64510 POVERTY THE WORLD BANK REDUCTION AND ECONOMIC MANAGEMENT NETWORK (PREM) Economic Premise SEPTEMBER 2011 • Number 65 JUN 010 • Numbe 18 Asia and South America: A Quasi-Common Economy Approach Otaviano Canuto and Manu Sharma The Asian style of regional integration may be seen as a “quasi-common economy� that eschews a formal linkup in political or monetary terms, but manages to generate similar results by strong physical integration and distributed chains of produc- tion and service delivery. This note proposes the Asian quasi-common economy as a benchmark for South America’s regional integration efforts because it is a better fit than the politically driven, broad-based, European style integrative process. Regional economic integration takes place as a combined result ed the integration of production processes, and talks and nego- of decentralized, market-driven processes and politically driven tiations on institutional harmonization came later, after institution building or adaptation. But the leader-follower rela- economic links were established.2 tionship between these two spheres may differ: economic inte- South American regional integration experiences have fall- gration experiences in Europe and Asia provide two contrast- en far short of the levels of trade and macroeconomic interde- ing examples. pendence achieved in Asia and Europe. Neither multilateral An illustrative example of the leadership of political will in diplomatic efforts nor market-driven dynamics yielded expect- Europe was at the time when the last steps toward the creation ed results in terms of economic integration. of the euro were made and there was widespread consensus This note has a twofold objective. First, it approaches the among economists that conditions for an “optimum currency Asian style of regional integration as a QCE that eschews a for- area� were far from prevailing. The response by euro proponents mal linkup in political or monetary terms, but manages to gen- was that those conditions would develop endogenously after an erate similar results by strong physical integration and distrib- integrative push led by institutional change and monetary unifi- uted chains of production and service delivery. The central cation, building upon what had already been obtained during point of this model is the role of massive infrastructure ties and previous stages of the European Common Market.1 consequently easier mobility of stages of production lines One may point out an opposite leadership relation in the across borders, allowing for the creation of one monolith econ- Asian experience—which this note refers to as a quasi-common omy devoid of formal setups. Secondly, this note proposes that economy (QCE). Trade and investments came first, with the using the Asian QCE as a benchmark for South America’s re- build up of regional production networks preceding any con- gional integration efforts is a better fit than the politically driv- certed effort of major multilateral institutional adaptation at en, broad-based European style. Despite the idiosyncratic geo- the regional level. Investments in infrastructure and the remov- graphic, political, and economic features of Asia and South al of potential stumbling blocks to market integration facilitat- America, there are lessons that South America can learn from 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Asia’s sequencing pattern. In Asia, physical infrastructure in- tage, and so fulfils Mundell’s criteria through a backdoor. Thus, vestments and intraregional trade facilitation created an envi- higher levels of public investment combined with lower barriers ronment conducive to business-driven economic integration. to trade may generate outcomes that are far more extensive than Broader institutional convergence has been pursued only to the proximate effects upon individual outputs of the economies. extent that a concrete base of economic interests was there to The rise of the Asian QCE was neither abrupt nor micro- support it. Compared to “big bang� approaches and corre- planned. Factors such as advantageous first nature geography,5 spondingly high requisites in terms of political capital and com- technological diffusion by the private sector, an export-led plex diplomatic negotiations, like those in Europe, the amount growth model, and openness of the economies aided the emer- of political capital necessary in the Asian QCE was kept to a gence of the QCE. The influence of manufacturing and liberal- minimum. This note recommends that South American gov- ization started from the eastern most frontier of Japan, and in ernments spend political capital on front-loading cross-border the 1970s, the influence crept over the Republic of Korea, Tai- infrastructure investments that are accompanied by infrastruc- wan, China, and Southeast Asia. China came under the wave in ture project-specific trade facilitation measures, rather than on 1980s, and India finally caught up in the 1990s. complex, detailed, treaty-like negotiations before the emer- There are five defining features and results of an Asian style gence of corresponding economic ties. A quasi-common mar- QCE:6 ket approach in South America may lead to better results than High internal trade intensity: High internal trade intensity attempts at