Production Networks in an Economically Integrated Region

This paper discusses an approach to "open regionalism" based on regional production networks and component specialization. Component specialization, or intra-product trade, has been shown to be welfare-enhancing. It creates jobs and raises output by improving competitiveness. It is one of the innovative features of the current phase of globalization. It offers groups of small countries opportunities to make regionalism work in ways which the traditional European model does not. It is less discriminatory and less inward- looking than the European model. It stresses regulatory reform and the creation of a single market early in the process of regional economic integration. The welfare gains flow from elimination of market distortions and minimization of trade diversion