South-South Trade Monetary and Financial Integartion and the Euro-Mediterranean Integratio and the Euro-Mediterranean Partnership: An Empirical Investigation

This research project studies the past and current attempts to enhance economic integration in the Mediterranean (MED) region, and looks at how far the region has come in terms of regional trade, monetary, and financial integration. It investigates how macroeconomic instability has been an impediment to economic integration in the past in the MED region, and discusses whether it is likely to be the case in the future. Specific proposals for macroeconomic cooperation to sustain the regional integration process are outlined next, emphasizing the links between macroeconomic policies and economic integration. All of these issues are related to the recent objectives set out by the Barcelona Declaration, which envisage a Euro-MED free trade area by the year 2010, and enhanced economic integration of the two regions. Mediterranean Partner Countries (MPCs) are aiming for increased regional economic integration. A significant part of economic integration is the expansion of intra-regional trade, thereby allowing a higher degree of inter-Mediterranean specialization, and improved allocation and distribution of resources in the region. Moreover, the dynamic effects of increased goods market competition, such as improved efficiency, and greater opportunities for economies of scale, are expected to prepare the MED economies for international goods market competition. Although MPCs face numerous stumbling blocks to increasing regional trade, a consensus exists among MPCs that MED economic integration is crucial for meeting the challenges of globalization from a regional stronghold, and is a strategy to boost growth and economic welfare. Liberalizing trade through reductions in tariffs, as provided for in the Greater Arab Free Trade Area (GAFTA) agreement, is a first and necessary step on the way to increasing trade integration.