emulating the European path.3 is an indicator of the extent of integration7 in a region. Further, it constitutes an important source of demand for member Asia as a QCE economies that may be extraneous to demand from other re- A QCE is defined here as a regional economy with a high level gions (Yeats 1998). of physical integration, minimal barriers to intraregional trade, Using the European Union (EU) as a benchmark for com- interlinked and interdependent production structures, and no paring the export intensities of Asia and Latin America, the formal or centralized structure for coordination of an entire Asian economy has increasingly trended toward near-EU levels region’s economic policies. The basis for such a postulation is of intraregional exports (figure 1). Inversely, the Latin Ameri- that manufacturing and service sectors that are broadly inte- can intraregional export intensity has remained more or less grated across countries have ramifications for wider economic constant throughout the 29-year period beginning in 1980. policy regimes, which result from major transmission channels The Asian trend has come to mimic the EU trend, with a pro- such as: (i) alignment of business cycles; (ii) mobility of factors gressive closing of the gap between the two. It must be kept in of production; and (iii) economies of scale.4 These channels in mind that while the EU has achieved such high levels of intra- turn are a result of distributed production and supply chains regional trade, to a large extent it has been through a formal predicated on physical integration. No grand institutionalized framework and administrative body; the Asian region remains formal setups for lowering policy barriers to regional trade or a loose confederation of FTAs and distributed production other types of deep policy and regulatory harmonization con- chains. stitute an ex ante condition, but more focused project-specific Distributed manufacturing and supply chains: A key factor trade facilitation measures may be adopted. Although not re- in the rise of Asian manufacturing and trade prowess has been quired, the existence of free trade agreements (FTAs)—not nec- essarily customs unions or monetary unification—may amplify Figure 1. Ratio of Intraregional Exports to Toal Exports the results obtained in a QCE, as witnessed when the Associa- 0.7 tion of Southeast Asian Nations and other China-centric FTAs were implemented in Asia. 0.6 A QCE is predicated on the following hypothesis: infrastruc- 0.5 ture or the level of public capital within a region’s economies affects the growth or economic output via two channels. The 0.4 first channel is the conventional and much discussed impact of 0.3 public capital as a factor of production entering the national production function in addition to private capital and labor. 0.2 The second and less highlighted transmission channel consti- 0.1 tutes the heightened factor and goods mobility within the re- gion that allows the setup of distributed production and deliv- 0.0 ery systems. Such a setup in turn aligns business cycles in the 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 regional economies, converging input prices and wages by mov- EU Asia Latin America ing industries across borders to areas with competitive advan- Source: UN Comtrade database. 2 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise the evolution of a “flying geese� (FG) process (Akamatsu 1962) ing� technologies to produce value-added manufactures (Ams- of structural changes in the economies. The rise and spread of den 1991). The technological diffusion resulting from foreign the FG manufacturing hypothesis in the 1960–70s includes direct investment (FDI), subcontracting, technology transfer, the following key trends: (i) migration of industries across bor- and trade led to a shift from input-sensitive industries to poorer ders to capitalize on competitiveness; (ii) domino industrializa- countries in the region, even though productivity remained tion or increase of growth rates in follower economies; and (iii) high in early industrializing countries.8 large investments by a leading goose country aiding growth rates Enhanced value-added exports: Large integrated regions in follower countries (Amsden 1991). The FG process of indus- tend to export more value-added exports because of economies tries migrating across borders has created a distributed regional of scale and synergies between constituent units (UN-ECLAC manufacturing and supply chain. This chain constitutes a cross- 2005, 84). Figure 4 maps the data of value-added exports as a percentage of total exports for Asia, the EU, and Latin Ameri- border production network that is spread across different coun- ca.9 Asian value-added exports, as a percentage of total exports, tries, but tends to bestow an advantage similar to that of inte- have remained even higher than EU exports. Latin American grated regions or large countries with no internal trade barriers. value-added exports started off from a very low base of only 25 Figure 2 presents Hyundai Motor Corporation as a typical percent and managed a convergent trend with Asia and EU ex- example of interconnected private sector manufacturing in ports, but peaked at 67 percent in 2000. The decline in value- Asia. Hyundai started