Second wave of globalization

After the World War II (WWII), protectionist tendencies of the past thirty years had been
partly eliminated by the attempts of two powers, namely Britain and the United States. The
intention was to reform the world order. The scope  for change involved not only
international trade, but also the financial system  and the growth of national economies.
Global reconstruction was concentrated on the formation of international (multinational or
supranational) institutions to organize financial relations, developmental issues and
international trade. One of the resulting institutions of the so called “Bretton Woods
Conference” (1944) held in Bretton Woods (New Hampshire) was the International
Monetary Fund (IMF) which was supposed to provide an orderly framework for monetary
relations. Another one was the International Bank for Reconstruction and Development
(IBRD, later the World Bank, WB) that was formed in order to mobilize available
resources for reconstruction and development. 

In the international trade side, the Economic and Social Council of the United Nations
(formed in 1945) was the responsible body of multilateral trade negotiations. However, the
Council adopted a resolution that envisaged the formation of International Trade
Organization (ITO) (Matsushita, Schoenbaum & Mavroidis, 2003, p.1). The following
negotiations on this formation were held in New York (1947), in Geneva (1947) and in
Havana (1948). With the Geneva meetings, it was decided to prepare a multilateral treaty
that aimed to clarify the codes of international trade. As a result, the General Agreement on
Tariffs and Trade (GATT) that aimed to direct the orderly conduct of trade and to promote
trade liberalization had been completed by the end of 1947. However, for the formation of
the ITO, the planned program did not work well. Even though being the ideological
founder of the new order, the United States whose decision was vital for this formation did   31
not approve the legislation that would enable the establishment of ITO1
. Hence, the ITO
was dead before its birth. However, international trade should not be left alone; as a result,
the establishment of ITO had been substituted by “a Protocol of Provisional Application to
apply the GATT provisionally on and after January 1, 1948” (ibid., p.2).

The seeds of the second wave of globalization came  into existence through these
international institutions. At first sight, one big difference between the first and second
waves of globalization can be noticed. It is the existence of international organizations.
The role of these institutions is to arrange, when it is necessary, the smooth working of the
international system on their subject area. Additionally, the role of hegemonic power        
–namely, the United States, at this time– and the other leading countries should also be
clear in this new system. Hence, while the first era of globalization was obviously
characterized by the imperialist ideology of the leading powers, the second era can also be
said to be characterized by hegemonic powers, but in this case in a disguised form, i.e. via
Bretton Woods Institutions and the GATT system2
. 

Taking into account the ratio of world trade to world output leads the conclusion that
although there has been a general trend toward freer trade after WWII, trade as a share of
world output does not seem to have improved to its  1913 level until the mid 1970s
(Krugman et al., 1995, p.330).  Albeit it is not easy to compare two periods due to the
different time related characteristic features of the history and present, when it is looked at
the statistical figures, the following comparison can be noted about the two (O’Rourke &
Williamson, 2002a, p.422):

The growth of world trade was pretty much the same  in the nineteenth and
twentieth centuries, roughly 3.7 or 3.8 per cent per annum. This is a surprising fact,
given that world GDP growth doubled from 1.5 to 3 percent per annum between
1820 1913 and 1913 1992. Since the growth of world trade was almost identical in
the two centuries, it follows that trade shares rose much faster in the nineteenth
                                                
1
 In fact, with the success of the Republicans in the 1948 election, President Truman did not send the
legislation for the ITO to the Congress (Matsushita et al., 2003, p.2). 
2
 During the first decade after the WWII, the US was the unique hegemonic power.   32
century than in the twentieth century. So far, it looks as though the nineteenth
century is the canonical globalization epoch par excellence. 

In the second wave of globalization, declining political barriers to trade and fast income
growth –especially in the late twentieth century– have also been seen as a link between
distant markets. Moreover, there are several new features of the modern trade relative to
the past experience such as the rise of intra trade (trade in similar industries),   splitting
production process into different geographic areas  and the emergence of countries that
have high ratios of trade to GDP (like Singapore and Hong Kong). While in the first wave,
trade was mainly based on the comparative advantage (countries traded what they could
not produce themselves), in the second wave, with declined transportation costs, trade in
similar goods or intermediary products has become significant and resulted in increased
bilateral trade ties between countries that have similar endowments. Expansion of trade in
services, developments in the commercial law, increased acquaintance with doing business
abroad have further contributed to the growth of world trade (Krugman et al., 1995, p.332). 

