Trade Costs and the Economic Fundamentals of the Initiative for Integration of Regional Infrastructure in South America (IIRSA)

In October 2000, the twelve countries of South America launched, a multinational, multisectoral and multidisciplinary initiative, whose main objective is to develop the region's infrastructure within a context of environmental sustainability. Supported by the Inter-American Development Bank (IDB), the Andean Development Corporation, and the Financial Fund for the Development of the River Plate Basin, the Initiative is based on a hub strategy and its action plan calls for (1) strengthening national investment planning and coordination among countries, (2) standardizing and harmonizing regulatory and institutional aspects and (3) developing a portfolio of projects that encourage private sector participation and innovative financing schemes. This paper revisits IIRSA's economic fundamentals, looking at: the motivation behind regional integration; the importance of transport versus policy related trade costs; and the likely impact of the initiative on regional disparities and growth.