exporting cars to developed countries in added exports from Latin America is partially because of the the 1980s, and they were competitive in making small, eco- base effect of the rise in commodity prices all over the world. nomical cars. Over the years, strong economic growth and ris- As a region, however, Asia has overall tended to mimic, and in ing wage levels boosted the costs of production, thus creating a this case exceed, the performance of the EU, which is a formally comparative disadvantage in labor-cost-sensitive segments of integrated region. small car production. Because of a third wave of FG develop- Conditions in Asia are favorable for the evolution of a QCE. ment, Hyundai invested in countries with lower costs of pro- As shown in the maps in figures 5 and 6, the production and re- duction. The creation of 37 percent of total installed capacity source endowment areas of Asia10 are arranged in a convergent in China and India allowed Hyundai exports to retain competi- radial pattern. This natural arrangement allows Asia to set up tiveness and production numbers. closely located ports and production centers that can become The figure 3 shows the bilateral import network comprising links in a vast chain of production and service delivery. In fact, the Asian FG manufacturing supply chain. Extensive trade first nature geography is significantly correlated to economic links predicated on physical integration have led to trade and output. As noted in the World Bank’s World Development Report production integration. In figure 3, the convergent setting of 2009: “a simple regression of output density (GDP per square trade ports and production centers in Asia is hard to miss. kilometer) on geographic variables—mean annual temperature, Such intraregional migration of industries from countries mean annual precipitation, mean elevation, terrain ‘roughness,’ ahead in the development curve to those behind is a peculiar soil categories, and distance from coastline—captures 91 percent characteristic of the Asian QCE. The electronics industry of variability in the density of economic production.� played a huge role in the export buoyancy of Asia. The FG pro- cess of manufacturing development saw late industrializing Figure 3. Asian FG Manufacturing Supply Chain countries such as Korea, Singapore, and Taiwan, China “learn- Figure 2. Hyundai Motor Corpoation: Installed Production Capacity 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Republic of Korea China India Source: Hyundai Motor Corporation Web site. Source: Gill and Kharas 2007. 3 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 4. Value-Added Exports as a Proportion of Total Exports commonality of shocks—and thus the convergence of macro- 100 economic policy responses—rises as businesses integrate among 90 economies. 80 Unrestrictive union: A QCE setup allows regional members 70 to retain their fiscal and monetary autonomy, thus allowing them some leeway in case of economic or financial contingen- 60 cies. The inflexibility of a monetary union or the political diffi- 50 culties of a fiscal union do not exist within a setup defined as a 40 QCE. Because the endogeneity of macroeconomic convergence 30 only takes place gradually, such rigidity may become a burden 20 to the integration process.11 10 0 QCE: Suitable for South America? 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 Is the South America region better suited to a QCE approach EU Asia Latin America than ambitious, top-down, full-fledged economic unions? Be- Source: Authors’ calculations based on UN Comtrade database. cause South America has never experienced the previously booming production network–driven integration of Asia, one cannot expect any linear and grandiose process of institutional Despite the significance of the first nature geography in de- reshuffle and convergence in the region. On the contrary, the ciding proximate growth differences, it is by no means a defini- recent past has included the tendency to experiment with dif- tive factor. Unfavorable endowments or patterns of endow- ferent institutional designs and styles of public-private relation- ments—as far as physical integration is concerned—can be at ships. least partially reversed by investments, although implying high- In fact, regional integration within subregions and subsec- er costs at the margin. tors of the South American economy has been attempted with Lower macroeconomic volatility: A QCE setup also coin- varying degrees of success for the past 60–70 years (UN- cides with—or requires—stable growth and an externally stable ECLAC 2005). The common grounds have tended to shift economy. Table 1 contains the variance of growth figures for over time, with industrialization, external debt, trade, and the the EU, Asia, and Latin America. The growth variance for the financial crisis occupying the minds of policy makers from time EU and Asia stands at 3.3 and 3.9, respectively, during 1980– to time. But the big bang institutional approach has been a pet 2009, whereas for Latin America the growth variance stands at scheme of some policy makers, while one possible interpreta- 5.4. Similarly, the Asian QCE zone has performed better than tion of the lack of meaningful results may be that political and Latin America on reference points