Hypotheses about Economic Cooperation and Defection in Developing Regions

The intraregional logic of regional integration cannot explain the spread of the new regionalism in the Global South or the ups and downs of regional integration in developing regions. Firstly, the level of intraregional trade and economic interdependence is generally much lower in developing regions than in well-developed ones (Krapohl and Fink 2013). Developing countries and emerging markets can usually not utilise large comparative cost advantages and economies of scale when trading with each other. Thus, they do not fulfil Mattli’s (1999) demand condition for regional integration. Consequently, the intraregional logic does not provide a convincing rationale as to why developing regions should integrate at all. Secondly, regional integration in developing regions seems to be less stable than regional integration in Europe. European integration has been a steady process over the last 60 years, and even the current Euro crisis, which is seen as path breaking by many contemporary observers, is more likely to lead to more integration of monetary and fiscal matters than to a decline in European integration (Schimmelfennig 2012). Such stable integration processes do not usually take place in the developing world, where optimistic periods of regional integration are often followed by periods of stagnation. The intraregional logic is able to explain the stable integration process in Europe by referring to a self-reinforcing growth of economic interdependence and regional institution building (Stone Sweet and Caporaso 1998), but it does not provide the variance needed to explain the instability of integration processes in the developing world.

In contrast, the extra-regional logic provides a convincing rationale for regional integration among developing countries and emerging markets, and it provides for variance in the dependent variable of regional cooperation in order to explain the ups and downs of regional integration in the developing world. Firstly, even if developing countries and emerging markets may not profit as much from intraregional trade as well-developed regions, demand for regional integration may nevertheless result from its extra-regional effects. The size and stability effects of regional integration may help developing regions to attract more extra-regional investments and to get improved access to extra-regional markets. Secondly, within the extraregional logic, the supply of regional integration varies, because the reactions of extra-regional actors determine whether the member states play battles of the sexes or find themselves in Rambo situations. Thus, the extra-regional logic generates variance in the supply of regional integration that may explain the patterns of regional cooperation or defection in developing regions.