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conomIc
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nalySIS
An economic analysis of South-South RTAs demonstrates these agreements’
insubstantial levels of intra-regional trade. The case studies of COMESA
and AFTA display this trend well. Both regions defend the economic theory
behind RTAs in their agreements, but insufficient enforcement of these
RTAs’ regulations has rendered their economic rationales irrelevant.
Economic Rationale and Theory
It is well-recognized in economic literature that dynamic and static gains can
be made from regional integration (Esteevadeordal 2004, 5). Trade theory
contends that under perfect competition, a simple “partial equilibrium
model” can increase trade between members of a regional agreement by
forcing the least efficient producers out of the market. If domestic pro-
ducers’ competitiveness increases, there is an opportunity to create trade.
However, if foreign producers are damaged by a South-South PTA, costly
trade diversion can occur (Esteevadeordal 2004, 5). Therefore, welfare can
grow only if trade creation is larger than trade diversion (Esteevadeordal
2004, 5). Many developing countries have joined RTAs to generate the
potential gains from establishing a market of increased scale and competi-
tiveness (Esteevadeordal 2004, 5).
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