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Commerce and Institutions:
Trade, Scope, and the Design of Regional Economic Organizations
Yoram Z. Haftel Department of Political Science
University of Illinois at Chicago
Paper prepared for the Workshop on the Politics of Trade Agreements: Theory,
Measurement, and Empirical Applications. April 30-May 1, 2010, Princeton University.
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Abstract:
The design of current regional economic organizations (REOs) is remarkably diverse.
Some REOs address numerous economic issues, while others have only limited
mandates. Some REOs have an independent bureaucracy and a legalized dispute
settlement mechanism (DSM), while others do not. What determines this institutional
variation? Neofunctionalists maintain that commercial ties and the proposed level of
economic cooperation are important drivers of regional institutionalization, institutional
independence and legalization. A number of recent studies question this logic and argue
that it is “naïve.” Empirical evidence on the links between commerce, economic scope,
and regional institutions is scant, however. Using an original data set that contains
detailed information on the activities and institutional structure of twenty-five REOs over
two decades, this paper presents one of the first systematic analyses of these
relationships. The empirical analysis indicates that the neofunctionalist wisdom is right
after all. Controlling for several alternative explanations, I find that higher levels of
regional trade are associated with greater REO institutionalization, scope, and more
independent bureaucracies. In addition, greater economic scope is associated with more
independent bureaucracies and more legalized DSMs.
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The ever-growing number and the increasing political and economic significance of
regional economic organizations (REOs) is one of the hallmarks of the current global
economy. A glance over the landscape of these institutions suggests that their structure
and functions are very diverse. Some organizations, such as the EU and ASEAN, address
a variety of functional issues, while others, such as SAARC and ECO have only a limited
scope.1 Some REOs, such as ANCOM and WAEMU have an independent bureaucracy,
but others, such as IOC and NAFTA, have weak or no corporate bureaucracy. Some
REOs, such as the EU and COMESA, have a highly legalized dispute settlement
mechanism (DSM), while others, such as SACU and LAIA, do not. What determines this
institutional variation?
The level of economic integration is perhaps the most cited explanation for the
existence and institutionalization of these organizations. Most notably, neofunctionalists,
who observed the process of European integration, maintained that increasing cross-
border economic interactions result in growing societal demands for international
regulation of such exchange (Caporaso 1998; Haas 1966). In particular, they argue that
when the potential for economic gains from regional integration is significant “market
players will… have an incentive to lobby for regional institutional arrangements that
render the realization of these gains possible. The demand for regional rules, regulations,
and policies by market players is a critical driving force of integration” (Mattli 1999, 42).
Consequently, governments in interdependent regions will recognize the necessity to
manage their interactions through international institutions and will form regional
organizations to fill this function. Logically, one expects that higher levels of
interdependence should result in greater institutionalization of these regional
arrangements.
Several studies pay greater attention to specific design features and argue that
high levels of interdependence lead to more independent organizations. As economic
exchange increases and becomes more complex, societal actors demand such
international governance in order to reduce transaction costs and lower risks of
opportunism, uncertainty, and non-compliance (Abbott and Snidal 2000; Stone Sweet and
Sandholtz 1998; Yarbrough and Yarbrough 1992, 86-88). Such independence is often
embodied in more powerful regional secretariats or commissions. As these organs
become more autonomous and have more resources, they are better equipped to monitor
the behavior of member-states and provide neutral information on the degree of
compliance with existing agreements (Abbott and Snidal 1998, 20; Haftel and Thompson
2006). In addition, more extensive economic interaction is likely to intensify
disagreements over the distribution of costs and benefits of this exchange, and in turn
strengthen the need for a disinterested body to address distributional concerns. Thus,
greater economic interdependence is expected to result in a more independent corporate
bureaucracy.
Along similar lines, extant research suggests that higher levels of economic
integration lead to the creation and legalization of regional DSMs. These adjudicating
bodies are especially instrumental when members engage in heavy cross-border activity
on a variety of economic issues. Moreover, greater economic scope is likely to increase
1 See the Appendix for the full name of these organizations.
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the number of rules and their complexity. Under such circumstances, potential conflicts
or disagreements on how to interpret the rules are more likely to erupt (Johns and
Rosendorff 2010; Smith 2000; Stinnett 2007; Stone Sweet and Sandholtz 1998;
Yarbrough and Yarbrough 1992; 1997). Governments, firms, and other social groups that
contribute to and are affected by regional interdependence will therefore demand a
neutral arbitration body to reduce the risk of doing business and to sort out unanticipated
challenges that may arise from the integration process. Hence, greater economic
interdependence is expected to result in a more legalized DSM.
Despite the intuitive appeal of the purported positive effect of economic
interdependence on regional institutions, this logic was challenged from a number of
perspectives. In the 1970s, the neofunctionalist research program was heavily criticized,
even by its own proponents, due to its inability to explain the institutional retreat of its
most celebrated case, namely the European Community (Haas 1975). More recent studies
argue that this functional approach fails to account for institutional differences across
existing REOs. Miles Kahler, who labeled this approach „naïve institutionalism‟ contends
that “regional institution building demonstrates a cyclical pattern that bellies any simple
explanation based on the demands of economic integration” (1995, 80). Joseph Grieco
finds that “contrary to functionalist expectations, in some areas of the world there have
been increases in intraregional trade without a corresponding increase in
institutionalization…Moreover, in some cases we can observe growth of
institutionalization, in the absence of increased trade encapsulation” (1997, 172). In the
same vein, Acharya and Johnston (2007, 257) find “little evidence of the salience of
functional considerations [in the design of regional institutions].”
These critical evaluations suffer from the same limitation they themselves
underscore with respect to neofunctionalism. Just as the latter relied on the European
experience to make sweeping generalizations, so did the former reach its conclusions
based on a small number of case studies and without clear metrics of institutional design.
This paper sheds new light on this debate. Using an original data set that contains detailed
information on the activities and institutional structure of numerous REOs in the 1980s
and 1990s, it presents one of the first systematic analyses of these relationships. The
empirical results largely vindicate that the neofunctionalist logic. Accounting for several
alternative explanations, I find that higher levels of economic integration are associated
with greater regional institutionalization and scope, more independent bureaucracies, and
more legalized DSMs.
The next section elaborates on the nature of REOs, presents the measures used to
evaluate institutional differences across these organizations, and describes this variation.
The third section discusses matters of research design, the fourth section reports the
results of the statistical analysis, and the final section concludes.
Conceptualization and Measurement of REOs
A glance at the landscape of regional economic organizations reveals a great deal of
variation in the objectives and structures of these institutions. This section takes a closer
look at the functions performed by and the institutional features contained in a large
number of regional economic organizations. It, first, describes the type of institutions
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considered in this study. It then discusses the design features purported to be affected by
economic interdependence. It provides a definition for each organizational characteristic
and justifies it, links this feature to specific quantifiable indicators, and elaborates on the
manner by which their implementation is assessed. Next, it presents an original data set
of twenty-five REOs coded according to these guidelines in the 1980s and the 1990s.
This description underscores the significant institutional variation across the
organizations included in the data set. The Appendix provides a list of these organizations
and a table that summarizes the indicators included in the variables related to regional
institutionalization.2
What Are Regional Economic Organizations
REOs are a class of international governmental organizations (IGOs). Unlike other
international agreements, IGOs have a continuous institutional framework and some kind
of formal structure. In addition, the membership of IGOs is restricted to nation-states and
they include at least three such members (Pevehouse, Nordstrom, and Warnke 2004).
Two aspects distinguish REOs from other IGOs. First, while they sometimes address
non-economic issues, the primary objective of these organizations is the promotion of
economic policy cooperation among their members (Mansfield and Milner 1999). Even
though some REOs have security-related components, the Economic Community of
Western African States (ECOWAS) and Mercosur for example, they are not alliances.
Despite the involvement of many of these communities in social and political issues, their
core mandate is economic. Second, membership in these organizations is restricted to
geographically proximate states. While some REOs span sizable swaths of territory, like
the Latin American Integration Association (LAIA), they are all regional rather than
global in nature (Nye 1971).
