Geoscience Reference
In-Depth Information
Unlike the relation between regional integration and income inequality
between
member countries, the relation between regional integration and income inequality
within
countries is based on the idea that market competition and the labor/capital
balance of power is a key determinant of income inequality. Unfortunately, there
are few empirical studies on this; and most relating to European integration. They
argue that economic integration tends to create a larger labor market and increase
wage competition between workers (Western
1997
). With workers exposed to
competition beyond national boundaries, their bargaining power weakens—either
through unions losing influence or by other means. In this case, further integration is
expected to increase internal inequality (Alderson and Nielsen
2002
).
So what is the difference between the impact of globalization and regional
integration, as both give rise to increased market competition? Labor markets expand
more readily and labor is more competitive within regions than between regions.
Consequently, firms can more easily exercise control over subsidiaries within than
between regions. Also, political institutions are more similar within than between
regions. So one can hypothesize that regional integration would likely reduce the
power of labor unions, and thus have a more pronounced effect on income inequality.
In some cases, more developed institutions (like in Western Europe) can insulate
workers from the pressures of international competition (Cameron
1978
). Strong
welfare states with generous unemployment benefits and training programs can help
stabilize the national economy against the vicissitudes of international markets, such
that worsening inequality can be averted when regional integration increases.
Most empirical evidence on this is based on Europe's integration. The welfare
state shapes stratification directly through income transfers, and can reduce inequal-
ity and poverty. But European integration also limited individual government
intervention. In addition, there was some retrenchment of Western European
welfare states through spending limits imposed by the “convergence criteria” of
the 1992 Maastricht treaty (Brady
2003
). Thus, more limited national autonomy
due to regional integration contributes to the shrinking of the welfare state, one
consequence of which is greater income inequality.
In Asia, inequality within most countries has been rising (ADB
2012
) alongside
economic integration. This does not imply causality, however. With limited inte-
gration compared with Europe, it is hard to positively link the two. Deepening
regional cooperation to remove barriers to trade and finance, and to further de-
regulate markets (“negative integration”) can have a stronger impact than those
from regulations designed to correct market failures (“positive integration”). This
has happened in Europe,
9
and there is no reason it cannot happen in Asia as well.
When it does, inequality and polarization within countries may worsen.
9
The convergence effect of regionalization on between-country income inequality in Europe
outweighs the polarizing effect of regionalization on within-country inequality, such that the net
total income inequality has declined. In other words, regional integration has a positive net effect
on reducing total income inequality (Scharpf
1997
).
