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Commerce and Institutions:

Trade, Scope, and the Design of Regional Economic Organizations

Yoram Z. Haftel Department of Political Science

University of Illinois at Chicago

yhaftel@uic.edu

Paper prepared for the Workshop on the Politics of Trade Agreements: Theory,

Measurement, and Empirical Applications. April 30-May 1, 2010, Princeton University.

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Abstract:

The design of current regional economic organizations (REOs) is remarkably diverse.

Some REOs address numerous economic issues, while others have only limited

mandates. Some REOs have an independent bureaucracy and a legalized dispute

settlement mechanism (DSM), while others do not. What determines this institutional

variation? Neofunctionalists maintain that commercial ties and the proposed level of

economic cooperation are important drivers of regional institutionalization, institutional

independence and legalization. A number of recent studies question this logic and argue

that it is “naïve.” Empirical evidence on the links between commerce, economic scope,

and regional institutions is scant, however. Using an original data set that contains

detailed information on the activities and institutional structure of twenty-five REOs over

two decades, this paper presents one of the first systematic analyses of these

relationships. The empirical analysis indicates that the neofunctionalist wisdom is right

after all. Controlling for several alternative explanations, I find that higher levels of

regional trade are associated with greater REO institutionalization, scope, and more

independent bureaucracies. In addition, greater economic scope is associated with more

independent bureaucracies and more legalized DSMs.

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The ever-growing number and the increasing political and economic significance of

regional economic organizations (REOs) is one of the hallmarks of the current global

economy. A glance over the landscape of these institutions suggests that their structure

and functions are very diverse. Some organizations, such as the EU and ASEAN, address

a variety of functional issues, while others, such as SAARC and ECO have only a limited

scope.1 Some REOs, such as ANCOM and WAEMU have an independent bureaucracy,

but others, such as IOC and NAFTA, have weak or no corporate bureaucracy. Some

REOs, such as the EU and COMESA, have a highly legalized dispute settlement

mechanism (DSM), while others, such as SACU and LAIA, do not. What determines this

institutional variation?

The level of economic integration is perhaps the most cited explanation for the

existence and institutionalization of these organizations. Most notably, neofunctionalists,

who observed the process of European integration, maintained that increasing cross-

border economic interactions result in growing societal demands for international

regulation of such exchange (Caporaso 1998; Haas 1966). In particular, they argue that

when the potential for economic gains from regional integration is significant “market

players will… have an incentive to lobby for regional institutional arrangements that

render the realization of these gains possible. The demand for regional rules, regulations,

and policies by market players is a critical driving force of integration” (Mattli 1999, 42).

Consequently, governments in interdependent regions will recognize the necessity to

manage their interactions through international institutions and will form regional

organizations to fill this function. Logically, one expects that higher levels of

interdependence should result in greater institutionalization of these regional

arrangements.

Several studies pay greater attention to specific design features and argue that

high levels of interdependence lead to more independent organizations. As economic

exchange increases and becomes more complex, societal actors demand such

international governance in order to reduce transaction costs and lower risks of

opportunism, uncertainty, and non-compliance (Abbott and Snidal 2000; Stone Sweet and

Sandholtz 1998; Yarbrough and Yarbrough 1992, 86-88). Such independence is often

embodied in more powerful regional secretariats or commissions. As these organs

become more autonomous and have more resources, they are better equipped to monitor

the behavior of member-states and provide neutral information on the degree of

compliance with existing agreements (Abbott and Snidal 1998, 20; Haftel and Thompson

2006). In addition, more extensive economic interaction is likely to intensify

disagreements over the distribution of costs and benefits of this exchange, and in turn

strengthen the need for a disinterested body to address distributional concerns. Thus,

greater economic interdependence is expected to result in a more independent corporate

bureaucracy.

Along similar lines, extant research suggests that higher levels of economic

integration lead to the creation and legalization of regional DSMs. These adjudicating

bodies are especially instrumental when members engage in heavy cross-border activity

on a variety of economic issues. Moreover, greater economic scope is likely to increase

1 See the Appendix for the full name of these organizations.

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the number of rules and their complexity. Under such circumstances, potential conflicts

or disagreements on how to interpret the rules are more likely to erupt (Johns and

Rosendorff 2010; Smith 2000; Stinnett 2007; Stone Sweet and Sandholtz 1998;

Yarbrough and Yarbrough 1992; 1997). Governments, firms, and other social groups that

contribute to and are affected by regional interdependence will therefore demand a

neutral arbitration body to reduce the risk of doing business and to sort out unanticipated

challenges that may arise from the integration process. Hence, greater economic

interdependence is expected to result in a more legalized DSM.

Despite the intuitive appeal of the purported positive effect of economic

interdependence on regional institutions, this logic was challenged from a number of

perspectives. In the 1970s, the neofunctionalist research program was heavily criticized,

even by its own proponents, due to its inability to explain the institutional retreat of its

most celebrated case, namely the European Community (Haas 1975). More recent studies

argue that this functional approach fails to account for institutional differences across

existing REOs. Miles Kahler, who labeled this approach „naïve institutionalism‟ contends

that “regional institution building demonstrates a cyclical pattern that bellies any simple

explanation based on the demands of economic integration” (1995, 80). Joseph Grieco

finds that “contrary to functionalist expectations, in some areas of the world there have

been increases in intraregional trade without a corresponding increase in

institutionalization…Moreover, in some cases we can observe growth of

institutionalization, in the absence of increased trade encapsulation” (1997, 172). In the

same vein, Acharya and Johnston (2007, 257) find “little evidence of the salience of

functional considerations [in the design of regional institutions].”

These critical evaluations suffer from the same limitation they themselves

underscore with respect to neofunctionalism. Just as the latter relied on the European

experience to make sweeping generalizations, so did the former reach its conclusions

based on a small number of case studies and without clear metrics of institutional design.

This paper sheds new light on this debate. Using an original data set that contains detailed

information on the activities and institutional structure of numerous REOs in the 1980s

and 1990s, it presents one of the first systematic analyses of these relationships. The

empirical results largely vindicate that the neofunctionalist logic. Accounting for several

alternative explanations, I find that higher levels of economic integration are associated

with greater regional institutionalization and scope, more independent bureaucracies, and

more legalized DSMs.

The next section elaborates on the nature of REOs, presents the measures used to

evaluate institutional differences across these organizations, and describes this variation.

The third section discusses matters of research design, the fourth section reports the

results of the statistical analysis, and the final section concludes.

Conceptualization and Measurement of REOs

A glance at the landscape of regional economic organizations reveals a great deal of

variation in the objectives and structures of these institutions. This section takes a closer

look at the functions performed by and the institutional features contained in a large

number of regional economic organizations. It, first, describes the type of institutions

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considered in this study. It then discusses the design features purported to be affected by

economic interdependence. It provides a definition for each organizational characteristic

and justifies it, links this feature to specific quantifiable indicators, and elaborates on the

manner by which their implementation is assessed. Next, it presents an original data set

of twenty-five REOs coded according to these guidelines in the 1980s and the 1990s.

This description underscores the significant institutional variation across the

organizations included in the data set. The Appendix provides a list of these organizations

and a table that summarizes the indicators included in the variables related to regional

institutionalization.2

What Are Regional Economic Organizations

REOs are a class of international governmental organizations (IGOs). Unlike other

international agreements, IGOs have a continuous institutional framework and some kind

of formal structure. In addition, the membership of IGOs is restricted to nation-states and

they include at least three such members (Pevehouse, Nordstrom, and Warnke 2004).

Two aspects distinguish REOs from other IGOs. First, while they sometimes address

non-economic issues, the primary objective of these organizations is the promotion of

economic policy cooperation among their members (Mansfield and Milner 1999). Even

though some REOs have security-related components, the Economic Community of

Western African States (ECOWAS) and Mercosur for example, they are not alliances.

Despite the involvement of many of these communities in social and political issues, their

core mandate is economic. Second, membership in these organizations is restricted to

geographically proximate states. While some REOs span sizable swaths of territory, like

the Latin American Integration Association (LAIA), they are all regional rather than

global in nature (Nye 1971).

