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DECTI Trade Seminar: Small-State Regional Cooperation, South-South and South-North Migration, and International Trade

Sponsor: Development Economics and Chief Economist (DEC)

Speaker: Maurice Schiff, World Bank

Abstract: This paper provides a different basis than previous analyses for beneficial regional bloc formation and beneficial South-South migration. Due to low bargaining power and fixed costs, small states face severe disadvantages in negotiations with the rest of the world and might benefit by forming a regional bloc (such as CARICOM). The study a) examines the impact of bloc size in a general equilibrium framework where bargaining power, international (INC) and regional (RNC) negotiation costs, number of issues being negotiated and the bloc’s accession rule determine its size and welfare impact; and b) examines the impact of international migration as well as the migration-trade relationship and that between South-South and South-North migration. The main findings are: i) the likelihood of bloc formation and its size and welfare impact increase with INC, m and bloc members’ similarity (i.e., they decrease with RNC); ii) bloc size is optimal (below the optimum) for the bloc and the region when an accession fee is (is not) charged; iii) the likelihood that South-South migration raises welfare increases with the dissimilarity among bloc members, member states' proximity and number of issues, and falls with INC; iv) South-South migration and trade are complements under market access negotiation and are substitutes under negotiation for unilateral transfers; and vi) South-South and South-North migration are substitutes, and so are South-North migration and trade if migrants remit.

Contact: Yasmin D'Souza at Ydsouza@worldbank.org




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