such as external debt and economic realities were not strong enough to incentivize a long inflation, which are indicators of stability on external and inter- and risky venture into formal integration. From this perspec- nal fronts for the respective economies. tive, a QCE approach would be the best path to pursue. There is no claim here of causality in the sense that building Traditionally, South America’s economic fortunes have a QCE leads to lower growth volatility, and rather the stronger been heavily predicated upon the prices of international pri- causality is most likely in the reverse direction. Macroeconomic mary export commodities (IMF 2010; Canuto and Giugale volatility depends on factors far beyond the QCE. Further- 2010). The recent increase in the importance of the trade with more, business integration and value chains can only flourish if Asia in general and with China in particular reinforces the role neighbor countries do not frequently generate macroeconomic of the region as a commodities exporter. shocks to each other. But there is a feedback loop effect as the However, as shown by the recent global crisis, diversification of exports can operate as insurance against volatility (Canuto, Haddad, and Hansen 2010; Haddad, Lim, and Saborowski Table 1. Variance of Growth Figures, 1980–2009 2010). Diversification offers a way of buying the benefits of Variance of Variance of Variance of openness while managing the downside risks. A higher degree Region growth external debt inflation of export concentration implies a greater impact of a price European Union 3.3 .. 0.6 shock on the country’s terms of trade, inducing greater fluctua- Asia 3.9 35.4 12.4 tions in a country’s growth process. There is thus a strong need Latin America and for most South American countries to diversify beyond unpro- 5.4 75.0 13,664.3 Caribbean cessed primary goods. The point here is that such a situation may be more easily reached if the region becomes an intercon- Source: World Economic Outlook 2010. Note: .. = not calculated. nected monolith and benefits from the scale and scope econo- 4 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 5. Density, Distance, and Division Combine to Determine Access to Markets Source: World Bank 2009. Note: To compute potential market access, each country is assigned a score for the size of its own market (real GDP) and the size of interntational markets with which it can trade. This is computed by weighting the GDP of other countries by the inverse of a measure of that combines physical distance, transport costs, and barriers to trade to show how difficult it is to access these markets. The measure, which is expressed relative to the market access of the United States, essentially combines all three spatial dimensions of density, distance, and division into a composite of potential market access. Figure 6. Busy Seafaring in the North, Little Landfall in the South: Intensity of Shipping Routes (October 2004 through September 2005) Source: World Bank 2009. Note: Container ports shown are the 20 largest by TEU of local containers handled in 2005. mies made possible by integration. Thus regional integration use of its capabilities, resources, and potential. The require- with a high degree of physical integration is a potential driver ments to exploit productive complementarities stem less from for breaking dependence from primary exports. absolute differences or gaps of income or capacity between South America is composed of countries with wide dispari- economies in the region and more from the sectors of coopera- ties in income and stages of development. Such a heterogeneous tion and the industries concerned. Sectoral economics dictat- composition of regions and countries can be easily exploited by ing, some sectors of the economy may be more sensitive to capi- utilizing comparative advantage leverage. Countries with com- tal or labor inputs respectively, and therefore a paratively higher per capita income such as Brazil, Argentina, “no-one-size-fits-all� rule of thumb can be recommended in and Chile will find themselves uncompetitive in some labor- terms of income or capacity thresholds. intensive industries in the future. Thus a distributed supply Finally, the idea of a physical integration–led regional integra- and manufacturing chain will enable the region to optimize the tion is much more palatable from a political economy point of 5 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise view. Since there is no involvement of national political commit- dustry and the creation of an entire cross-border ecosystem ments or surrender of powers, it is far easier to set up and to re- stretching across the region. Such private production networks ceive political support, which suits the complicated political have had a benign effect on wider economic policy, as discussed landscape of South America. Furthermore, diplomatically ambi- earlier in this note. Hence, it is highly appropriate for South tious efforts may come to halt because of opposition around sen- American policy makers to shift their focus from creating mul- sitive industries, while other sectors may support integration, tiple subregional bodies to identifying sectoral cooperation op- which can be achieved more selectively in the QCE