This conceptualization excludes several types of agreements that are related to

economic regionalism but do not qualify as REOs. These exclusions are consistent with

the conventional practice.3 Many of the preferential trade agreements (PTAs) that were

concluded in recent decades are bilateral and almost always lack a continuous

institutional framework. These agreements, as well as similar agreements between two

REOs or an REO and another country, do not meet the standard criteria of international

organizations. Non-reciprocal agreements, such as the U.S. Caribbean Basin Initiative

(CBI) and the Lomé Convention, are excluded on similar grounds. Finally, framework

agreements, like the Asia Pacific Economic Cooperation (APEC), are also excluded.

While these agreements may embrace the idea of regional cooperation, they lack concrete

measures to achieve this goal. Twenty-five REOs that span most continents and include

the majority of the states world-wide correspond to these criteria. To facilitate the

systematic comparison of these organizations, I now turn to a detailed consideration of

their institutional components.

2 For more detail on these organizations and indicators, see Haftel (2010), Chapter 3.

3 See Page 2000a; Pevehouse, Nordstrom, and Warnke 2004; Mansfield and Pevehouse 2000; Smith 2000;

and UIA.

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The Scope of Economic Activity

Scope is widely recognized as an important dimension of institutional design

(Koremenos, Lipson, and Snidal 2001) and regional integration (Acharya and Johnston

2007; Grieco 1997; Hicks and Kim 2009; Kahler 1995). It commonly refers to the range

of issues incorporated in a given organization in order to meet its objectives. Scope

therefore differs from and is subsumed by mandate, which refers to the broad purpose of

the organization (Acharya and Johnston 2007, Boehmer, Gartzke, and Nordstrom 2004).

Restricting the analysis to organizations with economic mandate, one can distinguish

between those that address only a handful and those that touch on a variety of issues. A

systematic evaluation of the scope of economic activity requires an identification and

differentiation of the issues that REOs can potentially include. This task is complicated

by the ambiguity of the boundaries between different subject-matters (Koremenos,

Lipson, and Snidal 2001, 771).

In spite of their broadly similar mandate, issue differentiation across REOs is still

a significant obstacle. For example, are fiscal and monetary coordination two issues or

one? Should one conceptualize trade liberalization according to the number of sectors

covered in the agreement or the kind of liberalization (tariffs, quotas, non-tariff barriers)?

A number of studies that conduct an in-depth qualitative assessment of the implications

of economic scope for cooperation and integration in different regions dodge these issues

(Acharya and Johnston 2007; Grieco 1997; Kahler 1995; Katzenstein 1997). They

provide a number of insights into the significance of this institutional feature, but define

this concept very broadly and fail to provide guidance on how to compare economic

scope across time and space in a rigorous manner. As a result, evaluation of different

REOs on this aspect appears impressionistic and lacks clear metrics.

A more systematic method builds on the traditional distinction between different

types of integration schemes. First developed by Bela Balassa (1961), this approach

classifies REOs according to their commitment to economic integration. The four main

categories, from the most limited to the broadest in scope, are free trade area, customs

union, common market, and economic union. Consistent with the development of

economic integration in Europe, on which this classification is founded, these categories

are also conventionally used to describe the process of economic integration. In this view,

REOs broaden and deepen their scope as they gradually advance from one scheme to the

next. This classification is still widely used in economics (Frankel 1997; OECD 1993)

and political science (Bearce and Omori 2004; Hicks and Kim 2009; Laursen 2003;

Smith 2000). The clear and simple classification offered by this approach is very

appealing. In addition, it captures some of the most important activities REOs usually

cover, particularly those related to international trade. Nonetheless, this approach suffers

from two important limitations.

First, these different categories fail to capture the range of activities that REOs

engage in, even in the supposedly exemplary case of European integration (Nye 1971,

28-30). Indeed, many REOs deal with a number of important issues such as foreign

investment, development, and industrial cooperation, which do not fit in these traditional

categories. Second, both theory and practice show that there are multiple paths to

economic integration that diverge from this simple evolutionary model (Choi and

Caporaso 2002, 483; Foroutan 1993; Nye 1971, 29; Page 2000a, 8). The CFA Franc

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Zones in Sub-Saharan Africa, for example, have established a monetary union but not a

customs union, and the GCC made considerable progress on free movement of labor and

capital but not on a common external tariff. Third, this classification is formal and

ignores the degree of implementation of these arrangements.

The conceptualization of economic scope adopted in this study begins with the

traditional approach, but adds a number of modifications to address the shortcomings

outlined above. It identifies nine broad areas of economic cooperation and integration

commonly tackled by REOs. The first six categories are largely compatible with the

traditional categories. These are free movement of goods, customs union, free movement

of services, free movement of capital and investment, free movement of labor, and

monetary and fiscal cooperation. The remaining three areas include sectoral cooperation

and harmonization, economic development, and efforts to enhance collective bargaining

power. These are important issues that correspond to key goals of past and present REOs

(Page 2000a). Each area consists of two to four specific indicators that capture the

breadth and depth of cooperation on this issue. Taken together, these twenty-four

indicators are general enough to “travel” across different regions and detailed enough not

to miss essential economic issues that REOs typically address.

Each and every indicator is measured along two dimensions. The first – labeled

DESIGNED SCOPE – refers to approved agreements that specify the mandate of the

organization. This is a necessary and important dimension of any institution (Acharya

and Johnston 2007; Hicks and Kim 2009; Koremenos, Lipson, and Snidal 2001). Each

indicator can obtain a value of 1, if present, and 0 if absent. Thus, the designed scope of

economic activity can range from 0 to 24. This approach does not assume a gradual

process of integration, but instead, allows any indicator to score a point independent of

other indicators. In addition, consistent with conventional practice, all the indicators are

weighted equally (Fortna 2004).

Implementation

The second dimension of economic scope is implementation, which refers to the actual

steps that member-states take to realize the agreements they have reached. In most

instances it involves the process by which governments transfer their international

obligations to domestic laws, regulations, and policies (Victor, Raustiala, and Skolnikoff

1998, 4).4 It captures the notion that international cooperation involves not only

agreements and rules but also behavior according to them. As such, it is a key component

of international institutions. As Lisa Martin (2000, 18) points out, “if agreements are not

implemented, and the necessary policies changed, no cooperation has taken place. So it is

essential that we consider implementation of international agreements if we are to

understand patterns of international cooperation.”

Notwithstanding the importance of this institutional aspect, it is widely

overlooked by scholars of international politics, and measures of this concept are not

4 Implementation is related to but distinct from compliance. The former is usually a key step towards, but it

is neither a necessary nor a sufficient condition for the latter (Raustiala and Slaughter 2002, 539).

Implementation is also different from effectiveness, which refers to the relative success of an institution in

obtaining its stated goals (Acharya and Johnston 2007, 24-25; Raustiala and Slaughter 2002; Victor,

Raustiala, and Skolnikoff 1998).

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readily available. The collection of comparable data on implementation is more difficult

than on institutional design and is rarely done. As a first cut into this institutional

dimension, I created an ordinal scale: zero, one-half, and one. If the REO did not

implement the agreement regarding a specific indicator, or if implementation is low, the

REO scores zero. If implementation is complete, or nearly complete, the REO scores one

on the specific indicator. If implementation is partial, the REO scores half. For example,

many REOs reduce barriers to trade and factors of movement in a gradual process. If they

have completed only some of these steps, I code the degree of implementation as partial.

The multiplication of the two dimensions produces a second variable, labeled

IMPLEMENTED SCOPE. Member-states may implement all the planned activities, thus this

variable ranges from 0 to 24. If the agreements are not fully implemented, the value on

this variable will be lower than the one on institutional design alone. One might imagine,

for example, an REO that has an agreement on twenty indicators, that is, DESIGNED SCOPE

equals 20. Of these, ten indicators are fully implemented, four are partly implemented,

and six remain only on paper. The value on IMPLEMENTED SCOPE is calculated as follows:

(10*1) + (4*0.5) + (6*0) = 12.

