Benefits and Costs of Regional Trading Areas

Benefits of RTAs.

The benefits ascribed to free trade (specialization, economies of scale, etc.) also apply to regional trading blocs.

Greater interdependence among members reduces the potential for conflict.

Greater bargaining power and political clout in the global economy.

Growth spillovers. Strong growth in any RTA country could have a positive impact on growth in other RTA member countries.

Costs of regional integration.

The private loss from displacement.

Differences in tastes, culture, and competitive conditions may limit the potential benefits from investments.

At least two challenges in the formation of an RTA and in its potential progression from a free trade area to deeper integration.

First, cultural differences and historical considerations. (Wars, conflicts)

Second, maintaining a high degree of economic integration limits the extent to which member countries can pursue independent economic and social policies.