approach. portunities. Policy Conclusions Increasing interoperability within the region Factors of production such as capital and labor should be grant- Using the Asian style as a template, the following sections in- ed higher mobility, such as enhanced engagement by member clude the policy conclusions for regional integration in South states to implement measures including mutual recognition of America. professional degrees, portability of social security, laxer border Physical integration controls, scaling up of best practices across the region, and in- South America needs to significantly expand its infrastructure creased financial engagement of the regional financial systems. spending and make up for lost productivity and growth (UN- Further, the private sector, which forms the bedrock of ECLAC 2009). Asian economies started stepping up their in- Asian style regional integration, needs to be accorded similar frastructure investment on the back of buoyant revenues and privileges throughout the region, or at least fostered to set up growth in the 1980s. To exploit the positive externalities of the production chains throughout the region. For example in Asia, global supply chain–based production networks in the region, Honda has plants that manufacture gearboxes in China, axles South America needs to create an infrastructure that can sup- in Thailand, and body shells in Japan. Similar supply and pro- port and scale up the intense economic activities that consti- duction chains need to be actively encouraged and promoted tute firms’ modern delivery model. Benefits from catching up across South America. in infrastructure may be increased if it also paves the way to- Addressing regional asymmetry ward deeper regional integration. South America is a diverse region and needs to address the The Asian production arc stretches from peninsular India problem of asymmetric development levels among its member through Southeast Asia and China to northern Japan and is ar- states. For a QCE model to address this issue, areas of comple- ranged in a convergent setting with most major ports close by. In mentarities need to be specifically identified and economic op- South America, the coasts of the major economies do not face portunities need to be leveraged from those. Specifically, the each other and the mainlands are separated by mountain ranges wage gap between richer and poorer member states can prove or forests. There are, however, already mapped possibilities that to be an effective leverage for the private sector and the regional can be pursued (Canuto 2008). This is a field in which multilat- economy to remain competitive in global markets. eral development institutions have been playing a fruitful and Technological diffusion supportive role. The Initiative for the Integration of Regional South American economies with relatively higher levels of Infrastructure in South America (IIRSA) is a dialogue forum technological accomplishment should pass on their legacy un- among South American countries that benefits from the techni- der technology transfer agreements. Similarly, current technol- cal and financial support of the Inter-American Development ogies should be used to generate contract manufacturing sup- Bank, in conjunction with CAF (Corporacion Andina de Fo- ply chains, such as in the electronics industry in Asia, where mento) and FONPLATA (Fund of Plata Basin), and which has firms like Sony, Samsung and Foxconn, belonging respectively already generated a dense map of physical integration opportu- to Japan, Korea and Taiwan, China, have managed to exploit nities (see figure 2 and links in Canuto [2008]). Since the begin- lower costs in China to produce their latest and best products ning of IIRSA, the 12 South American countries have identified in another country. a portfolio of multisectoral projects in transport, energy and High investments in public infrastructure, formal econom- communication, with a significant focus on implementation of ic unions or regional integration bodies, lower trade barriers, transportation sector integration projects. and geographic advantages have all been separately appointed Identify sectors or industries of cooperation rather than insti- in the literature as drivers of regional economic integration. tutions This note tries to bring it all together under one tent by point- The Asian style regional integration process identified and ex- ing out the example of Asian integration, which has yielded plored specific industrial sectors, such as electronics, garments advantages like high internal trade intensity, distributed manu- and automotive parts, for the mutual benefit of partnering na- facturing and supply chains, regional economic stability, en- tions. This bottom-up approach involved the addition of new hanced value-added exports, and technological diffusion. All of countries or late industrializers to the supply chains of one in- these advantages were delivered under an informal economic 6 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise union that utilized first nature geographic advantages to gener- 10. Defined as East Asia and South Asia taken together. ate a physically integrated economy. 