Abstract
This paper provides a different basis than previous analyses for regional bloc formation and regional migration. Due to low bargaining power and fixed costs, small states face a severe disadvantage in negotiations with the rest of the world and might benefit by forming a regional bloc. The study a) presents a general equilibrium model where bargaining power, international and regional negotiation costs, number of issues negotiated, and accession rule to the bloc determine its size and welfare impact; and b) examines the impact of international migration as well as the migration-trade relationship. The main findings are: i) the likelihood of regional bloc formation, its size and welfare impact, increases with international negotiation costs and the number of issues negotiated, and decreases with regional negotiation costs; ii) bloc size is optimal (below the optimum) if an accession fee is (is not) charged; iii) South-South migration raises bloc size and welfare; iv) South-South migration and trade are complements under market access negotiations and are substitutes under negotiations for unilateral transfers as well as under migrant remittances; and v) South-North migration and bloc formation, and South-North and South-South migration, are substitutes for the states that benefit from membership in the bloc.
Highlights
Developing small and micro states – defined by the UN as, respectively, countries with less than 1.5 and less than one million inhabitants – face severe disadvantages in dealing with the rest of the world because of low bargaining power and limited financial and human resources available for the various international negotiations they are engaged in
The bloc size nE that maximizes the member states’ average benefit falls with the degree of dissimilarity between them and increases with international negotiation costs and with the number of issues being negotiated
This paper examined, first, the issue of regional bloc formation among small states for the purpose of obtaining greater benefits from international negotiation, with bloc formation based on regional and international negotiation costs and bargaining power rather than on the traditional trade-related arguments for regional integration
Summary
Developing small and micro states – defined by the UN as, respectively, countries with less than 1.5 and less than one million inhabitants – face severe disadvantages in dealing with the rest of the world because of low bargaining power and limited financial and human resources available for the various international negotiations they are engaged in. CARICOM has been involved in the ACP-EU, WTO, the Commonwealth, UNCTAD and UNCLOS (UN Conference on the Laws of the Sea) negotiations and in negotiations with nonCARICOM Caribbean countries, including the Organization of Eastern Caribbean States (OECS), one of CARICOM’s five associated institutions It has participated in bilateral and regional (Western Hemisphere) commissions with Canada, Mexico, the US, the FTAA, the OAS, the G3 (Colombia, Mexico, Venezuela), SELA and Japan. International migration could make a significant contribution in this context by raising the likelihood that such regional cooperation bloc takes place and by raising the benefit obtained from it This is likely to be important – and the welfare impact large – in cases where the heterogeneity in the endowments of the bloc’s member states is large.
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