The cosmopolitanization of trade regions: Global trends and implications, 1965-1990

Abstract

Postwar international trade relations are built on multilateral free trade principles that regard regional trade coalitions as suboptimal arrangements. A rising share of international trade, however, appears to be occurring within regions, raising the fear that the world economy is disintegrating into inward-looking trading blocs. Such fears are now being challenged because the regionalization of world trade is said to be a "natural" process strongly influenced by geographic proximity. Furthermore, prevailing regionalization is taking place in a context of stronger global linkages. This paper examines global regionalization tendencies by tracing trade interactions from 1965 to 1990 and finds a trend toward a less spatially fragmented world economy. Five dominant trade regions may be identified in 1990 as compared to eight smaller regions in 1965. The regions have become more geographically oriented, with the majority of members associated with the regional cores of Japan, Germany, and the United States. Greater regionalization, however, need not contradict multilateralism. By examining the time-trends of each region's propensity to trade extraregionally, I show that regions have also increased their inclination to trade a larger share of their gross domestic product with the rest of the world. This suggests that the world economy is increasingly characterized by regional cosmopolitanism and may not disintegrate into isolated trading blocs.