Institutional Independence

Institutional independence includes three essential and tightly-linked dimensions:

autonomy, neutrality, and delegation (Haftel and Thompson 2006). Autonomy refers to

the organization‟s ability to function in a manner that is insulated from the interests of its

members. Thus, greater autonomy reflects a more limited control of states over and a

broader range of actions available to the organization (Abbott and Snidal 1998; Hawkins

et al. 2006; Thompson 2006).5 Neutrality reflects the notion that an independent actor is

not prejudiced in favor of one party over another. Instead, a neutral actor is guided by

professionalism and impartial judgment. As Keohane, Moravcsik and Slaughter (2000,

459) propose with respect to international courts and tribunals, independence measures

“the extent to which adjudication is rendered impartially with respect to concrete state

interests.” Even if an organization is autonomous and neutral, its influence depends on

the responsibilities and power delegated to its institutions. As institutional properties,

independence and delegation are tightly intertwined (Keohane, Moravcsik and Slaughter

2000). International institutions with a significant delegated authority have discretion

with respect to agenda setting and dispute management (Abbott and Snidal 2000;

Hawkins et al. 2006). The existence and discretion of regional bureaucracies and the

existence and legalization of third-party dispute settlement mechanisms capture the three

elements of REO independence. They are discussed in turn.

Corporate Bureaucracy

This administrative body, typically labeled secretariat or commission, is charged with

everyday operations of the organization. The personnel is employed by the organization

and thus intended to serve regional rather than national interests. Variation in the

independence of regional bureaucracy is captured with two indicators that examine

5 Other observers conceptualized this dimension as institutional authority (Grieco 1997, 169-170) and

commitment institutions (Mattli 1999, 54).

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whether an REO has a neutral bureaucracy and the extent to which this bureaucracy is

delegated meaningful discretion. When states endow organizations with a secretariat or

commission, they are delegating to a centralized authority and generating independence

in the process. It is unsurprising, then, that governments sometimes resist the

establishment of and that not all REOs have a secretariat. The Southern African Customs

Union (SACU), for example, was managed through the Finance Department of South

Africa until 2004 and the Bangkok Agreement is still coordinated by the Economic and

Social Commission for Asia and the Pacific. Thus, one point is assigned to organizations

that have a distinct permanent secretariat or its equivalent.

When there is a permanent secretariat, the degree of responsibility that the

member-states delegate to the organization‟s bureaucracy is an important sign of

independence. While most secretariats perform informational and operational roles,

some bureaucracies are provided with additional and much more active responsibilities.6

In particular, some secretariats and commissions can initiate and recommend policies and

thereby promote the goals of the organization, prerogatives that greatly enhance

bureaucratic authority. The European Commission represents the ideal-type for

secretariats with the power to initiate policies, and the bureaucracies of the Andean

Community and WAEMU enjoy similar powers and prestige. Many other organizations,

in contrast, have weak secretariats that play a rather passive role in the promotion of

regional cooperation. REOs whose bureaucracy can initiate policies or make

recommendations score another point. Thus, BUREAUCRACY is an ordinal variable that

ranges from two for a highly independent bureaucracy to zero for no permanent regional

secretariat.

Dispute Settlement Mechanism

The prevalence of dispute settlement mechanisms in regional and other organizations

reflect the growing legalization of world politics. The imperfect design and the

unforeseen consequences of international institutions require an impartial body to

adjudicate when disagreements arise. Delegating this power to a centralized mechanism

reduces uncertainty and fosters cooperation (Hawkins at al. 2006; Johns and Rosendorff

2010; Yarbrough and Yarbrough 1997, 134-135). Not all DSMs are endowed with the

same degree of autonomy and legal authority. Some REOs, like ASEAN and the GCC,

adopted a non-binding third-party review process. Others, like COMESA and the CACM,

established a standing tribunal that its rulings are binding. In addition, some

organizations, such as ECCAS and AMU, have agreed to form a dispute settlement in

principle, but have not followed up on their plans.

James McCall Smith (2000) evaluates the legalization of different DSMs along

five dimensions: the existence of a third-party review, the bindingness of ruling, the

existence of a standing tribunal, private standing, and the effect of the ruling. Following

Smith, these dimensions are collapsed into three ordered categories: none, low, and high

levels of independence. A low level of independence refers to an instance in which third-

party review is automatic and binding but judges are picked from an ad-hoc roster. This

design prevents members from bypassing or ignoring the ruling of the DSM, but give

6 This categorization of functions builds on Jacobson (1984).

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them power over the selection of the arbiter. A high level of independence entails a

standing tribunal as well as automaticity and bindingness. With this design, states have

little influence over the composition of the tribunal, ensuring its neutrality. I also consider

whether the DSM actually exists.7 Thus, to the extent that REOs have an operational

DSM, DISPUTE SETTLEMENT scores one point for each level of legalization for a

maximum of two points.

Regional Institutionalization

The combination of economic scope and high independence, discussed above, as well as

regular meetings among high-level officials captures the aggregate level of regional

institutionalization.8 Two overarching variables sum up the degree of functional activity

and political authority that states hand over to the organization. The first variable,

labeled DESIGNED INSTITUTIONALIZATION, merges DESIGNED SCOPE with the remaining

five indicators. It captures the structure and the intended functions of the REO. The

second variable, labeled IMPLEMENTED INSTITUTIONALIZATION, takes into account the

actual functioning of the organization. It substitutes DESIGNED SCOPE with IMPLEMENTED

SCOPE. Both variables range from zero to twenty-nine.

Coding and Data

With definitions and measurements in hand, I code the twenty-five REOs listed in the

Appendix on the institutional variables described above. Regional cooperation is a

gradual process, and signing agreements, ratifying them, and implementing them, can be

time consuming. Institutional change usually takes, at the very least, several years to

accomplish. This reality has two implications for the design of the data set. First, since

changes from one year to another can be incremental, I collected information every

several years. More precisely, I coded the various REOs in a five-year interval: 1982,

1987, 1992, and 1997, which is conventional in the discipline. Second, because it is

difficult to properly evaluate REOs that exist for a short period of time, only

organizations that were formed before 1993 are examined. Eighteen out of the twenty-

five (about 75%) REOs included in the sample were formed before 1982 and thus have

four observations. Of the remaining organizations, four have three observations and three

have two observations.

When coding the degree of institutionalization of the REOs, I relied on various

secondary sources. Several books that survey REOs were used to code the formal

agreements. These include the IMF (1994), UNCTAD (1996), the African Development

Bank (2000), and Page (2000a). In addition, I used the UIA‟s Yearbook of International

Organizations (various years), the IMF Directory of Economic, Commodity, and

Development Organizations website, and some of the REOs‟ own websites. The coding

of dispute settlement mechanisms follows Smith (2000).9 Each coding is a result of cross-

examination of these different sources. Similar secondary sources, as well as newspaper

7 This is different from utilization. DSMs may be operational but underutilized. The design of DSMs may

affect their utilization and effectiveness (Haftel 2010; Kono 2007; Posner and Yoo 2005). 8 On the role of regular meeting among top-level officials, see Haftel (2007, 2010).

9 I coded cases that are excluded from Smith‟s study according to his own criteria.

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articles and independent reports, were employed to determine the degree of

implementation. In addition, in-depth case studies of specific REOs were surveyed. In

order to increase the reliability of the coding and to reduce the risk of measurement

errors, several sources were compared before the value of each indicator was determined.

Haftel (2004) provides a list of these sources.

The Landscape of Regional Economic Organizations

This section builds on the data collection effort thus far described to assess the variation

in the institutionalization and design of REOs included in the sample. It first examines

general trends across regions and over time. It then considers specific design features and

the relationships between them. The analysis highlights the substantial institutional

variation across existing organizations and reinforces the call for a nuanced treatment of

their structure and functions. It also indicates that the measures constructed for this study

are compatible with extant research, providing them with face validity. The appendix

presents descriptive statistics for all the variables.

