Regional Integration from a Chinese Perspective

Abstract

We know why nations trade with and invest in each other. We also know why trade liberalization is beneficial to all trading partners. However, it is still worthwhile to ask why we should promote regional economic integration in an age of globalization. To answer this question, we should also ask whether there is an underlined ‘law of movement’ consisting of the interactions of economic forces, which will more or less inevitably lead to regional economic integration in a given region; or whether regional economic integration is simply a result of conscientious efforts made by related countries. The theory of economic geography developed by Krugman, Fujita and Venables seems to have provided a general answer to the question. The key element of the answer is that distance matters. According to Krugman, the importance of distance, and the success of gravity models, explains the rapid growth of trade among East Asian economies, and particularly Asian trade with China. According to the theory of economic geography, if two economies grow fast, their mutual trade will grow very fast. And if they are relatively close geographically, their mutual trade will quickly become a major part of world trade, whether or not there are any special affinities or links (Krugman, 2004).