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Spillovers of growth from across borders are among the main benefits of regional integration. (a) In a more integrated economic space, the long-run growth prospects of countries become interlinked as markets of neighboring countries become more accessible. Growth in neighboring countries enhances domestic growth, which benefits neighbors. This spatial multiplier enhances the rewards to good policy and contributes to convergence in living standards.

Quantifying the benefits of growth spillovers

From 1970 to 2000, membership in a common regional trade agreement (RTA) among neighbors was associated with a growth spillover of 13.6 to 15.3 percent, so every percentage point increase in the average growth rate of RTA partners brought a “growth bonus” of 0.14 percent to supplement domestic growth. Associated with this is a spatial multiplier of 1.14 to 1.18, with regional integration increasing the effectiveness of growth-promoting domestic policies by 14 to 18 percent. In Europe and East Asia, where regional integration has been strongest, the benefits over the past few decades have been even larger. For these countries the average growth spillover between 1970 and 2000 was 15.3 to 17.0 percent. This contributed to a slow, but steady, convergence in living standards, with the gap in prosperity between the poorest and richest OECD countries closing at an average rate of 1.59 to 1.85 percent a year. Along with this, the effectiveness of growth promoting domestic policies has been supplemented by 18.1 to 20 percent. In Sub-Saharan Africa the average growth spillover has been far weaker, signaling the relative lack of regional integration despite a plethora of RTAs. The growth spillover is estimated at only 2.9 to 3.9 percent, implying a spatial multiplier of only 1.01 to 1.04. This finding of virtually no growth spillovers holds when neighbors are defined by contiguity rather than RTA membership. A typical Sub-Saharan country’s growth rate was basically independent of the growth rates of its neighbors.

Click to enlarge Implications for landlocked and resource-poor countries in Sub-Saharan Africa Under current conditions, if the Sub-Saharan countries whose natural endowments are most favorable sustained a growth takeoff , the landlocked and resource-poor countries of Central Africa would be left further behind. If Switzerland had been subject to the same low spillovers experienced by the Central African Republic between 1970 and 2000, its GDP per capita in 2000 would have been 9.3 percent lower, with a cumulative GDP loss of $334 billion (2000 constant U.S. dollars), or 162 percent of Swiss GDP. Source: Roberts and Deichmann 2008. a. Collier and O’Connel forthcoming.