Regional Institutionalization

To gauge the scale of regional institutionalization worldwide, each of the two

overarching variables are divided into three groups along a continuum of

institutionalization: low, medium, and high. Figure 3.1 reports the number of

organizations that fall in each of these categories.10

It substantiates the widespread

intuition, shared by this study, that all REOs are not alike (Choi and Caporaso 2002;

Mansfield and Milner 1999; Page 2000a). Many organizations are weakly

institutionalized, but others exhibit intermediate or high levels of institutionalization. It

also underscores the gap between institutional design and implementation. Considering

only institutional design, it appears that a large number of REOs signed ambitious

agreements with lofty goals. About seventy percent of all organizations fall in either the

intermediate or high category. This trend is turned on its head when taking into account

implementation, however. About seventy percent of the REOs fall in the low category

and only one (the EU) falls in the high category. This observation underscores the reality

that many organizations, especially those among developing countries, fall short of their

stated objectives (de la Torre and Kelly 1992; Langhammer and Hiemenz 1990; OECD

1993, 65).11

[Figure 1]

An overview of the evolution of REOs throughout the 1980s and the 1990s

indicates that economic regionalism is a dynamic phenomenon. This is apparent from the

sheer number of organizations included in the sample in each time point, which increases

from eighteen in 1982 to twenty-five in 1992, and the increasing level of

institutionalization over this time-period. Figure 2 depicts the annual average of

10

For each REO, the value represents the average across the different time points. Even though the level of

institutionalization changes over time, most REOs remain in the same category. 11

This gap reflects, in part, failed attempts by developing countries to “import” European agreements and

institutions to their own regions. Langhammer and Hiemenz (1990, 2) label this as the “fallacy of

transposition.”

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institutionalization for the eighteen REOs that have all four observations,12

and

demonstrates that its average level has substantially increased over this fifteen-year

interval. This is evident for both designed and implemented institutionalization, which

exhibit a growth rate of twenty-five and thirty percent, respectively. REOs like

ECOWAS, the Andean Community, and ASEAN are but a few examples of this

development.13

This description corresponds to other recent assessments of this trend. A

number of observers point out that the wave of regionalism ensued in the early 1990s

deals with more issues and strives for deeper cooperation, compared to previous efforts

(Hettne 1999, 7-8; Kahler 1995, 81-82; Mansfield and Milner 1999).14

[Figure 2]

Turning to the institutionalization of specific REOs, Figure 3 presents the average

designed and implemented levels for each organization. It further validates the

observation that existing REOs exhibit considerable institutional variation. It also

illustrates the uneven gap between design and implementation. For some REOs, such as

ASEAN, SACU, and the EU, the former diverges from the latter only slightly. In other

organizations, most notably AMU and ECCAS, implementation falls far short of

institutional design. The variation reported in Figure 3 bestows the measure with a degree

of face validity. Consistent with conventional wisdom, the EU emerges as the most

institutionalized REO, far ahead all the other organizations (Acharya and Johnston 2007;

Choi and Caporaso 2002, Grieco 1997; Katzenstein 1997).15

Detailed comparisons that

go beyond the EU offer additional indications that the measure described above is

compatible with other assessments of cross-regional variation (Acharya and Johnston

2007, 245; Choi and Caporaso 2002; Grieco 1997; IMF 1994; Page 2000b). At the same

time, it provides one of the first nuanced and systematic treatments of this variation and

offers a clearer picture of institutional differences across regions and over time.

[Figure 3]

Design Features and Relationships among Them

Moving beyond the overarching measures of regional institutionalization, it is worthwhile

to consider the variation on specific design features. Patterns pertaining to the scope of

economic activity largely resemble those of the broader institutionalization measures.

This is not surprising as scope comprises about eighty-percent of regional

institutionalization. Again, substantial variation exists on designed and implemented

scope and the gap between them is often considerable. The average score on designed

scope is more than twice the average score on implemented scope.

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Newly formed REOs have low levels of regional institutionalization that may lead to an artificially low

average. It is thus more informative to compare the same group of organizations across time. 13

Most, but not all, REOs have experienced increasing institutionalization. Some organizations, such as

SACU and LAIA, showed little dynamism and others, such as MRU and CEPGL, have experienced

declining levels of institutionalization. 14

This is sometimes dubbed as the “new” or “open” regionalism. 15

Nonetheless, the EU has much in common with other REOs and serves as a useful yardstick (Acharya

and Johnston 2007; Kahler 1995).

13

The existence and power of corporate bureaucracy fluctuates across different

organizations and over time. While almost all REOs have established a secretariat or a

commission, only a handful of these bodies have the authority to make recommendations

or initiate policies. Some, the ASEAN Secretariat and the WAEMU Commission for

example, have obtained such power only in the 1990s. REOs institute a binding dispute

settlement mechanism only infrequently.16

About a third of the observations (thirty-two

out of ninety) score at least one on this variable. Three-quarters of these mechanisms

(twenty four out of thirty two) are standing tribunals, however. This feature, too, exhibits

some temporal variation. REOs like EFTA and CACM have established their DSM only

in recent decades.

As Table A3 reports, the correlation between the different institutional features is

always positive, suggesting that wider economic scope is frequently accompanied by

greater institutional independence. At the same time, most bivariate correlations range

from low to intermediate, underscoring the diverse nature of existing regional

organizations. The correlation between economic scope and the two features pertaining to

independence are quite modest, ranging from 0.3 to 0.5. Presenting the average score on

implemented scope and institutional independence, Figure 4 illustrates this multiplicity of

arrangements. Some organizations, such as WAEMU and IOC, score high and low on

both aspects, respectively. Other REOs, in contrast, score high on one aspect but low on

the other. ECOWAS is rather independent but has a limited economic scope. SACU and

the GCC, on the other hand, have a wider scope but are less independent. Interestingly,

the correlation between the two variables related to independence is only 0.28. Thus,

while some REOs have both an independent secretariat and a standing tribunal, others

have one but not the other. LAIA, for example, includes an independent secretariat but

not a binding DSM. In contrast, COMESA has a standing tribunal but a weak secretariat.

Thus, institutional independence may develop in a number of different ways. Taken

together, this descriptive analysis highlights the varied landscape of existing REOs with

respect to their functions and structure, and indicates that each design feature captures a

distinct aspect of regional institutionalization, which merits separate empirical analysis.

Research Design

In order to test the hypothesized effect of economic interdependence on regional

institutions, I use the original data set described in the previous section. Because I am

interested in the sources of the structure and functions of REOs, which are institutional

traits of the organization and not of any particular dyad, the empirical analysis is

conducted at the regional level of analysis, defined by organizational membership. The

independent variables, described in more detail below, are also defined and measured at

the regional level, since there are good reasons to believe that some types of interactions

are not adequately captured by monadic or dyadic setup and are more amenable to

regional ones. In particular, a number of recent studies point out that economic

interdependence, security relations, and regime types tend to cluster geographically,

suggesting that regional dynamics are at work (Buzan and Wæver 2003; Gleditsch 2002).

16

Many REOs have a non-binding DSM, see Smith (2000).

14

Such regional analysis serves as a useful complement (rather than a substitute) to the

more conventional monadic and dyadic analyses.

The dependent variables are the six variables related to regional

institutionalization. These variables have different distributions and thereby handled with

different statistical tools. The four variables related to the overarching level of regional

institutionalization and economic scope – DESIGNED INSTITUTIONALIZATION,

IMPLEMENTED INSTITUTIONALIZATION, DESIGNED SCOPE, and IMPLEMENTED SCOPE – are

continuous. They are estimated with an ordinary least squares (OLS) regression

technique. The estimations of these variables include a random-effects specification,

which accounts for unobservable cross-regional variation. The values of the two

remaining variables – BUREAUCRACY and DISPUTE SETTLEMENT – are ordered on a 0-2

scale. They are estimated with an ordered probit model. The random effects specification

is not available with this technique. Instead, the standard errors of the estimates are robust

and clustered by REO.