This conceptualization excludes several types of agreements that are related to
economic regionalism but do not qualify as REOs. These exclusions are consistent with
the conventional practice.3 Many of the preferential trade agreements (PTAs) that were
concluded in recent decades are bilateral and almost always lack a continuous
institutional framework. These agreements, as well as similar agreements between two
REOs or an REO and another country, do not meet the standard criteria of international
organizations. Non-reciprocal agreements, such as the U.S. Caribbean Basin Initiative
(CBI) and the Lomé Convention, are excluded on similar grounds. Finally, framework
agreements, like the Asia Pacific Economic Cooperation (APEC), are also excluded.
While these agreements may embrace the idea of regional cooperation, they lack concrete
measures to achieve this goal. Twenty-five REOs that span most continents and include
the majority of the states world-wide correspond to these criteria. To facilitate the
systematic comparison of these organizations, I now turn to a detailed consideration of
their institutional components.
2 For more detail on these organizations and indicators, see Haftel (2010), Chapter 3.
3 See Page 2000a; Pevehouse, Nordstrom, and Warnke 2004; Mansfield and Pevehouse 2000; Smith 2000;
and UIA.
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The Scope of Economic Activity
Scope is widely recognized as an important dimension of institutional design
(Koremenos, Lipson, and Snidal 2001) and regional integration (Acharya and Johnston
2007; Grieco 1997; Hicks and Kim 2009; Kahler 1995). It commonly refers to the range
of issues incorporated in a given organization in order to meet its objectives. Scope
therefore differs from and is subsumed by mandate, which refers to the broad purpose of
the organization (Acharya and Johnston 2007, Boehmer, Gartzke, and Nordstrom 2004).
Restricting the analysis to organizations with economic mandate, one can distinguish
between those that address only a handful and those that touch on a variety of issues. A
systematic evaluation of the scope of economic activity requires an identification and
differentiation of the issues that REOs can potentially include. This task is complicated
by the ambiguity of the boundaries between different subject-matters (Koremenos,
Lipson, and Snidal 2001, 771).
In spite of their broadly similar mandate, issue differentiation across REOs is still
a significant obstacle. For example, are fiscal and monetary coordination two issues or
one? Should one conceptualize trade liberalization according to the number of sectors
covered in the agreement or the kind of liberalization (tariffs, quotas, non-tariff barriers)?
A number of studies that conduct an in-depth qualitative assessment of the implications
of economic scope for cooperation and integration in different regions dodge these issues
(Acharya and Johnston 2007; Grieco 1997; Kahler 1995; Katzenstein 1997). They
provide a number of insights into the significance of this institutional feature, but define
this concept very broadly and fail to provide guidance on how to compare economic
scope across time and space in a rigorous manner. As a result, evaluation of different
REOs on this aspect appears impressionistic and lacks clear metrics.
A more systematic method builds on the traditional distinction between different
types of integration schemes. First developed by Bela Balassa (1961), this approach
classifies REOs according to their commitment to economic integration. The four main
categories, from the most limited to the broadest in scope, are free trade area, customs
union, common market, and economic union. Consistent with the development of
economic integration in Europe, on which this classification is founded, these categories
are also conventionally used to describe the process of economic integration. In this view,
REOs broaden and deepen their scope as they gradually advance from one scheme to the
next. This classification is still widely used in economics (Frankel 1997; OECD 1993)
and political science (Bearce and Omori 2004; Hicks and Kim 2009; Laursen 2003;
Smith 2000). The clear and simple classification offered by this approach is very
appealing. In addition, it captures some of the most important activities REOs usually
cover, particularly those related to international trade. Nonetheless, this approach suffers
from two important limitations.
First, these different categories fail to capture the range of activities that REOs
engage in, even in the supposedly exemplary case of European integration (Nye 1971,
28-30). Indeed, many REOs deal with a number of important issues such as foreign
investment, development, and industrial cooperation, which do not fit in these traditional
categories. Second, both theory and practice show that there are multiple paths to
economic integration that diverge from this simple evolutionary model (Choi and
Caporaso 2002, 483; Foroutan 1993; Nye 1971, 29; Page 2000a, 8). The CFA Franc
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Zones in Sub-Saharan Africa, for example, have established a monetary union but not a
customs union, and the GCC made considerable progress on free movement of labor and
capital but not on a common external tariff. Third, this classification is formal and
ignores the degree of implementation of these arrangements.
The conceptualization of economic scope adopted in this study begins with the
traditional approach, but adds a number of modifications to address the shortcomings
outlined above. It identifies nine broad areas of economic cooperation and integration
commonly tackled by REOs. The first six categories are largely compatible with the
traditional categories. These are free movement of goods, customs union, free movement
of services, free movement of capital and investment, free movement of labor, and
monetary and fiscal cooperation. The remaining three areas include sectoral cooperation
and harmonization, economic development, and efforts to enhance collective bargaining
power. These are important issues that correspond to key goals of past and present REOs
(Page 2000a). Each area consists of two to four specific indicators that capture the
breadth and depth of cooperation on this issue. Taken together, these twenty-four
indicators are general enough to “travel” across different regions and detailed enough not
to miss essential economic issues that REOs typically address.
Each and every indicator is measured along two dimensions. The first – labeled
DESIGNED SCOPE – refers to approved agreements that specify the mandate of the
organization. This is a necessary and important dimension of any institution (Acharya
and Johnston 2007; Hicks and Kim 2009; Koremenos, Lipson, and Snidal 2001). Each
indicator can obtain a value of 1, if present, and 0 if absent. Thus, the designed scope of
economic activity can range from 0 to 24. This approach does not assume a gradual
process of integration, but instead, allows any indicator to score a point independent of
other indicators. In addition, consistent with conventional practice, all the indicators are
weighted equally (Fortna 2004).
Implementation
The second dimension of economic scope is implementation, which refers to the actual
steps that member-states take to realize the agreements they have reached. In most
instances it involves the process by which governments transfer their international
obligations to domestic laws, regulations, and policies (Victor, Raustiala, and Skolnikoff
1998, 4).4 It captures the notion that international cooperation involves not only
agreements and rules but also behavior according to them. As such, it is a key component
of international institutions. As Lisa Martin (2000, 18) points out, “if agreements are not
implemented, and the necessary policies changed, no cooperation has taken place. So it is
essential that we consider implementation of international agreements if we are to
understand patterns of international cooperation.”
Notwithstanding the importance of this institutional aspect, it is widely
overlooked by scholars of international politics, and measures of this concept are not
4 Implementation is related to but distinct from compliance. The former is usually a key step towards, but it
is neither a necessary nor a sufficient condition for the latter (Raustiala and Slaughter 2002, 539).
Implementation is also different from effectiveness, which refers to the relative success of an institution in
obtaining its stated goals (Acharya and Johnston 2007, 24-25; Raustiala and Slaughter 2002; Victor,
Raustiala, and Skolnikoff 1998).
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readily available. The collection of comparable data on implementation is more difficult
than on institutional design and is rarely done. As a first cut into this institutional
dimension, I created an ordinal scale: zero, one-half, and one. If the REO did not
implement the agreement regarding a specific indicator, or if implementation is low, the
REO scores zero. If implementation is complete, or nearly complete, the REO scores one
on the specific indicator. If implementation is partial, the REO scores half. For example,
many REOs reduce barriers to trade and factors of movement in a gradual process. If they
have completed only some of these steps, I code the degree of implementation as partial.
The multiplication of the two dimensions produces a second variable, labeled
IMPLEMENTED SCOPE. Member-states may implement all the planned activities, thus this
variable ranges from 0 to 24. If the agreements are not fully implemented, the value on
this variable will be lower than the one on institutional design alone. One might imagine,
for example, an REO that has an agreement on twenty indicators, that is, DESIGNED SCOPE
equals 20. Of these, ten indicators are fully implemented, four are partly implemented,
and six remain only on paper. The value on IMPLEMENTED SCOPE is calculated as follows:
(10*1) + (4*0.5) + (6*0) = 12.