In addition to these, although they do not represent complete diversion from the elements
of the first wave of globalization, there are some significant factors that contributed to the
integration pace of the second wave (SavaL, 2004, p.31 35). First of all, the adoption of
floating exchange rate system instead of fixed exchange rate system has changed the
working of underlying principles in international economics. Secondly, “import
substitution” strategy in which states apply domestic protection on vulnerable sectors has
been substituted with the “export promotion” strategy that emphasized the place of
openness and trade for economic development. Thirdly, advances in information
technology have resulted in increase in the speed of capital mobility. Technological
innovations, trade and capital account liberalizations are the integral parts in both waves of
globalization. While in the first wave technological developments depicted themselves in
railroads, steamships, and the advances in communication, developments in the airfreight
and advances in the information technology that skyrocketed via computers, mobile
phones, and internet have been the primary technological advancements of the second
wave. The technological and organizational innovations in the production system, i.e.
changing the pattern of production from “fordism” to “post fordism”, have also   33
significantly facilitated international integration. Moreover, while there had been both
trade and capital liberalization mainly as an end result of colonialism in the first wave, in
the second wave, related liberalizations are either employed unilaterally, or enforced by the
international institutions. 

Beside gradual decreases in the level of trade restrictions through the successive “rounds”
of the GATT and advances in production systems, afterwar period has also witnessed rapid
increase in the number of countries. While in 1920, there were 69 countries in the world,
the number increased to 89 in 1950 and 192 in 1995 (Alesina et al., 2000, p.1292). Now,
there are approximately 200 countries in the world1
.  But this rise in the number of
countries does not represent the increased participation to the global management of
international trade, finance or politics.  It cannot be said that it is the game of equals.
Throughout the world, ‘triadization’ that emphasizes the dominance of Japan and the
newly industrialized states in the South and South East of Asia, Western Europe and North
America on the process of technological, economic and socio cultural integration is
another fact of the second wave of globalization (Adriana, 2008, p.315). 

Studies on the Relationship between Regional Integration and Globalization

Studies on the Relationship between Regional Integration and Globalization 

After 1980s, the Vinerian seminal work has considered as representing the static nature of
preferential trade agreements. Dynamic analysis that deals with the long run relationship of
regionalism and multilateralism has considered two  time path questions of Bhagwati
(1993). While the first time path question inserts the assumption that time path of regional
economic integration does not affect (or influence) the one of multilateral trade   18
negotiations, the second time path question considers the case where there is a
interrelationship between the trends of regional economic integration and multilateral trade
negotiations.   

The first question concerns the incentives of non members to be a member and the
willingness of the member countries to offer entry until the utmost outcome of global free
trade. Baldwin’s (1993) study is in line with this question. Baldwin employs the ‘domino
theory’ that emphasizes the existence of idiosyncratic events on creating economic
rationale for non members to participate in the RIA. These events consequently bring
about a multiplier effect that “knocked down bilateral import barriers like a row of
dominos” (Baldwin, 1997, p.877). In his framework, Baldwin gives the US Mexico FTA,
NAFTA, MERCOSUR, the completion of the EC’s Single Market and the weakening of
the USSR as the examples of shocks that triggered dominos, i.e. pushed non members to
apply for membership in RIAs. From this empirical evidence, Baldwin (1993) concludes
that the domino effect will eventually lead to global free trade. In response to the critiques
of not taking into account the resistance of members for new memberships, Baldwin (1997,
p.878) states this would not change the result and notes that “the new political economy
flames may find vent in preferential arrangements among excluded countries”.

The second time path analysis of Bhagwati (1993) focuses on the determination of whether
RIAs will be the ‘building blocs’ or the ‘stumbling blocs’ in front of the worldwide non
discriminatory free trade. In line with this distinction, present section will survey firstly
studies that emphasize regional integration as a contributing factor to the processes of
multilateral tariff liberalization and multilateral free trade. Secondly, the opposing
arguments on regional integration and multilateralism are to be studied.

Ethier (1998) employs many country, specific factors model in order to assess the
relationship between regionalism and multilateral world. The author, as a result,
emphasizes that rather than threatening multilateralism, regionalism is the direct
consequence of the success of of multilateral liberalization. In a similar vein, Freund
(2000) employs oligopolistic model of trade with three countries import and export one
imperfectly competitive good.  The study concludes that as welfare gain from membership   19
in an RIA is greater when tariffs are low, each round of multilateral tariff liberalization
should be accompanied by an increase in the number of RIAs.