Independent Variables

The main independent variable, economic interdependence, is measured with TRADE

SHARE, which is intra-regional trade as a percentage of the total regional trade (Grieco

1997; Page 2000a). A greater proportion of intra-regional trade indicates that REO

members trade more among themselves relative to their trade with the rest of the world,

which in turn suggests greater regional interdependence. UNCTAD provides information

on trade share for most REOs, based on their exports.17

Turning to some specific design features, extant research suggests that it is not

necessarily the intensity of economic relationships, but rather the proposed level of

institutionalized cooperation that determines the authority and centralization of regional

institutions. Specifically, it is argued that greater economic scope calls for greater

legalization and institutional strength (Acharya and Johnston 2007, 268; Johns and

Rosendorff 2010; Kahler 2000; Smith 2000; Stinnett 2007). To account for this

possibility IMPLEMENTED SCOPE is included in the models that examine the sources of

top-level meetings and institutional independence. Because economic interdependence

and economic scope are highly correlated, they are included in separate models.

Two competing explanations emphasize the distribution of power among the

group members and offer opposing views. First, according to assumptions of both realism

and bargaining theory, powerful states should prefer weak international institutions

designed to reflect the distribution of power among their members. Because they have

viable unilateral and bilateral options, when it comes to creating or working through

REOs, powerful states face greater opportunity costs than other states. Weaker states, on

the other hand, might be expected to favor powerful organizations in order to constrain

their more dominant counterparts. Insofar as the preferences of the powerful members

prevail, greater power asymmetry between the members of an REO should be associated

with lower levels of institutionalization. This argument is most applicable to the design

features related to institutional independence because powerful states are especially

17

Trade data for SACU is not available, and most likely does not exist (Page 2000a, 117).

15

worried about excessive institutional autonomy and legalization (Haftel and Thompson

2006; Smith 2000).

An alternative argument focuses on the importance of hegemonic power as a

supplier of regional institutions. This view can be traced back to Karl Deutsch, who

argued that successful political integration tends to develop around one core area that

pushes it forward (Deutsch et al. 1957, 38). More recently, several scholars grounded this

argument in theories of collective action and hegemonic leadership, arguing that

hegemons bear the costs associated with higher levels of integration (Mattli 1999;

Yarbrough and Yarbrough 1992, 61-66). This argument indicates that greater power

asymmetry within a region is likely to be associated with greater institutionalization. The

effect of power asymmetry on regional institutions is measured with the so-called

concentration ratio, which takes into account both the relative economic size of all

members and the number of members in the organization (Mansfield and Pevehouse

2000; Smith 2000). The value of this variable, labeled CONCENTRATION, increases as

asymmetry grows and is bounded between 0 and 1. GDP data from the Penn World

Tables is used to calculate this variable (Heston, Summers, and Aten 2002).

A number of recent studies highlight the link between democracies, international

organizations, and regional institutions. Mansfield, Milner, and Rosendorff (2002) argue

that democratic governments are more likely to tie their hands to REOs, and find that

democratic dyads are more likely to sign such agreement. Accordingly, one might expect

REOs among democratic states to be more institutionalized than those among non-

democracies (Mansfield, Milner, and Pevehouse 2008). Regime type is claimed to have

particular implications for institutional independence. Democracies, it is argued, are more

likely to delegate authority to international organizations as well as to create and use

international adjudicating bodies (Kahler 2000; Pevehouse and Russett 2006).

To measure regional “democraticness,” I employ the widely used Polity IV

definitions and data (Jaggers and Gurr 1995; Marshall and Jaggers 2002).18

The

composite regime type measure is the difference between the level of democracy and the

level of autocracy, which ranges from -10 to 10 for strong autocracy and strong

democracy, respectively. After calculating the five-year regional average of this

composite variable, I distinguish between regions with an average Polity score of six or

higher, indicating that the region is democratic, and those that fall short of this threshold,

suggesting that the region is not inhabited by mature democracies. Thus, DEMOCRACY

DUMMY is a dichotomous variable that scores one if the average level of regional

democracy is greater than six, and zero otherwise.19

The potential effect of domestic conflict on international cooperation remains

largely unexplored. Nevertheless, a number of arguments suggest that civil wars are

likely to inhibit regional institutionalization. First, states that experience domestic

instability may have to devote their material and political resources to address these

problems rather than to empower regional organizations (Nye 1971, 82). Second, insofar

18

This data set does not provide information on micro-states (population less than one million). Such states

are not included in the calculation of regional measures. All members of the OECS are micro-states, thus

values for this organization are missing. 19

Alternative specifications, such as the actual Polity average or the score of the least democratic member,

do not change the results in a meaningful manner.

16

as REOs require the delegation of national autonomy, governments whose authority is

challenged at home may be more jealous of their sovereignty, and thus less willing to

entrust international institutions with political independence. Third, neighboring states

may be reluctant to institutionalize their economic relationships with countries that

experience domestic strife, fearing that the conflict will spill over national borders and

destabilize the broader region. As one observer of regional integration in Africa notes,

“instability and insecurity have emerged as the greatest impediments to regional

integration in Central Africa...The fear of a few states‟ contagious warmongering

…hindered the desire to construct a common political and economic space” (Ropivia

1999, 126).

Domestic violence is measured with the count of all the incidents of domestic

armed conflicts occurred in any of the organization‟s members, reported in the Uppsala

Conflict Data Program‟s (UCDP) Armed Conflict Dataset (Gleditsch et al. 2002). This

data set distinguishes among four types of wars: interstate armed conflict, extra-state

armed conflicts, internationalized internal armed conflicts, and internal armed conflicts. It

also divides armed conflicts into three levels of intensity: minor armed conflict,

intermediate armed conflict, and war.20

I count all the incidents among members of an

REO that are defined as internal armed conflict. This variable, labeled CIVIL WAR

MEMBERS, aggregates the number of conflicts over a five-year period, which is then

divided by the number of member-states.

Turning to international conflict, realists expect enmity and war to restrain

cooperation (Grieco 1988), while institutionalists believe that governments are likely to

invest in international institutions where conflict is more likely (Fortna 2004; Wallander

and Keohane 1999, 30-32). I account for this factor with the amount of armed conflict

within a given region. This is captured by the number of annual militarized interstate

disputes (MIDs) between members of the organization over a five-year period (Ghosn,

Palmer, and Bremer 2004; Jones, Bremer, and Singer 1996). The number of disputes is

likely to increase as the number of REO members grows. To account for this possibility,

the number of incidents is normalized by the number of members. Thus MIDS MEMBERS is

the total number of armed disputes divided by the number of members.21

The conventional wisdom holds that there is a tradeoff between the expansion and

deepening of REOs. More inclusive organizations may face greater difficulties in

institutionalizing their cooperation (Acharya and Johnston 2007; Langhammer and

Hiemenz 1990, 69; Mansfield and Milner 1999, 615-16). In addition, as the number of

members increases, so is the possibility of greater diversity within the group (Haggard

1997, 24; Kahler 1995, 126; Koremonos, Lipson, and Snidal 2001). Thus, larger

organizations may result in a more limited scope of economic activity. On the other hand,

organizations that include numerous members can benefit from greater centralization and

independence, which reduce the transaction costs associated with separate bilateral

20

A minor armed conflict involves at least 25 battle-related deaths per year and fewer than 1,000 battle-

deaths during the course of the conflict. An intermediate conflict involves at least 25 but less than 1,000

battle-related deaths per year and an accumulated total of at least 1,000 battle-deaths during the course of

the conflict. Like in the COW data set, a war involves at least 1,000 battle-deaths per year. 21

Taking into account only violent disputes does not change the results. For an in-depth discussion of the

link between regional conflict and regional institutionalization, see Haftel (2007, 2010).

17

negotiations (Koremonos, Lipson, and Snidal 2001, 788-789). Accordingly, REOs that

consist of more states may institute more independent regional bureaucracies and DSMs.

The implications of membership for institutional design are considered with MEMBERS,

which is a five-year average count of the states that are members of an REO.

Similarity of the organization‟s members is an oft-cited condition for cooperation

through international institutions. Arguably, states that share values and interests will find

it easier to institutionalize their economic relationships (Haggard 1997, 46). The

similarity of interests within the REO is captured with the average regional S score

(Signorino and Ritter 1999). The S score ranges from -1 to +1 where a value of 1

indicates that the interests of two states are perfectly aligned and a value of -1 indicates

that the interests of the two states are diametrically opposed. Like in other variables, the

dyadic scores are averaged for the region. The S score is measured with the two most

conventional methods: similarity of alliance portfolios (Bueno de Mesquita 1981;

Signorino and Ritter 1999)22

and similarity of voting in the United Nations General

Assembly (Gartzke and Jo 2002). The former is labeled AFFINITY ALLIANCES and the

latter is labeled AFFINITY UN. Since these two variables measure the same concept, they

are included in separate models.

Path dependency and other temporal dynamics may also help explaining the

degree of institutionalization and institutional design. Institutions are likely to be “sticky”

and tend to accrete new constituents, providing an impetus for expansion (Haftel and

Thompson 2006). These dynamics are captured with DURATION, which is the number of

years passed from the year in which the REO was formed to the year in which the

institutional variable is observed. In addition, the previous section points to a noticeable

increase of institutionalization in the post-Cold War era. A categorical variable, labeled

DECADE, accounts for this systemic change. It is coded 0 for the 1980s and 1 for the

1990s.

Results

Tables 1 and 2 present the results for the various dependent variables. Ordered probit

models are non-linear and the substantive effects of their estimates are not easily

interpreted. Table 3 reports the predicted probabilities of different values of the two

ordinal variables – BUREAUCRACY and DISPUTE SETTLEMENT – conditioned by different

values of explanatory variables that are statistically significant. The findings are largely

consistent with theoretical expectations and offer a number of interesting insights into the

sources of regional institutionalization and institutional design.

The effect of economic interdependence on regional economic organizations is

compatible with the conventional wisdom. In almost all models TRADE SHARE is positive

and statistically significant, indicating that the greater intensity of intra-regional

commercial ties stimulates the creation and institutionalization of regional economic

organizations. This result provides empirical support for the notion that states design

institutions in order to manage increasing cross-border transactions (Haas 1966; Mattli

1999; Stone Sweet and Sandholtz 1998). The models reported in Table 1 indicate that the

22

The globally weighted measure of alliance portfolio is used. Data is obtained from the EUgene software,

Bennett and Stam (2000).

18

effect of regional trade on the variables that take into account implementation is

especially pronounced. The statistical significance of these variables is much higher than

those that account for institutional design alone. Substantively, an increase of one

standard deviation in trade share increases designed institutionalization by close to two

points but implemented institutionalization increases by more than four points (on a 30-

point scale). Similarly, one standard deviation increases designed scope by 2.2 points but

implemented scope increases by 3.3 points (on a 24-point scale). Thus, high levels of

intra-regional trade compel states not only to sign agreements that are more far-reaching,

but also to implement them.

Similarly, strong trade links result in more powerful regional bureaucracies.

Model 5 indicates that the estimate of TRADE SHARE is statistically and substantively

significant. An increase from the minimum value to one standard deviation above the

mean of this variable increases the probability of a highly independent bureaucracy from

zero to almost thirty percent. Substituting trade flows with economic scope does not

change this conclusion, although the statistical and substantive effects are weaker.

Turning to DSMs, the effect of economic interdependence is positive but statistically

insignificant. Nonetheless, IMPLEMENTED SCOPE is significant at a ninety percent level of

confidence. Substantively, an increase from the minimum value to one standard deviation

above the mean of this variable increases the probability of a highly legalized DSM from

six to about twenty-eight percent. Thus, the analysis offers ample support for the positive

link between regional trade, economic scope, and REO independence.

[Table 1, Table 2, Table 3]

The estimates of regional concentration of power are mostly negative, suggesting

that regional hegemony is not conducive to regional cooperation through institutions. The

statistical significance of this variable varies across institutional features in manners that

help reconciling divergent theoretical expectations. The estimates in the models related to

regional institutionalization and economic scope, although negative, are almost always

statistically significant. This suggests that power preponderance does not prevent

member-states from engaging in cooperation on a wide number of issues or that this

effect is rather weak. The estimates in the models that pertain to regional bureaucracy and

DSMs are highly significant for the former and weakly significant for the latter. The

substantive effect of this variable on institutional independence is also considerable. It

appears, therefore, that regional powers are reluctant to delegate decision-making power

to regional organizations. This finding corroborates the claim that powerful states are

often loath giving up their control of regional politics and endow international

organizations with greater autonomy.

The relationships between democracy and regional institutionalization vary across

design features as well. Surprisingly, DEMOCRACY DUMMY has a negative and weakly

significant effect on designed institutionalization and scope. The sign is reversed and

becomes insignificant when implementation is taken into account. Perhaps, non-

democratic states tend to conclude extensive agreements that they are reluctant to put into

action. The coefficients on this variable are always positive and statistically significant in

three of the four models related to institutional independence, suggesting that more

democratic regions tend to form more independent regional bureaucracies and

organizations. Substantively, for example, the probability of a highly legalized DSM

19

increases from fourteen percent in non-democratic regions to forty-one percent in

democratic ones. This is consistent with the notion that democratic countries are more

likely to rely on commitment mechanisms to promote economic cooperation (Kahler

2000; Mansfield, Milner, and Rosendorff 2002; Pevehouse and Russett 2006).

In line with my expectations, civil wars exert a negative effect on the breadth and

depth of regional cooperation. Domestic violence appears detrimental to the broader

measure of institutionalization and the scope of economic activity. Substantively, an

increase of one standard deviation on this variable (which is about 1.6 domestic disputes)

reduces the level of implemented institutionalization by 1.3 points and implemented

scope by close to one point. On the other hand, the effect of domestic unrest on the

independence of regional bureaucracy and DSMs, while mostly negative, is statistically

insignificant. These findings suggest that governments that face internal resistance cannot

afford to invest time and resources in regional projects. They are less concerned, it

appears, with delegating power to regional organizations.

The estimates of the variables related to militarized disputes are negative in the

models that pertain to economic scope and to the aggregate level of regional

institutionalization, but they never reach conventional levels of statistical significance.

This result holds whether or not implementation is taken into account, indicating that

inter-state conflict does not hamper plans for and the realization of regional economic

cooperation. Interestingly, the estimates of the variables related to institutional

independence are almost always positive and reach conventional levels of statistical

significance in some of these models. As tables 2 and 3 indicate, this is especially

apparent with respect to DISPUTE SETTLEMENT. In substantive terms, moving from a MID-

free REO to one with a standard deviation above the mean of this variable increases the

probability of a highly legalized DSM from eight to twenty-four percent. Consistent with

the expectations of institutionalists, this finding indicates that regions that experience a

larger number of disputes are actually more likely to create independent mechanisms to

resolve them.

The effect of the number of members on regional institutionalization is generally

positive but statistically insignificant. The finding suggests that membership, in and of

itself, has no noticeable effect on the functions and structure of regional economic

organizations. In contrast, members‟ similarity of interests appears to play an important

role in the institutionalization of their organizations. The estimates of regional affinity,

measured with either similarity of alliance portfolios or voting in the UN Assembly, are

positive and statically significant in most models that account for the implemented levels

of regional institutionalization and economic scope and regional bureaucracy. Thus,

states that share political interests and concerns may find international cooperation

through institutions less threatening than states that do not. Possibly, the latter may be

more cautious due to uncertainty regarding the distribution of costs and benefits. In a

notable exception, the estimates of regional affinity are negative and significant in the

models that account for the legalization of DSMs. This result suggests that states with

divergent interests are likely to experience (or expect to have) more frequent

disagreements, which in turn require a more legalized mechanism to resolve them.

Duration exerts a positive and significant effect on economic scope and aggregate

levels of regional institutionalization. This finding points to the tendency of international

20

organizations to gradually expand their reach. Interestingly, the effect of this variable on

institutional design is stronger than the one on the implemented variables. Substantively,

ten years of existence add about 2.5 point to designed institutionalization but only one

point to implemented institutionalization. It is thus possible that member-states are

sometimes happy to sign new agreements but are less enthusiastic about following up on

them if they are not compatible with their goals. In addition, REOs that exist longer are

not necessarily more independent. The estimate of DECADE points in the same direction.

The results indicate that the regional economic organizations were more institutionalized

and included more numerous issue-areas in the 1990s compared to the 1980s. This

finding corresponds to the conventional wisdom regarding the “new regionalism.”