11. An obvious example has been the difficulty in formulating A major barrier that could prevent South America from fol- policy responses to the crisis in the EU. The rigidity of the mon- lowing a similar path is the lack of physical integration in the etary union is clashing with the divergent range of preferred economy, as well as the absence of a more pragmatic and mod- national policy choices under current circumstances, as noted est trade facilitation agenda. Focusing on these two fronts is by most analysts. likely a more promising approach than the alternative Europe- References an-like all-encompassing agenda. Akamatsu, K. 1962. “A Historical Pattern of Economic Growth in About the Authors Developing Countries.� Journal of Developing Economies 1(1): 3–25. Otaviano Canuto is the Vice-President for Poverty Reduction and Amsden, A. H. 1991. “Diffusion of Development: The Late Indus- Economic Management (PREM) and Manu Sharma is a Junior trializing Model and Greater East Asia.� The American Economic Professional Associate at the World Bank. The authors would like Review 81(2): 282–86. to thank Bernard Hoekman, Mona Haddad, and Jose Guilherme Canuto, O. 1994. Coréia do Sul e Brasil: os (des)caminhos da indus- Reis, all from the International Trade Department in PREM, for trialização tardia. Nobel: São Paulo. invaluable comments to a draft version of this note. ———. 2008. It’s Physical: That’s the Way to Integrate in South America. RGE’s South America EconoMonitor, January 7, http://www. Endnotes economonitor.com/blog/2008/01/its-physical-thats-the-way-to- integrate-in-south-america/. 1. Robert Mundell (1961) originally referred to the symmetry Canuto, O., and M. Giugale, eds. 2010. The Day after Tomorrow: of shocks among members, labor mobility, and fiscal policy cen- A Handbook on the Future of Economic Policies in the Developing tralization as preconditions for an optimum currency area. World. Washington, DC: World Bank (available at www.world- Frankel and Rose (1998) highlighted the endogeneity of foreign bank.org/prem). trade patterns and cross-country business cycle correlations. Canuto, O., M. Haddad, and G. Hansen. 2010. Export-led Growth 2. Amsden (1991) and Canuto (1994) provide earlier accounts v2.0. Economic Premise n.3, March. of the emergence of regional production networks. Frankel, J. A., and A. K. Rose. 1998. “The Endogeneity of the Op- 3. It is important to acknowledge that geography helps explain timum Currency Area Criteria.� Economic Journal 108 (449): the different paths of the two regions. East Asia is connected by 1009–25. a sea, whereas the Latin America and Caribbean region in- Gill, I., and H. Kharas. 2007. An East Asian Renaissance: Ideas for cludes a big land mass with major mountains and limited natu- Economic Growth. Washington, DC: World Bank. ral connectivity. History also matters; in East Asia, trade rela- Haddad, M., J.J. Lim, and C. Saborowski, 2010. “Managing tionships go back millennia. The argument here is not for an Openness and Volatility: The Role of Export Diversification.� impossible emulation of such geographical-historical idiosyn- Economic Premise n.6, March. cratic experiences, but on approaches to economic integration. IMF (International Monetary Fund). 2010. Western Hemisphere 4. See Kose, Prasad, and Terrones (2003) and World Bank Regional Economic Outlook. October. (2009). Recall in this context how standard trade theory has Kose, M. A., E. Prasad, and M. Terrones. 2003. “How Does Global- ization Affect the Synchronization of Business?� IMF Working already demonstrated that increased (intraregional) trade may Paper WP/03/27. partially substitute for labor mobility. Mundell, R. 1961. “A Theory of Optimum Currency Areas.� Ameri- 5. First nature geography is a term used to define the spatial dis- can Economic Review November: 509–17. parities in distribution and allocation of natural resources (see UN-ECLAC (United Nations—Economic Commission for Latin World Bank [2009]). America and the Caribbean). 2005. Trends in Latin America in 6. For the sake of illustrating regional differences, we here com- the World Economy 2004–2005. Santiago, Chile. pare Asia to the broader Latin America and Caribbean region. ———. 2009. Trends in Latin America in the World Economy 2008– 7. See http://aric.adb.org/indicator.php. 2009. Santiago, Chile. 8. The process of industrial diffusion from richer to poorer parts World Bank. 2009. World Development Report: 2009. Washington, of the regional economy has been pursued by the late joining DC. eastern members of the EU—especially Poland and Romania. ———. 2010. Global Economic Prospects. July, Washington, DC. 9. Defined as ratio of exports in Standard International Trade Yeats, A. J. 1998. “Does Mercosur’s Trade Performance Raise Classification categories 5, 6, 7 and 8, and total exports with Concerns about the Effects of Regional Trade Arrangements?� the world for respective regions. World Bank Economic Review 12 (1 [January]): 1–28. The Economic Premise note series is intended to summarize good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduc- tion and Economic Management (PREM) Network Vice-Presidency of the World Bank. The views expressed here are those of the authors and do not necessarily reflect those of the World Bank. The notes are available at: www.worldbank.org/economicpremise. 7 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise