The Undercurrents of Integration

Abstract

Institutional regional integration on the line of Viner’s theory of customs union and Mundell’s theory of monetary union are not the only modes of integration of neigbouring economies. It is absolutely feasible for neighbouring countries to develop close economic ties in terms of trade links and financial interdependence without having any formal economic integration arrangement. Increase in trade in goods and services and exchange of factors of production may well be totally market-driven, needing little institutional assistance. Intense interaction between spatial units creates functional economic regions or zones. Flow variables, like trade and financial flows, yield a good measure of this genre of regional integration. It corresponds more to Losch and Christaller’s concept of nodal regions, which defines economic zones by analysing the interaction and interdependence between them. Implicit in it is the concept of interaction between centres and peripheries.