Conclusion

This paper examines the relationships between economic interdependence and variation

across regional economic organizations. In order to do so, it first presents a systematic

way to compare these organizations and offers a number of variables that capture

institutional differences between them. An original data set of a large number of REOs

indicates that existing arrangements vary a great deal in terms of their functions and

institutional structure. Building on this substantial variation, I empirically evaluate the

effect of economic integration on the institutionalization, scope, and independence of

these organizations.

The statistical analysis indicates that economic interdependence, conceptualized

either with trade flows or with the scope of economic activity, enhances the

institutionalization, independence, and legalization of REOs. Thus, despite recent

skepticism, this study offers ample support for the neofunctionalist approach.

Presumably, more intense economic exchange intensifies the risk and uncertainty

associated with cross-border commerce and the need to provide clear rules and

regulations to guide it. The results also highlight the importance of implementation. The

effect of regional trade on implemented levels of institutionalization and economic scope

is more considerable than design alone.

The results corroborate the expectations of several recent studies with respect to

other factors, such as the regional distribution of power, regime type, and militarized

disputes. In addition, they call attention to the distinct sources of specific design features.

Much of the extant research identifies some explanatory variables and applies them on

REOs as a whole, overlooking their diversity. The nuanced institutional analysis reported

here demonstrates that the effect of such variables varies across different design features

in predictable manners. For example, regional hegemony has no effect on economic

scope but tend to hamper greater independence. Regional democracy and interstate

violence, on the other hand, are associated with higher levels of independence and

legalization. Finally, the findings indicate that some factors, which so far received only

scant attention, are important predictors of REO variation. Most notably, civil wars

appear to be detrimental to regional institutionalization (but not independence). Shedding

more light on this nexus is a promising avenue of future research.

This study is only a first step in the investigation of the relationships between

regional trade and the design of REOs. One issue that merits greater attention is the

21

reciprocal nature of this link. After all, the neofunctionalist logic suggests that economic

interdependence and regional institutions should produce a positive feedback loop. That

is, to the extent that REOs are designed to increase transparency, predictability, and

compliance, they ought to foster international trade. This claim is supported by extant

empirical research (Hicks and Kim 2009; Kono 2007). Fleshing out the manners by

which these two variables interact, both theoretically and empirically, is likely to advance

the scholarly understanding of this timely issue.

22

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28

Table 1: Random Effects Estimates of the Sources of Regional Institutionalization and

Economic Scope, 1982-97

MODEL 1

DESIGNED

INSTITUTIONALIZATION

MODEL 2

IMPLEMENTED

INSTITUTIONALIZATION

MODEL 3

DESIGNED

SCOPE

MODEL 4

IMPLEMENTED

SCOPE

TRADE SHARE .138**

(2.12)

.317***

(6.23)

.168***

(2.66)

.253***

(5.94)

CONCENTRATION -1.231

(-.44)

-2.82

(-1.07)

-.124

(-.05)

-4.775*

(-1.87)

DEMOCRACY

DUMMY

-1.196†

(-1.38)

.373

(.40)

-1.395†

(-1.62)

.617

(.68)

CIVIL WAR

MEMBERS

-.804***

(-3.64)

-.851***

(-3.70)

-.582***

(-2.64)

-.501**

(-2.12)

MIDS

MEMBERS

-.747

(-1.25)

-.492

(-.72)

-.692

(-1.15)

-.755

(-1.11)

MEMBERS .083

(.48)

.033

(.26)

.114

(.69)

.087

(.69)

AFFINITY UN 5.142

(.90)

13.672***

(3.16)

3.965

(.72)

AFFINITY

ALLAINCES

6.163†

(1.40)

DURATION .252***

(6.54)

.107***

(2.77)

.211***

(5.52)

DECADE .641

†

(1.44)

CONSTANT 4.801

(.84)

-8.882*

(-1.94)

2.513

(.46)

-2.168

(-.52)

Wald chi2

95.84*** 107.82*** 72.85*** 64.85***

R2 (overall) .42 .74 .38 .58

NT 82 82 82 82

Note: Figures in parentheses are z statistics. *p<.1; **p<.05; ***p<.01 (two-tailed); †

p<.1 (one-tailed test).

29

Table 2: Ordered Probit Estimates of the Sources of Regional Bureaucracy and Dispute

Settlement Mechanisms, 1982-97

MODEL 5

BUREAUCRACY

MODEL 6

BUREAUCRACY

MODEL 7

DSM

MODEL 8

DSM

TRADE SHARE .135***

(3.92)

.040

(1.00)

IMPLEMENTED

SCOPE

.063†

(1.42)

.087*

(1.88)

CONCENTRATION -5.491***

(-2.97)

-7.097***

(-4.02)

-2.545†

(-1.29)

-3.247**

(-2.07)

DEMOCRACY

DUMMY

1.124**

(2.49)

1.339**

(2.44)

.472

(.66)

.861†

(1.28)

CIVIL WAR

MEMBERS

-.123

(-.88)

.048

(.32)

-.282

(-1.16)

-.237

(-1.20)

MIDS

MEMBERS

.700†

(1.31)

-.035

(-.08)

.658†

(1.62)

.901**

(1.97)

MEMBERS -.035

(-.57)

.025

(.36)

.103

(1.25)

.078

(.92)

AFFINITY UN 25.272***

(3.99)

-.087

(-.04)

AFFINITY

ALLAINCES

5.911***

(2.81)

1.048

(.53)

DURATION -.035

(-1.10)

.027

(1.05)

DECADE -.088

(-.26)

.264

(.88)

Wald chi2

37.07*** 33.59*** 30.76*** 21.72***

Pseudo R2 .51 .44 .28 .28

Log likelihood -29.96 -38.88 -45.69 -46.74

NT 82 82 82 82

Note: Standard errors are clustered and robust. Figures in parentheses are z statistics.

*p<.1; **p<.05; ***p<.01 (two-tailed); † p<.1 (one-tailed test).

30

Table 3: Predicted Probability of REO Independence due to Changes in Independent Variables

Variable Value Independence of Regional Bureaucracy

No (RB = 0) Low (RB = 1) High (RB = 2)

TRADE SHARE LOW 0.1803 0.8196 0.0001

HIGH 0.0000 0.7083 0.2917

IMPLEMENTED

SCOPE

LOW 0.0571 0.9354 0.0074

HIGH 0.0117 0.9480 0.0403

CONCENTRATION LOW 0.0005 0.9043 0.0953

HIGH 0.1102 0.8895 0.0003

DEMOCRACY

DUMMY

LOW 0.0104 0.9729 0.0104

HIGH 0.0003 0.8820 0.1177

MID MEMBERS LOW 0.0200 0.9749 0.0051

HIGH 0.0046 0.9734 0.0220

AFFINITY UN LOW 0.7505 0.2495 0.0000

HIGH 0.0000 0.2213 0.7787

AFFINITY

ALLIANCES

LOW 0.0894 0.9068 0.0038

HIGH 0.0058 0.9259 0.0684

Legalization of Dispute Settlement Mechanism

No (DSM = 0) Low (DSM = 1) High (DSM = 2)

IMPLEMENTED

SCOPE

LOW 0.9068 0.0298 0.0634

HIGH 0.6441 0.0733 0.2826

CONCENTRATION LOW 0.5768 0.0784 0.3448

HIGH 0.9234 0.0255 0.0512

DEMOCRACY

DUMMY

LOW 0.8057 0.0515 0.1428

HIGH 0.5004 0.0815 0.4181

MID MEMBERS LOW 0.8859 0.0349 0.0792

HIGH 0.6889 0.0686 0.2425

Note: Effects are generated using Spost (Long and Freese 2005). Effects for BUREAUCRACY are based on

Model 5, except for IMPLEMENTED SCOPE and AFFINITY ALLIANCES, which are based on Model 6.

Effects for DISPUTE SETTLEMENT are based on Model 8. All continuous variables except the

variable of interest are held at mean values, binary variables are held at zero. For continuous

variables high and low values are one standard deviation above and below the mean, respectively.

