Economic Regionalism:Evidence from Two 20th Century Episodes BARRY EICHENGREEN and JEFFREY A.FRANKEL ABSTRACT This paper analyzes two types of evidence on the economics and politics of regional commercial relations in the 1930s and 1990s:statistical and political.Our statistical analysis uncovers a tendency toward regionalism in both the 1930s and 1990s.At the same time,our political analysis suggests that the parallels should not be pushed too far. In the 1930s,the regionalization of trade was sometimes an attempt to discourage mul- tilateral transactions and other times a response to the collapse of the multilateral sys- tem.In the 1980s,in contrast,regionalism has been a device for overcoming entrenched resistance to multilateral liberalization and for building coalitions favoring liberaliza- tion over still wider areas. INTRODUCTION Observers of economic trends cannot agree on whether growing regionalism is a fact,much less on its economic and political significance.They agree that an increasing share of the trade of Western Europe and East Asia stays within those regions.The United States is still Japan's largest export market,however,and the European Union(EU)remains the single most important destination of American exports.Even where the disproportionate growth of intra-regional trade is clear,there is dispute about whether this trend reflects the rela- tively rapid growth of incomes (in Asia)and market liberalization permitting the natural determinants of trade to reassert themselves (in Europe)or the manipulation of economic relationships by governments.The most important international monetary innovation of recent years-the European Monetary System-is a regional initiative,but its financial corollary,the removal of capital controls,has increased financial interdependence globally rather than simply regionally.It is far from clear,in other words,that international mone- tary relations are evolving into a world of currency blocs.Japan may be the leading source of foreign investment in East Asia,and Germany in Eastern Europe,but the United States invests in both regions,and Germany and Japan invest heavily in North America.Here, too,there is disagreement about whether intra-regional investments flow naturally from the economic advantages of proximity or reflect the efforts of governments to promote regional self-sufficiency. These different interpretations are important because they have different implications for the future of the international system.Those for whom the growth of intra-regional trade and investment is a mere concommitant of economic liberalization-the reassertion of natural economic relationships-perceive no threat to the global commercial and finan- Barry Eichengreen and Jeffrey A.Frankel.Department of Economics.549 Evans Hall #3880.University of California at Berkeley,Berkeley,CA 94720-3880. North American Journal of Economics Finance 6(2):89-106 Copyright 1995 by JAI Press Inc. ISSN1062-9408 All rights of reproduction in any form reservedEconomic Regionalism: Evidence from Two 20th Century Episodes BARRY EICHENGREEN and JEFFREY A. FRANKEL ABSTRACT This paper economics and politics of regional commercial relations political. Our statistical analysis uncovers a tendency toward regionalism in both the 1930s and 1990s. At the same time, our analysis suggests that the should not be pushed too far. In the 193Os, the regionalization sometimes an attempt to discourage tilateral transactions contrast, regionalism has been a device for overcoming entrenched resistance to multilateral liberalization and for building coalitions Observers of economic trends cannot agree on whether growing regionalism is a fact, much less on its economic and political significance. They agree that an increasing share of the trade of Western Europe and East Asia stays within those regions. The United States is still Japan’s largest export market, however, and the European Union (EU) remains the single most important destination of American exports. Even where the disproportionate growth of intra-regional trade is clear, there is dispute about whether this trend reflects the rela￾tively rapid growth of incomes (in Asia) and market liberalization permitting the natural determinants of trade to reassert themselves (in Europe) or the manipulation of economic relationships by governments. The most important international monetary innovation of recent years-the European Monetary System-is a regional initiative, but its financial corollary, the removal of capital controls, has increased financial interdependence globally rather than simply regionally. It is far from clear, in other words, that international mone￾tary relations are evolving into a world of currency blocs. Japan may be the leading source of foreign investment in East Asia, and Germany in Eastern Europe, but the United States invests in both regions, and Germany and Japan invest heavily in North America. Here, too, there is disagreement about whether intra-regional investments flow naturally from the economic advantages of proximity or reflect the efforts of governments to promote regional self-sufficiency. These different interpretations are important because they have different implications for the future of the international system. Those for whom the growth of intra-regional trade and investment is a mere concommitant of economic liberalization-the reassertion of natural economic relationships-perceive no threat to the global commercial and finan￾Barry Eichengreen and Jeffrey A. Fmnkel l Department of Economics, 549 Evans Hall #3880, University of California at Berkeley, Berkeley, CA 94720-3880. North American Journal of Economics & Finance 6(2): 89-106 Copyright 0 1995 by JAI Press Inc. ISSN 1062-9408 All rights of reproduction in any form reserved