Institutional Independence
Institutional independence includes three essential and tightly-linked dimensions:
autonomy, neutrality, and delegation (Haftel and Thompson 2006). Autonomy refers to
the organization‟s ability to function in a manner that is insulated from the interests of its
members. Thus, greater autonomy reflects a more limited control of states over and a
broader range of actions available to the organization (Abbott and Snidal 1998; Hawkins
et al. 2006; Thompson 2006).5 Neutrality reflects the notion that an independent actor is
not prejudiced in favor of one party over another. Instead, a neutral actor is guided by
professionalism and impartial judgment. As Keohane, Moravcsik and Slaughter (2000,
459) propose with respect to international courts and tribunals, independence measures
“the extent to which adjudication is rendered impartially with respect to concrete state
interests.” Even if an organization is autonomous and neutral, its influence depends on
the responsibilities and power delegated to its institutions. As institutional properties,
independence and delegation are tightly intertwined (Keohane, Moravcsik and Slaughter
2000). International institutions with a significant delegated authority have discretion
with respect to agenda setting and dispute management (Abbott and Snidal 2000;
Hawkins et al. 2006). The existence and discretion of regional bureaucracies and the
existence and legalization of third-party dispute settlement mechanisms capture the three
elements of REO independence. They are discussed in turn.
Corporate Bureaucracy
This administrative body, typically labeled secretariat or commission, is charged with
everyday operations of the organization. The personnel is employed by the organization
and thus intended to serve regional rather than national interests. Variation in the
independence of regional bureaucracy is captured with two indicators that examine
5 Other observers conceptualized this dimension as institutional authority (Grieco 1997, 169-170) and
commitment institutions (Mattli 1999, 54).
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whether an REO has a neutral bureaucracy and the extent to which this bureaucracy is
delegated meaningful discretion. When states endow organizations with a secretariat or
commission, they are delegating to a centralized authority and generating independence
in the process. It is unsurprising, then, that governments sometimes resist the
establishment of and that not all REOs have a secretariat. The Southern African Customs
Union (SACU), for example, was managed through the Finance Department of South
Africa until 2004 and the Bangkok Agreement is still coordinated by the Economic and
Social Commission for Asia and the Pacific. Thus, one point is assigned to organizations
that have a distinct permanent secretariat or its equivalent.
When there is a permanent secretariat, the degree of responsibility that the
member-states delegate to the organization‟s bureaucracy is an important sign of
independence. While most secretariats perform informational and operational roles,
some bureaucracies are provided with additional and much more active responsibilities.6
In particular, some secretariats and commissions can initiate and recommend policies and
thereby promote the goals of the organization, prerogatives that greatly enhance
bureaucratic authority. The European Commission represents the ideal-type for
secretariats with the power to initiate policies, and the bureaucracies of the Andean
Community and WAEMU enjoy similar powers and prestige. Many other organizations,
in contrast, have weak secretariats that play a rather passive role in the promotion of
regional cooperation. REOs whose bureaucracy can initiate policies or make
recommendations score another point. Thus, BUREAUCRACY is an ordinal variable that
ranges from two for a highly independent bureaucracy to zero for no permanent regional
secretariat.
Dispute Settlement Mechanism
The prevalence of dispute settlement mechanisms in regional and other organizations
reflect the growing legalization of world politics. The imperfect design and the
unforeseen consequences of international institutions require an impartial body to
adjudicate when disagreements arise. Delegating this power to a centralized mechanism
reduces uncertainty and fosters cooperation (Hawkins at al. 2006; Johns and Rosendorff
2010; Yarbrough and Yarbrough 1997, 134-135). Not all DSMs are endowed with the
same degree of autonomy and legal authority. Some REOs, like ASEAN and the GCC,
adopted a non-binding third-party review process. Others, like COMESA and the CACM,
established a standing tribunal that its rulings are binding. In addition, some
organizations, such as ECCAS and AMU, have agreed to form a dispute settlement in
principle, but have not followed up on their plans.
James McCall Smith (2000) evaluates the legalization of different DSMs along
five dimensions: the existence of a third-party review, the bindingness of ruling, the
existence of a standing tribunal, private standing, and the effect of the ruling. Following
Smith, these dimensions are collapsed into three ordered categories: none, low, and high
levels of independence. A low level of independence refers to an instance in which third-
party review is automatic and binding but judges are picked from an ad-hoc roster. This
design prevents members from bypassing or ignoring the ruling of the DSM, but give
6 This categorization of functions builds on Jacobson (1984).
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them power over the selection of the arbiter. A high level of independence entails a
standing tribunal as well as automaticity and bindingness. With this design, states have
little influence over the composition of the tribunal, ensuring its neutrality. I also consider
whether the DSM actually exists.7 Thus, to the extent that REOs have an operational
DSM, DISPUTE SETTLEMENT scores one point for each level of legalization for a
maximum of two points.
Regional Institutionalization
The combination of economic scope and high independence, discussed above, as well as
regular meetings among high-level officials captures the aggregate level of regional
institutionalization.8 Two overarching variables sum up the degree of functional activity
and political authority that states hand over to the organization. The first variable,
labeled DESIGNED INSTITUTIONALIZATION, merges DESIGNED SCOPE with the remaining
five indicators. It captures the structure and the intended functions of the REO. The
second variable, labeled IMPLEMENTED INSTITUTIONALIZATION, takes into account the
actual functioning of the organization. It substitutes DESIGNED SCOPE with IMPLEMENTED
SCOPE. Both variables range from zero to twenty-nine.
Coding and Data
With definitions and measurements in hand, I code the twenty-five REOs listed in the
Appendix on the institutional variables described above. Regional cooperation is a
gradual process, and signing agreements, ratifying them, and implementing them, can be
time consuming. Institutional change usually takes, at the very least, several years to
accomplish. This reality has two implications for the design of the data set. First, since
changes from one year to another can be incremental, I collected information every
several years. More precisely, I coded the various REOs in a five-year interval: 1982,
1987, 1992, and 1997, which is conventional in the discipline. Second, because it is
difficult to properly evaluate REOs that exist for a short period of time, only
organizations that were formed before 1993 are examined. Eighteen out of the twenty-
five (about 75%) REOs included in the sample were formed before 1982 and thus have
four observations. Of the remaining organizations, four have three observations and three
have two observations.
When coding the degree of institutionalization of the REOs, I relied on various
secondary sources. Several books that survey REOs were used to code the formal
agreements. These include the IMF (1994), UNCTAD (1996), the African Development
Bank (2000), and Page (2000a). In addition, I used the UIA‟s Yearbook of International
Organizations (various years), the IMF Directory of Economic, Commodity, and
Development Organizations website, and some of the REOs‟ own websites. The coding
of dispute settlement mechanisms follows Smith (2000).9 Each coding is a result of cross-
examination of these different sources. Similar secondary sources, as well as newspaper
7 This is different from utilization. DSMs may be operational but underutilized. The design of DSMs may
affect their utilization and effectiveness (Haftel 2010; Kono 2007; Posner and Yoo 2005). 8 On the role of regular meeting among top-level officials, see Haftel (2007, 2010).
9 I coded cases that are excluded from Smith‟s study according to his own criteria.
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articles and independent reports, were employed to determine the degree of
implementation. In addition, in-depth case studies of specific REOs were surveyed. In
order to increase the reliability of the coding and to reduce the risk of measurement
errors, several sources were compared before the value of each indicator was determined.
Haftel (2004) provides a list of these sources.
The Landscape of Regional Economic Organizations
This section builds on the data collection effort thus far described to assess the variation
in the institutionalization and design of REOs included in the sample. It first examines
general trends across regions and over time. It then considers specific design features and
the relationships between them. The analysis highlights the substantial institutional
variation across existing organizations and reinforces the call for a nuanced treatment of
their structure and functions. It also indicates that the measures constructed for this study
are compatible with extant research, providing them with face validity. The appendix
presents descriptive statistics for all the variables.
Regional Institutionalization
To gauge the scale of regional institutionalization worldwide, each of the two
overarching variables are divided into three groups along a continuum of
institutionalization: low, medium, and high. Figure 3.1 reports the number of
organizations that fall in each of these categories.10
It substantiates the widespread
intuition, shared by this study, that all REOs are not alike (Choi and Caporaso 2002;
Mansfield and Milner 1999; Page 2000a). Many organizations are weakly
institutionalized, but others exhibit intermediate or high levels of institutionalization. It
also underscores the gap between institutional design and implementation. Considering
only institutional design, it appears that a large number of REOs signed ambitious
agreements with lofty goals. About seventy percent of all organizations fall in either the
intermediate or high category. This trend is turned on its head when taking into account
implementation, however. About seventy percent of the REOs fall in the low category
and only one (the EU) falls in the high category. This observation underscores the reality
that many organizations, especially those among developing countries, fall short of their
stated objectives (de la Torre and Kelly 1992; Langhammer and Hiemenz 1990; OECD
1993, 65).11
[Figure 1]
An overview of the evolution of REOs throughout the 1980s and the 1990s
indicates that economic regionalism is a dynamic phenomenon. This is apparent from the
sheer number of organizations included in the sample in each time point, which increases
from eighteen in 1982 to twenty-five in 1992, and the increasing level of
institutionalization over this time-period. Figure 2 depicts the annual average of
10
For each REO, the value represents the average across the different time points. Even though the level of
institutionalization changes over time, most REOs remain in the same category. 11
This gap reflects, in part, failed attempts by developing countries to “import” European agreements and
institutions to their own regions. Langhammer and Hiemenz (1990, 2) label this as the “fallacy of
transposition.”
12
institutionalization for the eighteen REOs that have all four observations,12
and
demonstrates that its average level has substantially increased over this fifteen-year
interval. This is evident for both designed and implemented institutionalization, which
exhibit a growth rate of twenty-five and thirty percent, respectively. REOs like
ECOWAS, the Andean Community, and ASEAN are but a few examples of this
development.13
This description corresponds to other recent assessments of this trend. A
number of observers point out that the wave of regionalism ensued in the early 1990s
deals with more issues and strives for deeper cooperation, compared to previous efforts
(Hettne 1999, 7-8; Kahler 1995, 81-82; Mansfield and Milner 1999).14
[Figure 2]
Turning to the institutionalization of specific REOs, Figure 3 presents the average
designed and implemented levels for each organization. It further validates the
observation that existing REOs exhibit considerable institutional variation. It also
illustrates the uneven gap between design and implementation. For some REOs, such as
ASEAN, SACU, and the EU, the former diverges from the latter only slightly. In other
organizations, most notably AMU and ECCAS, implementation falls far short of
institutional design. The variation reported in Figure 3 bestows the measure with a degree
of face validity. Consistent with conventional wisdom, the EU emerges as the most
institutionalized REO, far ahead all the other organizations (Acharya and Johnston 2007;
Choi and Caporaso 2002, Grieco 1997; Katzenstein 1997).15
Detailed comparisons that
go beyond the EU offer additional indications that the measure described above is
compatible with other assessments of cross-regional variation (Acharya and Johnston
2007, 245; Choi and Caporaso 2002; Grieco 1997; IMF 1994; Page 2000b). At the same
time, it provides one of the first nuanced and systematic treatments of this variation and
offers a clearer picture of institutional differences across regions and over time.
[Figure 3]
Design Features and Relationships among Them
Moving beyond the overarching measures of regional institutionalization, it is worthwhile
to consider the variation on specific design features. Patterns pertaining to the scope of
economic activity largely resemble those of the broader institutionalization measures.
This is not surprising as scope comprises about eighty-percent of regional
institutionalization. Again, substantial variation exists on designed and implemented
scope and the gap between them is often considerable. The average score on designed
scope is more than twice the average score on implemented scope.
12
Newly formed REOs have low levels of regional institutionalization that may lead to an artificially low
average. It is thus more informative to compare the same group of organizations across time. 13
Most, but not all, REOs have experienced increasing institutionalization. Some organizations, such as
SACU and LAIA, showed little dynamism and others, such as MRU and CEPGL, have experienced
declining levels of institutionalization. 14
This is sometimes dubbed as the “new” or “open” regionalism. 15
Nonetheless, the EU has much in common with other REOs and serves as a useful yardstick (Acharya
and Johnston 2007; Kahler 1995).
13
The existence and power of corporate bureaucracy fluctuates across different
organizations and over time. While almost all REOs have established a secretariat or a
commission, only a handful of these bodies have the authority to make recommendations
or initiate policies. Some, the ASEAN Secretariat and the WAEMU Commission for
example, have obtained such power only in the 1990s. REOs institute a binding dispute
settlement mechanism only infrequently.16
About a third of the observations (thirty-two
out of ninety) score at least one on this variable. Three-quarters of these mechanisms
(twenty four out of thirty two) are standing tribunals, however. This feature, too, exhibits
some temporal variation. REOs like EFTA and CACM have established their DSM only
in recent decades.
As Table A3 reports, the correlation between the different institutional features is
always positive, suggesting that wider economic scope is frequently accompanied by
greater institutional independence. At the same time, most bivariate correlations range
from low to intermediate, underscoring the diverse nature of existing regional
organizations. The correlation between economic scope and the two features pertaining to
independence are quite modest, ranging from 0.3 to 0.5. Presenting the average score on
implemented scope and institutional independence, Figure 4 illustrates this multiplicity of
arrangements. Some organizations, such as WAEMU and IOC, score high and low on
both aspects, respectively. Other REOs, in contrast, score high on one aspect but low on
the other. ECOWAS is rather independent but has a limited economic scope. SACU and
the GCC, on the other hand, have a wider scope but are less independent. Interestingly,
the correlation between the two variables related to independence is only 0.28. Thus,
while some REOs have both an independent secretariat and a standing tribunal, others
have one but not the other. LAIA, for example, includes an independent secretariat but
not a binding DSM. In contrast, COMESA has a standing tribunal but a weak secretariat.
Thus, institutional independence may develop in a number of different ways. Taken
together, this descriptive analysis highlights the varied landscape of existing REOs with
respect to their functions and structure, and indicates that each design feature captures a
distinct aspect of regional institutionalization, which merits separate empirical analysis.
Research Design
In order to test the hypothesized effect of economic interdependence on regional
institutions, I use the original data set described in the previous section. Because I am
interested in the sources of the structure and functions of REOs, which are institutional
traits of the organization and not of any particular dyad, the empirical analysis is
conducted at the regional level of analysis, defined by organizational membership. The
independent variables, described in more detail below, are also defined and measured at
the regional level, since there are good reasons to believe that some types of interactions
are not adequately captured by monadic or dyadic setup and are more amenable to
regional ones. In particular, a number of recent studies point out that economic
interdependence, security relations, and regime types tend to cluster geographically,
suggesting that regional dynamics are at work (Buzan and Wæver 2003; Gleditsch 2002).
16
Many REOs have a non-binding DSM, see Smith (2000).
14
Such regional analysis serves as a useful complement (rather than a substitute) to the
more conventional monadic and dyadic analyses.
The dependent variables are the six variables related to regional
institutionalization. These variables have different distributions and thereby handled with
different statistical tools. The four variables related to the overarching level of regional
institutionalization and economic scope – DESIGNED INSTITUTIONALIZATION,
IMPLEMENTED INSTITUTIONALIZATION, DESIGNED SCOPE, and IMPLEMENTED SCOPE – are
continuous. They are estimated with an ordinary least squares (OLS) regression
technique. The estimations of these variables include a random-effects specification,
which accounts for unobservable cross-regional variation. The values of the two
remaining variables – BUREAUCRACY and DISPUTE SETTLEMENT – are ordered on a 0-2
scale. They are estimated with an ordered probit model. The random effects specification
is not available with this technique. Instead, the standard errors of the estimates are robust
and clustered by REO.
Independent Variables
The main independent variable, economic interdependence, is measured with TRADE
SHARE, which is intra-regional trade as a percentage of the total regional trade (Grieco
1997; Page 2000a). A greater proportion of intra-regional trade indicates that REO
members trade more among themselves relative to their trade with the rest of the world,
which in turn suggests greater regional interdependence. UNCTAD provides information
on trade share for most REOs, based on their exports.17
Turning to some specific design features, extant research suggests that it is not
necessarily the intensity of economic relationships, but rather the proposed level of
institutionalized cooperation that determines the authority and centralization of regional
institutions. Specifically, it is argued that greater economic scope calls for greater
legalization and institutional strength (Acharya and Johnston 2007, 268; Johns and
Rosendorff 2010; Kahler 2000; Smith 2000; Stinnett 2007). To account for this
possibility IMPLEMENTED SCOPE is included in the models that examine the sources of
top-level meetings and institutional independence. Because economic interdependence
and economic scope are highly correlated, they are included in separate models.
Two competing explanations emphasize the distribution of power among the
group members and offer opposing views. First, according to assumptions of both realism
and bargaining theory, powerful states should prefer weak international institutions
designed to reflect the distribution of power among their members. Because they have
viable unilateral and bilateral options, when it comes to creating or working through
REOs, powerful states face greater opportunity costs than other states. Weaker states, on
the other hand, might be expected to favor powerful organizations in order to constrain
their more dominant counterparts. Insofar as the preferences of the powerful members
prevail, greater power asymmetry between the members of an REO should be associated
with lower levels of institutionalization. This argument is most applicable to the design
features related to institutional independence because powerful states are especially
17
Trade data for SACU is not available, and most likely does not exist (Page 2000a, 117).
15
worried about excessive institutional autonomy and legalization (Haftel and Thompson
2006; Smith 2000).
An alternative argument focuses on the importance of hegemonic power as a
supplier of regional institutions. This view can be traced back to Karl Deutsch, who
argued that successful political integration tends to develop around one core area that
pushes it forward (Deutsch et al. 1957, 38). More recently, several scholars grounded this
argument in theories of collective action and hegemonic leadership, arguing that
hegemons bear the costs associated with higher levels of integration (Mattli 1999;
Yarbrough and Yarbrough 1992, 61-66). This argument indicates that greater power
asymmetry within a region is likely to be associated with greater institutionalization. The
effect of power asymmetry on regional institutions is measured with the so-called
concentration ratio, which takes into account both the relative economic size of all
members and the number of members in the organization (Mansfield and Pevehouse
2000; Smith 2000). The value of this variable, labeled CONCENTRATION, increases as
asymmetry grows and is bounded between 0 and 1. GDP data from the Penn World
Tables is used to calculate this variable (Heston, Summers, and Aten 2002).
A number of recent studies highlight the link between democracies, international
organizations, and regional institutions. Mansfield, Milner, and Rosendorff (2002) argue
that democratic governments are more likely to tie their hands to REOs, and find that
democratic dyads are more likely to sign such agreement. Accordingly, one might expect
REOs among democratic states to be more institutionalized than those among non-
democracies (Mansfield, Milner, and Pevehouse 2008). Regime type is claimed to have
particular implications for institutional independence. Democracies, it is argued, are more
likely to delegate authority to international organizations as well as to create and use
international adjudicating bodies (Kahler 2000; Pevehouse and Russett 2006).
To measure regional “democraticness,” I employ the widely used Polity IV
definitions and data (Jaggers and Gurr 1995; Marshall and Jaggers 2002).18
The
composite regime type measure is the difference between the level of democracy and the
level of autocracy, which ranges from -10 to 10 for strong autocracy and strong
democracy, respectively. After calculating the five-year regional average of this
composite variable, I distinguish between regions with an average Polity score of six or
higher, indicating that the region is democratic, and those that fall short of this threshold,
suggesting that the region is not inhabited by mature democracies. Thus, DEMOCRACY
DUMMY is a dichotomous variable that scores one if the average level of regional
democracy is greater than six, and zero otherwise.19
The potential effect of domestic conflict on international cooperation remains
largely unexplored. Nevertheless, a number of arguments suggest that civil wars are
likely to inhibit regional institutionalization. First, states that experience domestic
instability may have to devote their material and political resources to address these
problems rather than to empower regional organizations (Nye 1971, 82). Second, insofar
18
This data set does not provide information on micro-states (population less than one million). Such states
are not included in the calculation of regional measures. All members of the OECS are micro-states, thus
values for this organization are missing. 19
Alternative specifications, such as the actual Polity average or the score of the least democratic member,
do not change the results in a meaningful manner.
16
as REOs require the delegation of national autonomy, governments whose authority is
challenged at home may be more jealous of their sovereignty, and thus less willing to
entrust international institutions with political independence. Third, neighboring states
may be reluctant to institutionalize their economic relationships with countries that
experience domestic strife, fearing that the conflict will spill over national borders and
destabilize the broader region. As one observer of regional integration in Africa notes,
“instability and insecurity have emerged as the greatest impediments to regional
integration in Central Africa...The fear of a few states‟ contagious warmongering
…hindered the desire to construct a common political and economic space” (Ropivia
1999, 126).
Domestic violence is measured with the count of all the incidents of domestic
armed conflicts occurred in any of the organization‟s members, reported in the Uppsala
Conflict Data Program‟s (UCDP) Armed Conflict Dataset (Gleditsch et al. 2002). This
data set distinguishes among four types of wars: interstate armed conflict, extra-state
armed conflicts, internationalized internal armed conflicts, and internal armed conflicts. It
also divides armed conflicts into three levels of intensity: minor armed conflict,
intermediate armed conflict, and war.20
I count all the incidents among members of an
REO that are defined as internal armed conflict. This variable, labeled CIVIL WAR
MEMBERS, aggregates the number of conflicts over a five-year period, which is then
divided by the number of member-states.
Turning to international conflict, realists expect enmity and war to restrain
cooperation (Grieco 1988), while institutionalists believe that governments are likely to
invest in international institutions where conflict is more likely (Fortna 2004; Wallander
and Keohane 1999, 30-32). I account for this factor with the amount of armed conflict
within a given region. This is captured by the number of annual militarized interstate
disputes (MIDs) between members of the organization over a five-year period (Ghosn,
Palmer, and Bremer 2004; Jones, Bremer, and Singer 1996). The number of disputes is
likely to increase as the number of REO members grows. To account for this possibility,
the number of incidents is normalized by the number of members. Thus MIDS MEMBERS is
the total number of armed disputes divided by the number of members.21
The conventional wisdom holds that there is a tradeoff between the expansion and
deepening of REOs. More inclusive organizations may face greater difficulties in
institutionalizing their cooperation (Acharya and Johnston 2007; Langhammer and
Hiemenz 1990, 69; Mansfield and Milner 1999, 615-16). In addition, as the number of
members increases, so is the possibility of greater diversity within the group (Haggard
1997, 24; Kahler 1995, 126; Koremonos, Lipson, and Snidal 2001). Thus, larger
organizations may result in a more limited scope of economic activity. On the other hand,
organizations that include numerous members can benefit from greater centralization and
independence, which reduce the transaction costs associated with separate bilateral
20
A minor armed conflict involves at least 25 battle-related deaths per year and fewer than 1,000 battle-
deaths during the course of the conflict. An intermediate conflict involves at least 25 but less than 1,000
battle-related deaths per year and an accumulated total of at least 1,000 battle-deaths during the course of
the conflict. Like in the COW data set, a war involves at least 1,000 battle-deaths per year. 21
Taking into account only violent disputes does not change the results. For an in-depth discussion of the
link between regional conflict and regional institutionalization, see Haftel (2007, 2010).
17
negotiations (Koremonos, Lipson, and Snidal 2001, 788-789). Accordingly, REOs that
consist of more states may institute more independent regional bureaucracies and DSMs.
The implications of membership for institutional design are considered with MEMBERS,
which is a five-year average count of the states that are members of an REO.
Similarity of the organization‟s members is an oft-cited condition for cooperation
through international institutions. Arguably, states that share values and interests will find
it easier to institutionalize their economic relationships (Haggard 1997, 46). The
similarity of interests within the REO is captured with the average regional S score
(Signorino and Ritter 1999). The S score ranges from -1 to +1 where a value of 1
indicates that the interests of two states are perfectly aligned and a value of -1 indicates
that the interests of the two states are diametrically opposed. Like in other variables, the
dyadic scores are averaged for the region. The S score is measured with the two most
conventional methods: similarity of alliance portfolios (Bueno de Mesquita 1981;
Signorino and Ritter 1999)22
and similarity of voting in the United Nations General
Assembly (Gartzke and Jo 2002). The former is labeled AFFINITY ALLIANCES and the
latter is labeled AFFINITY UN. Since these two variables measure the same concept, they
are included in separate models.
Path dependency and other temporal dynamics may also help explaining the
degree of institutionalization and institutional design. Institutions are likely to be “sticky”
and tend to accrete new constituents, providing an impetus for expansion (Haftel and
Thompson 2006). These dynamics are captured with DURATION, which is the number of
years passed from the year in which the REO was formed to the year in which the
institutional variable is observed. In addition, the previous section points to a noticeable
increase of institutionalization in the post-Cold War era. A categorical variable, labeled
DECADE, accounts for this systemic change. It is coded 0 for the 1980s and 1 for the
1990s.
Results
Tables 1 and 2 present the results for the various dependent variables. Ordered probit
models are non-linear and the substantive effects of their estimates are not easily
interpreted. Table 3 reports the predicted probabilities of different values of the two
ordinal variables – BUREAUCRACY and DISPUTE SETTLEMENT – conditioned by different
values of explanatory variables that are statistically significant. The findings are largely
consistent with theoretical expectations and offer a number of interesting insights into the
sources of regional institutionalization and institutional design.
The effect of economic interdependence on regional economic organizations is
compatible with the conventional wisdom. In almost all models TRADE SHARE is positive
and statistically significant, indicating that the greater intensity of intra-regional
commercial ties stimulates the creation and institutionalization of regional economic
organizations. This result provides empirical support for the notion that states design
institutions in order to manage increasing cross-border transactions (Haas 1966; Mattli
1999; Stone Sweet and Sandholtz 1998). The models reported in Table 1 indicate that the
22
The globally weighted measure of alliance portfolio is used. Data is obtained from the EUgene software,
Bennett and Stam (2000).
18
effect of regional trade on the variables that take into account implementation is
especially pronounced. The statistical significance of these variables is much higher than
those that account for institutional design alone. Substantively, an increase of one
standard deviation in trade share increases designed institutionalization by close to two
points but implemented institutionalization increases by more than four points (on a 30-
point scale). Similarly, one standard deviation increases designed scope by 2.2 points but
implemented scope increases by 3.3 points (on a 24-point scale). Thus, high levels of
intra-regional trade compel states not only to sign agreements that are more far-reaching,
but also to implement them.
Similarly, strong trade links result in more powerful regional bureaucracies.
Model 5 indicates that the estimate of TRADE SHARE is statistically and substantively
significant. An increase from the minimum value to one standard deviation above the
mean of this variable increases the probability of a highly independent bureaucracy from
zero to almost thirty percent. Substituting trade flows with economic scope does not
change this conclusion, although the statistical and substantive effects are weaker.
Turning to DSMs, the effect of economic interdependence is positive but statistically
insignificant. Nonetheless, IMPLEMENTED SCOPE is significant at a ninety percent level of
confidence. Substantively, an increase from the minimum value to one standard deviation
above the mean of this variable increases the probability of a highly legalized DSM from
six to about twenty-eight percent. Thus, the analysis offers ample support for the positive
link between regional trade, economic scope, and REO independence.
[Table 1, Table 2, Table 3]
The estimates of regional concentration of power are mostly negative, suggesting
that regional hegemony is not conducive to regional cooperation through institutions. The
statistical significance of this variable varies across institutional features in manners that
help reconciling divergent theoretical expectations. The estimates in the models related to
regional institutionalization and economic scope, although negative, are almost always
statistically significant. This suggests that power preponderance does not prevent
member-states from engaging in cooperation on a wide number of issues or that this
effect is rather weak. The estimates in the models that pertain to regional bureaucracy and
DSMs are highly significant for the former and weakly significant for the latter. The
substantive effect of this variable on institutional independence is also considerable. It
appears, therefore, that regional powers are reluctant to delegate decision-making power
to regional organizations. This finding corroborates the claim that powerful states are
often loath giving up their control of regional politics and endow international
organizations with greater autonomy.
The relationships between democracy and regional institutionalization vary across
design features as well. Surprisingly, DEMOCRACY DUMMY has a negative and weakly
significant effect on designed institutionalization and scope. The sign is reversed and
becomes insignificant when implementation is taken into account. Perhaps, non-
democratic states tend to conclude extensive agreements that they are reluctant to put into
action. The coefficients on this variable are always positive and statistically significant in
three of the four models related to institutional independence, suggesting that more
democratic regions tend to form more independent regional bureaucracies and
organizations. Substantively, for example, the probability of a highly legalized DSM
19
increases from fourteen percent in non-democratic regions to forty-one percent in
democratic ones. This is consistent with the notion that democratic countries are more
likely to rely on commitment mechanisms to promote economic cooperation (Kahler
2000; Mansfield, Milner, and Rosendorff 2002; Pevehouse and Russett 2006).
In line with my expectations, civil wars exert a negative effect on the breadth and
depth of regional cooperation. Domestic violence appears detrimental to the broader
measure of institutionalization and the scope of economic activity. Substantively, an
increase of one standard deviation on this variable (which is about 1.6 domestic disputes)
reduces the level of implemented institutionalization by 1.3 points and implemented
scope by close to one point. On the other hand, the effect of domestic unrest on the
independence of regional bureaucracy and DSMs, while mostly negative, is statistically
insignificant. These findings suggest that governments that face internal resistance cannot
afford to invest time and resources in regional projects. They are less concerned, it
appears, with delegating power to regional organizations.
The estimates of the variables related to militarized disputes are negative in the
models that pertain to economic scope and to the aggregate level of regional
institutionalization, but they never reach conventional levels of statistical significance.
This result holds whether or not implementation is taken into account, indicating that
inter-state conflict does not hamper plans for and the realization of regional economic
cooperation. Interestingly, the estimates of the variables related to institutional
independence are almost always positive and reach conventional levels of statistical
significance in some of these models. As tables 2 and 3 indicate, this is especially
apparent with respect to DISPUTE SETTLEMENT. In substantive terms, moving from a MID-
free REO to one with a standard deviation above the mean of this variable increases the
probability of a highly legalized DSM from eight to twenty-four percent. Consistent with
the expectations of institutionalists, this finding indicates that regions that experience a
larger number of disputes are actually more likely to create independent mechanisms to
resolve them.
The effect of the number of members on regional institutionalization is generally
positive but statistically insignificant. The finding suggests that membership, in and of
itself, has no noticeable effect on the functions and structure of regional economic
organizations. In contrast, members‟ similarity of interests appears to play an important
role in the institutionalization of their organizations. The estimates of regional affinity,
measured with either similarity of alliance portfolios or voting in the UN Assembly, are
positive and statically significant in most models that account for the implemented levels
of regional institutionalization and economic scope and regional bureaucracy. Thus,
states that share political interests and concerns may find international cooperation
through institutions less threatening than states that do not. Possibly, the latter may be
more cautious due to uncertainty regarding the distribution of costs and benefits. In a
notable exception, the estimates of regional affinity are negative and significant in the
models that account for the legalization of DSMs. This result suggests that states with
divergent interests are likely to experience (or expect to have) more frequent
disagreements, which in turn require a more legalized mechanism to resolve them.
Duration exerts a positive and significant effect on economic scope and aggregate
levels of regional institutionalization. This finding points to the tendency of international
20
organizations to gradually expand their reach. Interestingly, the effect of this variable on
institutional design is stronger than the one on the implemented variables. Substantively,
ten years of existence add about 2.5 point to designed institutionalization but only one
point to implemented institutionalization. It is thus possible that member-states are
sometimes happy to sign new agreements but are less enthusiastic about following up on
them if they are not compatible with their goals. In addition, REOs that exist longer are
not necessarily more independent. The estimate of DECADE points in the same direction.
The results indicate that the regional economic organizations were more institutionalized
and included more numerous issue-areas in the 1990s compared to the 1980s. This
finding corresponds to the conventional wisdom regarding the “new regionalism.”
Conclusion
This paper examines the relationships between economic interdependence and variation
across regional economic organizations. In order to do so, it first presents a systematic
way to compare these organizations and offers a number of variables that capture
institutional differences between them. An original data set of a large number of REOs
indicates that existing arrangements vary a great deal in terms of their functions and
institutional structure. Building on this substantial variation, I empirically evaluate the
effect of economic integration on the institutionalization, scope, and independence of
these organizations.
The statistical analysis indicates that economic interdependence, conceptualized
either with trade flows or with the scope of economic activity, enhances the
institutionalization, independence, and legalization of REOs. Thus, despite recent
skepticism, this study offers ample support for the neofunctionalist approach.
Presumably, more intense economic exchange intensifies the risk and uncertainty
associated with cross-border commerce and the need to provide clear rules and
regulations to guide it. The results also highlight the importance of implementation. The
effect of regional trade on implemented levels of institutionalization and economic scope
is more considerable than design alone.
The results corroborate the expectations of several recent studies with respect to
other factors, such as the regional distribution of power, regime type, and militarized
disputes. In addition, they call attention to the distinct sources of specific design features.
Much of the extant research identifies some explanatory variables and applies them on
REOs as a whole, overlooking their diversity. The nuanced institutional analysis reported
here demonstrates that the effect of such variables varies across different design features
in predictable manners. For example, regional hegemony has no effect on economic
scope but tend to hamper greater independence. Regional democracy and interstate
violence, on the other hand, are associated with higher levels of independence and
legalization. Finally, the findings indicate that some factors, which so far received only
scant attention, are important predictors of REO variation. Most notably, civil wars
appear to be detrimental to regional institutionalization (but not independence). Shedding
more light on this nexus is a promising avenue of future research.
This study is only a first step in the investigation of the relationships between
regional trade and the design of REOs. One issue that merits greater attention is the
21
reciprocal nature of this link. After all, the neofunctionalist logic suggests that economic
interdependence and regional institutions should produce a positive feedback loop. That
is, to the extent that REOs are designed to increase transparency, predictability, and
compliance, they ought to foster international trade. This claim is supported by extant
empirical research (Hicks and Kim 2009; Kono 2007). Fleshing out the manners by
which these two variables interact, both theoretically and empirically, is likely to advance
the scholarly understanding of this timely issue.
22
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Table 1: Random Effects Estimates of the Sources of Regional Institutionalization and
Economic Scope, 1982-97
MODEL 1
DESIGNED
INSTITUTIONALIZATION
MODEL 2
IMPLEMENTED
INSTITUTIONALIZATION
MODEL 3
DESIGNED
SCOPE
MODEL 4
IMPLEMENTED
SCOPE
TRADE SHARE .138**
(2.12)
.317***
(6.23)
.168***
(2.66)
.253***
(5.94)
CONCENTRATION -1.231
(-.44)
-2.82
(-1.07)
-.124
(-.05)
-4.775*
(-1.87)
DEMOCRACY
DUMMY
-1.196†
(-1.38)
.373
(.40)
-1.395†
(-1.62)
.617
(.68)
CIVIL WAR
MEMBERS
-.804***
(-3.64)
-.851***
(-3.70)
-.582***
(-2.64)
-.501**
(-2.12)
MIDS
MEMBERS
-.747
(-1.25)
-.492
(-.72)
-.692
(-1.15)
-.755
(-1.11)
MEMBERS .083
(.48)
.033
(.26)
.114
(.69)
.087
(.69)
AFFINITY UN 5.142
(.90)
13.672***
(3.16)
3.965
(.72)
AFFINITY
ALLAINCES
6.163†
(1.40)
DURATION .252***
(6.54)
.107***
(2.77)
.211***
(5.52)
DECADE .641
†
(1.44)
CONSTANT 4.801
(.84)
-8.882*
(-1.94)
2.513
(.46)
-2.168
(-.52)
Wald chi2
95.84*** 107.82*** 72.85*** 64.85***
R2 (overall) .42 .74 .38 .58
NT 82 82 82 82
Note: Figures in parentheses are z statistics. *p<.1; **p<.05; ***p<.01 (two-tailed); †
p<.1 (one-tailed test).
29
Table 2: Ordered Probit Estimates of the Sources of Regional Bureaucracy and Dispute
Settlement Mechanisms, 1982-97
MODEL 5
BUREAUCRACY
MODEL 6
BUREAUCRACY
MODEL 7
DSM
MODEL 8
DSM
TRADE SHARE .135***
(3.92)
.040
(1.00)
IMPLEMENTED
SCOPE
.063†
(1.42)
.087*
(1.88)
CONCENTRATION -5.491***
(-2.97)
-7.097***
(-4.02)
-2.545†
(-1.29)
-3.247**
(-2.07)
DEMOCRACY
DUMMY
1.124**
(2.49)
1.339**
(2.44)
.472
(.66)
.861†
(1.28)
CIVIL WAR
MEMBERS
-.123
(-.88)
.048
(.32)
-.282
(-1.16)
-.237
(-1.20)
MIDS
MEMBERS
.700†
(1.31)
-.035
(-.08)
.658†
(1.62)
.901**
(1.97)
MEMBERS -.035
(-.57)
.025
(.36)
.103
(1.25)
.078
(.92)
AFFINITY UN 25.272***
(3.99)
-.087
(-.04)
AFFINITY
ALLAINCES
5.911***
(2.81)
1.048
(.53)
DURATION -.035
(-1.10)
.027
(1.05)
DECADE -.088
(-.26)
.264
(.88)
Wald chi2
37.07*** 33.59*** 30.76*** 21.72***
Pseudo R2 .51 .44 .28 .28
Log likelihood -29.96 -38.88 -45.69 -46.74
NT 82 82 82 82
Note: Standard errors are clustered and robust. Figures in parentheses are z statistics.
*p<.1; **p<.05; ***p<.01 (two-tailed); † p<.1 (one-tailed test).
30
Table 3: Predicted Probability of REO Independence due to Changes in Independent Variables
Variable Value Independence of Regional Bureaucracy
No (RB = 0) Low (RB = 1) High (RB = 2)
TRADE SHARE LOW 0.1803 0.8196 0.0001
HIGH 0.0000 0.7083 0.2917
IMPLEMENTED
SCOPE
LOW 0.0571 0.9354 0.0074
HIGH 0.0117 0.9480 0.0403
CONCENTRATION LOW 0.0005 0.9043 0.0953
HIGH 0.1102 0.8895 0.0003
DEMOCRACY
DUMMY
LOW 0.0104 0.9729 0.0104
HIGH 0.0003 0.8820 0.1177
MID MEMBERS LOW 0.0200 0.9749 0.0051
HIGH 0.0046 0.9734 0.0220
AFFINITY UN LOW 0.7505 0.2495 0.0000
HIGH 0.0000 0.2213 0.7787
AFFINITY
ALLIANCES
LOW 0.0894 0.9068 0.0038
HIGH 0.0058 0.9259 0.0684
Legalization of Dispute Settlement Mechanism
No (DSM = 0) Low (DSM = 1) High (DSM = 2)
IMPLEMENTED
SCOPE
LOW 0.9068 0.0298 0.0634
HIGH 0.6441 0.0733 0.2826
CONCENTRATION LOW 0.5768 0.0784 0.3448
HIGH 0.9234 0.0255 0.0512
DEMOCRACY
DUMMY
LOW 0.8057 0.0515 0.1428
HIGH 0.5004 0.0815 0.4181
MID MEMBERS LOW 0.8859 0.0349 0.0792
HIGH 0.6889 0.0686 0.2425
Note: Effects are generated using Spost (Long and Freese 2005). Effects for BUREAUCRACY are based on
Model 5, except for IMPLEMENTED SCOPE and AFFINITY ALLIANCES, which are based on Model 6.
Effects for DISPUTE SETTLEMENT are based on Model 8. All continuous variables except the
variable of interest are held at mean values, binary variables are held at zero. For continuous
variables high and low values are one standard deviation above and below the mean, respectively.
