Open Regionalism in a World of Continental Trade Blocs

Continental trade blocs are emerging in many parts of the world almost in tandem. If trade blocs are required to satisfy the McMillan criterion of not lowering their trade volume with outside countries, they have to engage in a dramatic reduction of trade barriers against non-member countries. That may not be politically feasible. On the other hand, in a world of simultaneous continental trade blocs, an open regionalism in which trade blocs undertake relatively modest external liberalization can usually produce Pareto improvement. In the bilateral trade data for the period 1970-92, there are indeed regions that, while exhibiting an inward trade bias, nevertheless are consistent with this notion of open regionalism.