Kim and Shin (2002) employ social network approach for the analysis of regionalism and
globalization. Their results indicate increase in overall network density between 1959 and
1996. According to this, they conclude that world trade has been globalized. Another result
that is increase in the intraregional density, on the other hand, supports the idea of
regionalized trade. The authors entail this two sided improvement in international trade to
the fact that globalization and regionalism are not contradictory processes.

Woolcock (2003) by comparing the provisions of the EU Poland, the EU Mexico, Euro
Med, NAFTA, Chile Canada FTA and Closer Economic Relations (CER) agreements with
the provisions of the GATT/WTO states that these agreements generally are WTO plus (or
GATS plus). As a result, Woolcock concludes that the RIAs tend to complement rather
than undermine multilateral rules. 

Ornelas (2005) asserts that when considering the effects of FTAs, both determination of
external tariff level and participation in an FTA should be treated as endogenously
determined concepts. Accordingly, taking into account endogeneity of these policies would
reduce the importance of special interests in an FTA. In this set up, when members of an
FTA lower their internal trade barriers, they tend  to reduce their external tariffs as well.
Consequently, an FTA formation would result in support for further multilateral
liberalization. 

Baldwin (2006a), on the other hand, studies the political economy framework for the trade
liberalization by categorizing it into three mechanisms, as the ‘juggernaut effect’ for
multilateral trade liberalization, the ‘domino effect’ for regional trade liberalization, and
‘race to the bottom unilateralism’ for unilateral trade liberalization. The author also states
three ancillary political economy logics that are interacting with the above mechanisms.
These are intra sectoral special interest politics, asymmetric lobbying effects and the
magnification of footloose ness. Examining the period starting with the Reciprocal Trade
Agreement of 1934, Baldwin states that multilateralism, regionalism and unilateralism are   20
not substitutes, but complements of each other. Furthermore, the author calls the proposed
political economy framework as the ‘spaghetti bowls as building blocs’ mechanism.

Pomfret’s (2007) study examines regionalism issue from the historical perspective. The
author distinguishes three waves of regionalism as the first wave covering 1950s and 60s,
the second wave covering the period of 1980s until  the establishment of WTO, and the
third wave from the early 2000s onwards. He states that “regionalism has twice [in the first
and second waves] appeared as a terminal threat to the GATT system but multilateralism
emerged stronger ever after the Kennedy and Uruguay Rounds” (ibid., p.925). For the third
wave prevailing now, he again emphasizes the strength of WTO system in the international
economics. The author points out other factors like Multifibre Arrangement quotas and the
use of agricultural safeguards as elements that are more important types of discrimination
than RIAs. Accordingly, regionalism does not threaten multilateral trading system as
significantly as it is generally announced. 

There are also some studies that interpret regional integration as an impeding factor in
front of multilateralism. For example, Levy (1994)  forms his analysis through a median
voter model in which voters in two countries are opting for membership in an FTA or
sticking to multilateral liberalization. Accordingly, in a model based on the Heckscher
Ohlin framework, an FTA option can not make feasible multilateral liberalization as
infeasible; it can not also make previously infeasible multilateral liberalization as feasible.
However, when the model is extended to consider product differentiation, expected effects
arising from the formation of an FTA change significantly. With this kind of model, a
given FTA can constitute a stumbling bloc in front  of the global free trade due to trade
gains that result from differences in factor endowments and product variety.

Grossman and Helpman (1995), on the other hand, study the formation of an FTA in the
political economy framework that emphasizes the interaction between special interest
groups and governments.  The study concludes that governments respond to pressures of
industry special interests, but they also take into consideration the average voter. The
authors state that if some industries can be excluded from the scope of an agreement, then
the likelihood of signing this agreement would improve (ibid., p.687).    21
Krueger (1997) asserts that political economy of FTAs will lead these agreements to be
stumbling blocs in front of further multilateral trade liberalization than will customs
unions. This mainly derives from the fact that FTAs include rules of origins that are
governed by special interest groups.

Bagwell and Staiger (1998, 2002) employ a general model that includes governments that
are motivated by political and terms of trade considerations in order to evaluate the effects
of reciprocal trade agreements on multilateral trading system; especially on non
discrimination, reciprocity and enforcement mechanism. Through politically augmented
terms of trade approach, they show that these agreements may retard the effectiveness of
reciprocity and non discrimination. Accordingly, as free trade areas violate most favored
nation (MFN) principle, the efficiency properties of a multilateral system that depends on
the principles of reciprocity and non discrimination will be damaged. For the customs
union case, the only multilateral friend type is possible when all external tariffs are set to
conform to the principle of non discrimination. On the enforcement issue, the consequence
of RIAs is ambiguous and depends on the time period of analysis, the extent of trade
diversion and the extent of multilateral cooperation. The authors conclude that RIAs may
constitute a potential threat for multilateral trading system.

Krishna (1998) employs a model of imperfect competition with oligopolistic firms
producing substitutable goods, in order to study the conditions for partners’ support for a
bilateral agreement and the impact of FTA formation on the incentives of continuing on
multilateral trade liberalization. He asserts that the more trade diverting FTA between two
countries, the more likely it will be supported and more it counteracts against the
multilateral trade liberalization. Hence, with certain amount of trade diversion, the initially
feasible multilateral liberalization can become infeasible as a result of the special interests
based FTA. 

Bond, Riezman and Syropoulos (2004) work with a three country general equilibrium
model to determine the likely effects of an FTA formation on the tariff and welfare levels
of all countries. Accordingly, the formation of FTA may undermine multilateral trade
liberalization if member countries employ optimal external tariffs. However, it is stated   22
that as member countries tend to lower their external tariffs after the establishment of FTA,
this will improve terms of trade and welfare of the excluded country. If the member
countries are sufficiently large, then trade creation induced welfare improvement will
dominate and FTA will be beneficial for the members, too. As a result, the welfare gains
on both sides may undermine the attainment of global free trade. 

Limão (2006a), on the other hand, uses data on the US tariffs with the distinction of PTA
goods that are covered by PTA and non PTA goods that are excluded within the
integration. The study states that MFN tariffs for  PTA goods of the US are higher on
ninety percent of all goods than they would be in the case of not forming PTA. The study
concludes that PTAs of the US constitute a stumbling bloc to multilateral trade
liberalization of the US. Estimating the difference in MFN tariff reduction between PTA
and non PTA goods for the EU and the US cases, Limão (2006b) finds that PTAs of these
important traders result in delay on multilateral tariff liberalization and increased
discrimination via non tariff barriers.

LITERATURE REVIEW

LITERATURE REVIEW

The relationship between RIAs and globalization has been studied from different
perspectives throughout the literature. While Jacob Viner’s (1950) work on the Customs
Union was the first attempt of theorizing the welfare effects of RIAs, the following studies
like Lipsey (1960), Cooper and Massell (1965) were extensions of the Vinerian analysis

.
These studies significantly contributed to the development of this analysis. In the late
1980s, with the introduction of the New Trade Theory, several studies like Krugman
(1991) and Frankel et al. (1996) included new factors like economies of scale and product
differentiation in order to model regional economic integration. The 1990s, on the other
hand, witnessed the emergence of studies that emphasized the effects of regionalism on the
future multilateral trading system, like the ‘dynamic analysis’ of regional integration,
Bhagwati (1993). In a similar vein, the studies on  the political economy stance like Levy
(1994), Grossman and Helpman (1995) and Krishna (1998) provided significant insights
about RIAs and their effects on multilateral tariff liberalization.

Since there is a growing literature in regionalism debate, this chapter tries to survey some
of these studies through categorizing them into three subsections. The first section will
present a brief summary of selected studies that contributed to the theoretical development
of regionalism. The second section will try to enlist some of the literature that focused on
the relationship between regional economic integration and multilateral tariff liberalization,
and on the effects of regional integration on multilateral free trade. The final section, on
the other hand, will survey the literature studying the effects of regional economic
integration on member and non member countries.  


                                                
1
 Although classical economists like A.Smith (1776), Ricardo (1817) and McCulloch (1832) had mentioned
about trade diverting effects of of preferential commercial treaties, theory of economic integration dates back
to the 1940s that include the studies of de Beers (1941), Tinbergen (1945), Byé (1950) (Robson, 2000, p.8).
The study of Balassa (1961), on the other hand, was the first for the systematic analysis of this theory (cited
in Halıcıoğlu, 1996, p.4).