If one standard deviation below the mean is negative, the minimum value is used. For binary
variables, high and low values equal one and zero, respectively.
31
Appendix
List of Twenty-Five REOs
Arab Maghreb Union (AMU), Andean Community (ANCOM), Association of Southeast Asian
Nations (ASEAN), Bangkok Agreement (BA), Central American Common Market (CACM),
Caribbean Community (CARICOM), Economic Community of the Countries of the Great Lakes
(CEPGL), Common Market for Eastern and Southern Africa (COMESA), Economic Community
of Central African States (ECCAS), Economic Cooperation Organization (ECO), Economic
Community of West African States (ECOWAS), European Free Trade Association (EFTA),
European Union (EU), Gulf Cooperation Council (GCC), Indian Ocean Commission (IOC),
Latin American Integration Association (LAIA), Mercado Comun del Sur (MERCOSUR), Mano
River Union (MRU), North American Free Trade Agreement (NAFTA), Organization of Eastern
Caribbean States (OECS), South Asian Association for Regional Cooperation (SAARC), South
African Customs Union (SACU), Southern African Development Community (SADC), Central
African Customs and Economic Union (UDEAC), and West African Economic and Monetary
Union (WAEMU).
32
Table A1: Summary of Variables and Indicators Related to the Design of Regional
Economic Organizations
Component Area Indicator
Scope of
Economic
Activity
(24 points)
1. Trade Liberalization
1. Preferential Trade Agreement (Positive
List)
2. Free Trade Area (Negative List)
3. All members of REO participate
4. Non-Tariff Barriers
2. Customs Union
5. Common External Tariff (CET)
6. Negative list of goods
7. All members of REO participate
3. Movement of
Services
8. Free movement of services
9. At least six service sectors
4. Movement of Capital
and Investment
10. Free movement of capital
11. Intra-regional investment code
12. Extra-regional investment code
5. Movement of Labor 13. Free movement of labor
14. Facilitation of labor movement
6. Monetary Integration
and Macroeconomic
Coordination
15. Common currency
16. Coordination of monetary policies
17. Coordination of fiscal policies
7. Sectoral
Harmonization and
Cooperation
18. Harmonization of business conditions
(at least 4issue-areas)
19. Sectoral cooperation (at least 6 sectors)
8. Development and
Industrialization
20. Industrial Cooperation
21. Regional development bank
22. Compensation mechanism
9. Bargaining Power 23. Negotiation with other REOs or
economic powers
24. Negotiation in multilateral fora
Decision-making Body 25. Regular meetings of high-Level
officials
Institutional
Independence
1. Regional
Bureaucracy
26. Permanent secretariat
27. Recommendations and initiatives
2. Dispute Settlement
Mechanism
28. Third party ruling binding
29. Standing tribunal
33
Table A2: Descriptive Statistics
Variable N Mean Std.
Dev. Min Max
DESIGNED INSTITUTIONALIZATION 90 13.68 6.96 1 29
IMPLEMENTED INSTITUTIONALIZATION 90 7.82 6.02 1 28
DESIGNED SCOPE 90 11.05 6.32 1 24
IMPLEMENTED SCOPE 90 5.40 5.50 0 23
BUREAUCRACY 90 1.04 0.53 0 2
DISPUTE SETTLEMENT 90 0.62 0.88 0 2
TRADE SHARE 86 10.44 12.97 .10 60.50
CONCENTRATION 90 .43 .19 .11 .93
DEMOCRACY DUMMY 86 .26 .44 0 1
CIVIL WAR MEMBERS 86 1.22 1.58 0 8
MIDS MEMBERS 90 .37 .42 0 1.71
MEMBERS 90 7.37 4.05 2.20 21.80
AFFINITY UN 90 .958 .12 .10 1
AFFINITY ALLIANCES 90 .93 .10 .52 1
DURATION 90 15.46 9.74 1 40
DECADE 86 .55 .49 0 1
34
Table A3: Correlation Matrix (for 82 observations included in the statistical analysis)
DE
SIG
NE
D IN
ST
ITU
T.
IMP
LE
ME
NT
ED
INS
TIT
UT.
DE
SIG
NE
D S
CO
PE
IMP
LE
ME
NT
ED
SC
OP
E
BU
RE
AU
CR
AC
Y
DIS
PU
TE
SE
TT
LE
ME
NT
TR
AD
E S
HA
RE
CO
NC
EN
TR
AT
ION
DE
MO
CR
AC
Y D
UM
MY
CIV
IL W
AR
ME
MB
ER
S
MID
S M
EM
BE
RS
ME
MB
ER
S
AF
FIN
ITY
UN
AF
FIN
ITY
AL
LIA
NC
ES
DU
RA
TIO
N
IMPLEMENTED
INSTITUT. .71
DESIGNED
SCOPE .98 .68
IMPLEMENTED
SCOPE .67 .97 .67
BUREAUCRACY
.42 .54 .33 .44
DISPUTE
SETTLEMENT .50 .54 .40 .40 .28
TRADE
SHARE .38 .72 .36 .74 .31 .37
CONCEN.
-.16 -.20 -.08 -.10 -.46 -.34 -.09
DEMOCRACY
DUMMY .18 .46 .15 .45 .25 .28 .50 .03
CIVIL WAR
MEMBERS -.47 -.34 -.45 -.30 -.22 -.16 -.12 .07 -.29
MIDS
MEMBERS -.32 -.20 -.35 -.24 -.01 .11 -.01 -.07 -.10 .46
MEMBERS
.34 .23 .29 .15 .22 .38 .13 -.29 -.01 -.17 .12
AFFINITY
UN .13 -.01 .10 -.05 .32 -.06 -.49 -.30 -.28 .03 -.15 .19
AFFINITY
ALLIANCES .30 -.03 .29 -.08 .23 .05 -.23 .01 -.28 -.17 -.01 .15 .35
DURATION
.37 .51 .36 .49 .33 .33 .37 -.35 .35 -.01 -.09 -.03 .13 -.12
DECADE
.14 .05 .13 .05 .02 .07 .06 .06 .16 .08 -.07 .02 -.07 .01 .33
35
Figure 1: Distribution of Twenty-Five REOs across Three Categories of Regional Institutionalization (Average, 1982-1997)
0
2
4
6
8
10
12
14
16
18
20
Low (0-10) Medium (10-20) High (20-29)
Num
ber
of
RE
Os
Regional Institutionalization
Designed Institutionalization
Implemented Institutionalization
36
Figure 2: Average Institutionalization of Eighteen REOs by Year
0
2
4
6
8
10
12
14
16
18
1982 1987 1992 1997
Year
Re
gio
na
l In
stitu
tio
na
liza
tio
n
DesignedInstitutionalization
ImplementedInstitutionalization
37
Figure 3: Average Institutionalization of Twenty-Five REOs, 1982-1997
0.00
5.00
10.00
15.00
20.00
25.00
30.00
BA
NG
KO
K
AM
U
EC
CA
S
EC
O
SA
AR
C
IOC
CE
PG
L
SA
DC
MR
U
CA
CM
LA
IA
UD
EA
C
NA
FTA
EC
OW
AS
CO
ME
SA
CA
RIC
OM
EF
TA
ME
RC
OS
UR
AS
EA
N
AN
DE
AN
OE
CS
GC
C
WA
EM
U
SA
CU
EU
Re
gio
na
l In
stitu
ion
liza
tion
Regional Economic Organization
Designed Institutionalization
Implemented Institutionalization
38
Figure 4: Average Implemented Scope and Independence of Twenty-Five REOs, 1982-1997
0.00
5.00
10.00
15.00
20.00
25.00
EC
CA
S
AM
U
EC
O
BA
NG
KO
K
IOC
SA
AR
C
CE
PG
L
SA
DC
EC
OW
AS
LA
IA
MR
U
CO
ME
SA
CA
CM
UD
EA
C
NA
FTA
AN
DE
AN
EF
TA
CA
RIC
OM
ME
RC
OS
UR
AS
EA
N
WA
EM
U
OE
CS
GC
C
SA
CU
EU
Sco
pe/I
nd
ep
en
den
ce
Regional Economic Organization
Implemented Scope
Independence