Promoting Domestic Reforms Through Regionalism

Abstract

There is a strong presumption among economists that domestic reforms are promoted by regionalism. Yet strong empirical evidence for this proposition is lacking. The purpose of the paper is to examine in some detail both the theoretical arguments and empirical evidence on this issue, drawing on the relevant economic, political and legal literatures. The paper argues that in general, the case for reciprocity in domestic reforms is weak. In the one case where a regional agreement appears to have promoted domestic reform — the European Union — the enforcement mechanisms used by the European Court of Justice played a significant role. But those mechanisms are not unique. Instead, the paper argues that the EU’s success was because domestic constituents were empowered to take action against uncompetitive regulation. Thus the EU promoted economic reform in sensitive, behind‐the‐border areas because it overcame the problem of loss of sovereignty by internalising the political battle to domestic interests, and yet still provided a non‐political frame of reference for the debate.

Keywords: Domestic reform, structural reform, services trade reform, political economy, regionalism, preferential trade agreements, WTO, GATS, European Union, European Court of Justice, doctrine of direct effect

JEL Classification: D02, D04, D78, F13, F15, F53, F55