Sample Chapter - United Nations University

10 Yoshinobu Yamamoto
Integration (theory) is generally thought of in terms of four areas (Figure
1.3): economics, security, society and politics (political integration and
regional governance). Regional integration theories include those that
focus on economic matters, those that focus on society, those that focus
on security, those that focus on political integration/‌governance and those
that use a combination of these. In a sense, the “dependent variables” differ
depending on different integration theories.
(1) Economic integration
Balassian (from Bela Balassa, 1961) regional economic integration theory
conceptualizes a process that starts with an FTA or customs union, moves
to a common market that allows free movement of factors of production
(labour and capital) and then transitions to an integration of policies (an
economic union) such as labour, fiscal and monetary policies (directly
from A to D in Figure 1.3). 7 This is highly compatible with the neofunctionalism
of Ernst Haas (1958): neofunctionalism holds that starting
integration in sectors amenable to working-level cooperation leads (automatically
or as a result of conscious action) to cooperation in other,
closely related sectors, resulting in a spillover effect that causes integration
to include one new sector after another, eventually leading to political
integration (again, from A to D). 8 However, although economic
integration that starts with FTAs or customs unions is institutional and
formal, economic integration also includes substantive integration, which
can be measured by the degree of interdependence (sometimes referred
to as market-driven integration), the actual openness of trade and the
synchronization of economic cycles. 9 Furthermore, institutional economic
integration includes cases that end at the FTA stage, cases that transition
from a customs union to a common market and end there, and cases that
transition from a common market to an economic union. Many factors
are at work, such as the national interests of participating countries (for
example, views on sovereignty), and it is not just because of spillover
based on functional relationships between related economic sectors.
As will be discussed later, the late 1990s saw the beginning of a third
wave of economic regional integration, with many bilateral FTAs being
concluded. 10 The same period saw the emergence of theories that could
be called FTA-focused economic integration theories. Baldwin’s domino
theory analysed the process of FTA proliferation in terms of inter-FTA
competition. 11 That is, simply put, if two countries (A and B) sign an
FTA, a country (company) competing with B in terms of exports to A is
adversely affected, and that country then has an incentive to sign an FTA
with A. If negotiations with A do not go well, that country may try to
form FTAs with other countries, and in this way inter-FTA competition
causes a proliferation of FTAs. This then results in a huge number of