How successful have the ideals of the EU proved to be in structuring trade in international relations?

by

Introduction1

Background of the Study1

Rationale of the study4

Research Questions4

Research Design4

Method5

Research Design5

Search Strategy7

References8

How successful have the ideals of the EU proved to be in structuring trade in international relations?

Introduction

The perceived success of regional integration in Europe has inspired debate in other parts of the world about potential economic benefits of different types of integration. In Asia in particular, monetary and financial integration have received attention. What are the benefits and how large are they? In this study we focus on trade effects of monetary integration and monetary policy regimes. The formation of the EMU was associated with a monetary regime shift for most of the countries joining the currency union. Thus, trade creation effects of the currency union per se should be distinguished from trade volume effects of monetary regime shifts as well as from trade volume effects of the evolving internal market within the EU. From the point of view of Asian countries we ask whether substantial trade expansion can be achieved by the appropriate choice of monetary and exchange rate regimes without having to take on the political complications associated with a currency union and the legal and regulatory reforms associated with the internal market.

Background of the Study

Several Asian countries have adopted inflation targeting as monetary regime along with flexible exchange rates. To analyse this choice, trade effects of real exchange rate changes are considered as well since a change in regime can have an impact on real exchange rate developments in the short term in particular. Prior to the EMU few current EMU members had a politically independent central bank persuing an inflation target. Germany stood out as the country with high credibility of a low inflation policy.

The EU has been central to the proliferation of PTAs in the current wave of 'new regionalism' (Mansfield and Milner, 1999, p. 591). For instance, of the 109 notifications of PTAs to the World Trade Organisation as of 1 January 1995, no less than 76 were with the EU or between European partners (Pelkmans and Brenton, 1999, p. 91). This emphasis of the EU on PTAs has been explained in part by the fact that rather than being limited to trade policy, bilateral agreements serve as crucial instruments of the EU's foreign policy (Brenton and Manchin, 2003, p. 759; Messerlin, 2001, p,. n.d.). Specifically, EU bilateralism is the principal tool through which the EU shapes the structure of the international system in general, and the political and economic systems of developing countries (least developed countries, LDCs) in particular. However, this is just part of the story. From the perspective of LDCs, several studies emphasise that EU PTAs may also act as a tool of development (Rodrik, 1992, p. 92; Whalley, 1998, p. 9; Woolcock, 2002, p. 16). Indeed, by joining a PTA with the EU, LDCs can gain access to one of the largest and richest markets, lock in political and economic reforms, and improve their ...