Structure of Regional Integration Agreements

Structure of Regional Integration Agreements

When the configuration of RIAs is taken into account, it is seen that the increasing number
of RIAs implies the networks of RIAs that include intra and inter continental members. It
is usually the case that one member of given RIA is also a member of another RIA. This   12
naturally results in overlapping RIAs and makes regional integration issue increasingly
more complex. The simplest form of RIAs is bilateral agreement that involves two member
countries. There are nearly 155 RIAs (covering goods and services) that are in force and
between two countries, recently. This number constitutes more than half of the RIAs that
are in force and notified to the WTO. The plurilateral agreements, on the other hand,
include more than two member countries. 

In the geographical context, while in most of the RIAs, member countries of the integration
are neighboring countries, some RIAs cover members  locating in different continents.
Examples of these inter continental RIAs include the US Israel FTA, Chile Japan FTA,
Peru China FTA. Although it does not fit into the above types of integration, the Asia
Pacific Economic Cooperation (APEC) that includes twenty one countries from four
continents. The more complex type of regional integration arises if one partner is itself an
RIA, like FTAs/CUs between the EU and several countries (Israel, Jordan, Mexico, Syria,
Turkey, etc.). EFTA and MERCOSUR are also involved  in such integration agreements.
Although EFTA SACU (2008) the only up to date example, it is expected that the trend
would let the emergence of several RIAs that involve the other RIAs as partners. For
example, the EU is negotiating the formation of FTA with MERCOSUR.

RIAs can also be classified according to the development levels of member countries as
North North, North South and South South agreements. In this kind of classification,
while “North” symbolizes developed countries, “South” symbolizes developing countries.
Hence, the first type of these agreements includes developed countries as members and its
subject area, that is its scope, tends to be more comprehensive than the other two
agreements. The European Community (EC) was the first example of such agreements.
The US Australia FTA that came into force in 2005 is, on the other hand, another example
of North North agreements. North South agreements,  like North American Free Trade
Area (NAFTA) and the Turkey EU customs union, include partnership of a developing
country(s) with a developed one(s). South South agreements, like Latin American Free
Trade Area (LAFTA) and Southern African CU (SACU), on the other hand, cover RIAs
that are established by developing countries. South South agreements are tend to be more
relax on the subject coverage and the degree of liberalization. 

Types of Regional Integration Agreements

Types of Regional Integration Agreements

Types of the regional integration agreements (RIAs) are mainly defined according to the
different instruments which identified and limited  the scope of regional economic
integration. These instruments include preferential access for specified products, internal
tariff elimination, determination of common external tariff (CET), free factor mobility,
harmonization of economic policies and harmonization of political policies. The
classification depicted in Table 2.1 shows that there is a hierarchical order between each
type of regional integration agreement. For this reason, each subsequent type of the RIA
covers the content of the previous type in addition to its own requirements. Accordingly, it
is possible to distinguish six different types
1
 of integration. These types are:

•  Preferential trade area (PTA) which gives preferential access to certain products
from the participating countries. This can be called as a limited or sector based free
trade area.
•  Free trade area (FTA) that include the reciprocal removal of tariffs on member
countries’ goods. In an FTA, each member is free within the limits specified by the
GATT/WTO system on deciding the level of external tariffs that will be applied to
non members. As there is flexibility on the interactions with the third countries, the
members in an FTA are free to establish or join other FTAs. The leading examples
are North American Free Trade Area (NAFTA), ASEAN Free Trade Area (AFTA)
and European Free Trade Association (EFTA). 
•  Customs union (CU) which is a type of agreement that include determination of
the common external tariff (CET), in addition to the elimination of the internal
tariff rates. Generally, determination of the CET is done through taking an average
of all partners’ before union tariff levels. For member countries, such cooperation
                                                
1
 While these six types depict that how regional agreements can diversify and extend its limits, this kind of
classification mainly resembles to the evolution of the European Union (EU). The antecedent of the EU
which is now at the level of EMU was the European Coal and Steel Community (ECSC, 1951) which can be
counted as an intermediate agreement between free trade area and customs union (Dam, 1963, p.638).  
    10
in external tariffs can only be attained through the loss of autonomy in foreign
economic policies. The examples include Andean Community, the CUs of EU with
Andorra, San Marino and Turkey, and Southern African Customs Union (SACU). 
•  Common market (CM), in which there is free factor mobility –capital, investment
and labor– in addition to the customs union requirements that determine free flows
of goods and services. This integration requires governments to employ
coordinated actions in order to ensure the equal treatment for all factors in the
member countries of the CM. Caribbean Community and Common Market
(CARICOM) is one of the examples of this type.
•  Economic and monetary union (EMU) which results from the enlargement of a
common market with the additional requirement of the harmonization of economic
policies, both monetary and fiscal. It further involves the creation of an independent
regional central bank that has control over exchange rate policy and inflation rates.
The only example that arrived to this level of integration is the European Union
(EU). 
•  Complete (political) integration (CI) is a type of agreement which includes the
harmonization of economic and political policies, and so as to become a single
state. This kind of integration necessitates the loss of sovereignty and the creation
of domestic institutions on the international level.

Table 2.1 Types of regional integration agreements  and their coverage (Source: SavaL,
2004, p.177)

  PTA FTA CU CM EMU CI
Preferential access to certain products X X X X X X
Tariff elimination  X X X X X
Common external tariff   X X X X
Free factor mobility    X X X
Harmonization of economic policies     X X
Harmonization of political policies      X
   11
There is also another classification that is not referred too much. It is the “Economic
Partnership Agreement” (EPA). This term is used to imply that the scope of the agreement
is broader than the elimination of barriers of trade in goods (Aminian, Fung & Ng, 2008,
p.10).Currently, there are more than seventy EPAs of the EU signed with the Africa,
Caribbean and Pacific (ACP) countries. On the other hand, the Japan Singapore bilateral
agreement is called as the “New Age Economic Partnership” (Antkiewicz & Whalley,
2006, p.344).

As it will be studied in Chapter 7, FTAs are dominant types of the regional economic
integration. Furthermore, the experience has shown that the proliferation in the number of
RIAs has coupled with changes in the legal structure of the WTO system. At the beginning
there was only the GATT Article XXIV that enabled the formation of FTAs and CUs, but
in time, nation states began to ask new legal open doors for deeper integration types, like
the Enabling Clause of GATT and GATS Article V. Liberalization and elimination of
trade regulatory policies and harmonization of economic and political policies have
become the new topics of regional economic integration beside trade policy measures.  In
other words, as Tinbergen (1965) dubbed them, “negative integration” involving the
removal of discrimination and of restrictions on the trade flows has been supplemented by
“positive integration” that require the coordination of member countries on modifying the
existing policies and institutions together with the creation of new ones within the regional
integration (Robson, 2000, p.2).

Hence, rather than using the term of regional trade agreements that emphasizes trade side,
tagging these agreements as regional integration agreements (RIAs) would be a correct
description of the existing agreements. Thus, the term ‘RIA’ covers all different types of
economic integration.

REGIONAL INTEGRATION: MAJOR CONCEPTS

REGIONAL INTEGRATION: MAJOR CONCEPTS


While the globalization experience of the world has been evolving, on the other side,
nation states have been searching for the opportunities that would preserve their national
interests. Membership in regional economic integration is regarded as one of such
opportunities. Hence, regional economic integration is conceived as a way to gain
privileged situation within the specified boundaries. As it will be studied in the following
chapters, while preferential trade relations were mainly characterized by the colonial trade
links in the first wave of globalization, arrangements existing in the the second wave of
globalization have been supplemented by the legal environment of GATT/WTO system. In
this chapter, the basic concepts related to regional economic integration will be presented.
These concepts include the definition of regional integration, types of the regional
integration agreements (RIAs) and the structure of RIAs.

2.1 Definition of Regional Integration

What regional integration or regionalism means in economic sense should be the starting
point for understanding the overall concept of RIAs. In its dictionary meaning, regionalism
can be defined as a foreign economic policy that defines the national interests of a country
in terms of particular geographic areas. On the other hand, the WTO defines regionalism as
actions by governments to liberalize or facilitate  trade on a regional basis, sometimes
through free trade areas or custom unions.

Before to study types of regional integration, remark on the concepts of regionalism and
regionalization would be beneficial. Such remark will help further to clarify the meaning of
regionalism. While regionalization is a process mainly driven by market forces of trade and
investment flows, regionalism derives from state led policies of cooperation and
intergovernmental treaties (Gavin & van Langenhove, 2003, p.280). Differently, Ravenhill
(2005, p.117) distinguishes regionalism as a formal process of intergovernmental   9
cooperation between two or more countries, and regionalization as the growth of economic
interdependence within the specified geographical area.