and Policy

The objectives of this paper are to explore the forces that may create disparities within a regional bloc and to assess their implications for policy. The thesis we will argue is that it is quite possible for regional integration to create disparities. Indeed, we expect it to encourage differences in the economic structures of countries, and should not be surprised if these are sometimes also associated with difference in factor prices and income levels. However, the policy response to such integration induced disparities is, loosely stated, more integration. This paper was prepared for the Inter-American Development Bank project on 'Deepening Integration of MERCOSUR: Dealing with Disparities'.