Domestic Institutional Convergence and Regional Integration: Further Evidence

Yi Feng, The Claremont Graduate University
Gaspare M. Genna, The University of Texas at El Paso

Abstract

This paper explores the relationship between institutional homogeneity and integration. We argue that the homogeneity of economic institutions within a regional group and the integration process of the group jointly evolve. We examine detailed data on national economic institutions. The data include measurements of the size of government, a country’s legal framework as associated with property rights enforcement, monetary policy, and business regulation. We hypothesize that dissimilarities in these areas increase the transaction costs among economic actors and therefore reduce the level of regional integration in a region. However, as these institutions become increasingly similar, integration improves and furthers the likelihood of increased homogeneity and integration.