How does Regional Integration affect poverty? Could Regional Integration reduce poverty by attracting more Foreign Direct Investment (FDI) to poor countries? The proposed research will examine these questions on the basis of a synthesis of the literature, econometric analysis and two country case studies. It will inform the EU’s development policy which supports regions among developing countries and between developing regions and the EU. Relatively little is known about how RI affects poverty. While many aspects of Southern regional integration arrangements have been studied, they have not focused directly on the pathways by which regional integration may reduce poverty. For instance, many suggest that increased investment would be one of the benefits of integration, but this has not been put to the empirical test for South-South integration.

The objectives of the project are to: 

• Examine the channels through which regional integration affects poverty. This will include how it affects FDI, trade, economic activity, co-operation and stability and then how a change in these variables (induced by RI) affects poverty. The emphasis will be on a synthesis of the literature. One particular area of review is the link between RI, FDI and poverty, thereby focusing on the pathways and interdependencies between these variables. Would the effect depend on the type of region (e.g. different internal and external tariff liberalisation, investment rules, developing country or mixed regions, etc.)?
• Analyse empirically the effects of regional integration on FDI after controlling for other determinants of FDI (market size, labour costs, political risk, etc.) in developing countries, thereby distinguishing between different (types of) regions (world-wide coverage). It will allow for different effects in different countries, to see whether RI also affects FDI and poverty in the poorest countries of the region. If RI has different effects for different countries, this may also affect further process of RI.
• Analyse for two countries (Bolivia and Tanzania) how regional integration affects poverty. Supervised by ODI, this will be done by local researchers who will examine aspects of regions (including SADC, EAC for Tanzania, Andean Community, Mercosur for Bolivia) or regional preferences (AGOA, Cotonou and US/EU preferences to the Andean Community). They will address the following questions: how have these regional arrangements affected poverty reduction, what are the provisions with respect to FDI, and how will or have these regions affected inward FDI and how may FDI have affected the process of regional integration.

A team consisting of Dr Dirk Willem te Velde, Sheila Page, Dr Oliver Morrissey and local researchers will do this by: 

• An analysis and overview of the relevant literature.