If one standard deviation below the mean is negative, the minimum value is used. For binary

variables, high and low values equal one and zero, respectively.

31

Appendix

List of Twenty-Five REOs

Arab Maghreb Union (AMU), Andean Community (ANCOM), Association of Southeast Asian

Nations (ASEAN), Bangkok Agreement (BA), Central American Common Market (CACM),

Caribbean Community (CARICOM), Economic Community of the Countries of the Great Lakes

(CEPGL), Common Market for Eastern and Southern Africa (COMESA), Economic Community

of Central African States (ECCAS), Economic Cooperation Organization (ECO), Economic

Community of West African States (ECOWAS), European Free Trade Association (EFTA),

European Union (EU), Gulf Cooperation Council (GCC), Indian Ocean Commission (IOC),

Latin American Integration Association (LAIA), Mercado Comun del Sur (MERCOSUR), Mano

River Union (MRU), North American Free Trade Agreement (NAFTA), Organization of Eastern

Caribbean States (OECS), South Asian Association for Regional Cooperation (SAARC), South

African Customs Union (SACU), Southern African Development Community (SADC), Central

African Customs and Economic Union (UDEAC), and West African Economic and Monetary

Union (WAEMU).

32

Table A1: Summary of Variables and Indicators Related to the Design of Regional

Economic Organizations

Component Area Indicator

Scope of

Economic

Activity

(24 points)

1. Trade Liberalization

1. Preferential Trade Agreement (Positive

List)

2. Free Trade Area (Negative List)

3. All members of REO participate

4. Non-Tariff Barriers

2. Customs Union

5. Common External Tariff (CET)

6. Negative list of goods

7. All members of REO participate

3. Movement of

Services

8. Free movement of services

9. At least six service sectors

4. Movement of Capital

and Investment

10. Free movement of capital

11. Intra-regional investment code

12. Extra-regional investment code

5. Movement of Labor 13. Free movement of labor

14. Facilitation of labor movement

6. Monetary Integration

and Macroeconomic

Coordination

15. Common currency

16. Coordination of monetary policies

17. Coordination of fiscal policies

7. Sectoral

Harmonization and

Cooperation

18. Harmonization of business conditions

(at least 4issue-areas)

19. Sectoral cooperation (at least 6 sectors)

8. Development and

Industrialization

20. Industrial Cooperation

21. Regional development bank

22. Compensation mechanism

9. Bargaining Power 23. Negotiation with other REOs or

economic powers

24. Negotiation in multilateral fora

Decision-making Body 25. Regular meetings of high-Level

officials

Institutional

Independence

1. Regional

Bureaucracy

26. Permanent secretariat

27. Recommendations and initiatives

2. Dispute Settlement

Mechanism

28. Third party ruling binding

29. Standing tribunal

33

Table A2: Descriptive Statistics

Variable N Mean Std.

Dev. Min Max

DESIGNED INSTITUTIONALIZATION 90 13.68 6.96 1 29

IMPLEMENTED INSTITUTIONALIZATION 90 7.82 6.02 1 28

DESIGNED SCOPE 90 11.05 6.32 1 24

IMPLEMENTED SCOPE 90 5.40 5.50 0 23

BUREAUCRACY 90 1.04 0.53 0 2

DISPUTE SETTLEMENT 90 0.62 0.88 0 2

TRADE SHARE 86 10.44 12.97 .10 60.50

CONCENTRATION 90 .43 .19 .11 .93

DEMOCRACY DUMMY 86 .26 .44 0 1

CIVIL WAR MEMBERS 86 1.22 1.58 0 8

MIDS MEMBERS 90 .37 .42 0 1.71

MEMBERS 90 7.37 4.05 2.20 21.80

AFFINITY UN 90 .958 .12 .10 1

AFFINITY ALLIANCES 90 .93 .10 .52 1

DURATION 90 15.46 9.74 1 40

DECADE 86 .55 .49 0 1

34

Table A3: Correlation Matrix (for 82 observations included in the statistical analysis)

DE

SIG

NE

D IN

ST

ITU

T.

IMP

LE

ME

NT

ED

INS

TIT

UT.

DE

SIG

NE

D S

CO

PE

IMP

LE

ME

NT

ED

SC

OP

E

BU

RE

AU

CR

AC

Y

DIS

PU

TE

SE

TT

LE

ME

NT

TR

AD

E S

HA

RE

CO

NC

EN

TR

AT

ION

DE

MO

CR

AC

Y D

UM

MY

CIV

IL W

AR

ME

MB

ER

S

MID

S M

EM

BE

RS

ME

MB

ER

S

AF

FIN

ITY

UN

AF

FIN

ITY

AL

LIA

NC

ES

DU

RA

TIO

N

IMPLEMENTED

INSTITUT. .71

DESIGNED

SCOPE .98 .68

IMPLEMENTED

SCOPE .67 .97 .67

BUREAUCRACY

.42 .54 .33 .44

DISPUTE

SETTLEMENT .50 .54 .40 .40 .28

TRADE

SHARE .38 .72 .36 .74 .31 .37

CONCEN.

-.16 -.20 -.08 -.10 -.46 -.34 -.09

DEMOCRACY

DUMMY .18 .46 .15 .45 .25 .28 .50 .03

CIVIL WAR

MEMBERS -.47 -.34 -.45 -.30 -.22 -.16 -.12 .07 -.29

MIDS

MEMBERS -.32 -.20 -.35 -.24 -.01 .11 -.01 -.07 -.10 .46

MEMBERS

.34 .23 .29 .15 .22 .38 .13 -.29 -.01 -.17 .12

AFFINITY

UN .13 -.01 .10 -.05 .32 -.06 -.49 -.30 -.28 .03 -.15 .19

AFFINITY

ALLIANCES .30 -.03 .29 -.08 .23 .05 -.23 .01 -.28 -.17 -.01 .15 .35

DURATION

.37 .51 .36 .49 .33 .33 .37 -.35 .35 -.01 -.09 -.03 .13 -.12

DECADE

.14 .05 .13 .05 .02 .07 .06 .06 .16 .08 -.07 .02 -.07 .01 .33

35

Figure 1: Distribution of Twenty-Five REOs across Three Categories of Regional Institutionalization (Average, 1982-1997)

0

2

4

6

8

10

12

14

16

18

20

Low (0-10) Medium (10-20) High (20-29)

Num

ber

of

RE

Os

Regional Institutionalization

Designed Institutionalization

Implemented Institutionalization

36

Figure 2: Average Institutionalization of Eighteen REOs by Year

0

2

4

6

8

10

12

14

16

18

1982 1987 1992 1997

Year

Re

gio

na

l In

stitu

tio

na

liza

tio

n

DesignedInstitutionalization

ImplementedInstitutionalization

37

Figure 3: Average Institutionalization of Twenty-Five REOs, 1982-1997

0.00

5.00

10.00

15.00

20.00

25.00

30.00

BA

NG

KO

K

AM

U

EC

CA

S

EC

O

SA

AR

C

IOC

CE

PG

L

SA

DC

MR

U

CA

CM

LA

IA

UD

EA

C

NA

FTA

EC

OW

AS

CO

ME

SA

CA

RIC

OM

EF

TA

ME

RC

OS

UR

AS

EA

N

AN

DE

AN

OE

CS

GC

C

WA

EM

U

SA

CU

EU

Re

gio

na

l In

stitu

ion

liza

tion

Regional Economic Organization

Designed Institutionalization

Implemented Institutionalization

38

Figure 4: Average Implemented Scope and Independence of Twenty-Five REOs, 1982-1997

0.00

5.00

10.00

15.00

20.00

25.00

EC

CA

S

AM

U

EC

O

BA

NG

KO

K

IOC

SA

AR

C

CE

PG

L

SA

DC

EC

OW

AS

LA

IA

MR

U

CO

ME

SA

CA

CM

UD

EA

C

NA

FTA

AN

DE

AN

EF

TA

CA

RIC

OM

ME

RC

OS

UR

AS

EA

N

WA

EM

U

OE

CS

GC

C

SA

CU

EU

Sco

pe/I

nd

ep

en

den

ce

Regional Economic Organization

Implemented Scope

Independence