The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, euen if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank. Its Executive Directors, or the countries they represent.

As regional trading arrangements (RTAs) have spread, enlarged and deepened over the last decade, they have posed challenges to economists on both intellectual and policy levels. On the former, do RTAs stimulate growth and investment, facilitate technology transfer, shift comparative advantage towards high value-added activities, provide credibility to reform programs, or induce political stability and cooperation? Or do they, on the other hand, divert trade in inefficient directions and undermine the multilateral trading system? The answer is probably "all of these things, in different proportions according to the particular circumstances of each RTA." This then poses the policy challenge of how best to manage RTAs in order to get the best balance of benefits and costs. For example, should technical standards be harmonized and, if so, how; do direct or indirect taxes need to be equalized; how should RTAs manage their international trade policies in an outward-looking fashion? Addressing these issues is one important focus of the research program of the International Trade Division of the World Bank. It has produced a number of methodological innovations in the traditional area of trade effects of RTAs and is now starting to tackle four new areas of research: the dynamics of regionalism (e.g., convergence, growth, investment, industrial location and migration), deep integration (standards, tax harmonization), regionalism and the rest of the world (including its effects on the multilateral trading system), and certain political economy dimensions of regionalism (e.g., credibility and the use of RTAs as tools of diplomacy). In addition to thematic work, the program includes a number of studies of specific regional arrangements, conducted in collaboration with the Regional Vice Presidencies of the Bank. Several EU-Mediterranean Association Agreements have been studied and a joint program with the staff of the Latin American and Caribbean Region entitled "Making the Most of Mercosur" is under way. Future work is planned on African and Asian regional integration schemes. Research findings from the Regionalism and Development program have been and will be released in a number of research outlets to foster widespread comment and debate. While they inform policy debate within the World Bank, they do not define Bank policy.

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For over three decades Sub-Saharan African (SSA) countries have had an interest in regional integration initiatives to accelerate their industrialization and growth. The projects proposed to foster integration encompass a broad range of initiatives such as: (i) the development of regional ports to help African countries effectively utilize modern shipping technologies, and realize economies of scale in transport; (ii) construction of regional road and rail systems to facilitate the transfer of goods and peoples across national frontiers; (iii) the use of joint tenders to secure imports at more favorable prices; or (iv) cooperation on monetary and financial matters (including export credit guarantee facilities) to encourage domestic and foreign investment. Many of these initiatives could have a positive impact on Africa's industrialization and growth prospects. However, a proper assessment of their likely influence requires a thorough analysis of their costs and benefits which has generally been lacking. This report examines one proposal advanced to foster regional integration, that is, the exchange of trade preferences among Sub-Saharan countries. To assist in this assessment, a database on intra-African trade was developed that is more detailed and comprehensive than information previously available. These data indicate problems associated with African regional trade arrangements are more daunting than is generally recognized. Africa's non-oil exports are highly concentrated in a very few products -none of which are important in regional imports. Sub-Saharan African countries appear to have relatively little to trade with each other. An analysis of historical changes in the other countries' exports indicates the "non-complementarity" problem in African trade cannot be resolved quickly. African intra-trade is also highly concentrated within sub-regional geographic groups with almost no trade occurring between East and West Africa. This finding makes arguments that regional trade can help overcome problems associated with the small size of domestic markets less compelling. * In connection with the above, African countries, in cooperation with appropriate international organizations, should work closely to formulate and implement a program of technical assistance that would upgrade their ability to compile and maintain accurate and reliable trade statistics. This upgrade program should consider the extent to which automated trade monitoring systenQ. like ASYCUDA, could contribute to the improvement of data quality. In addition, !4, i ' an countries should specifically seek the cooperation of private and public organizations like UNCTAD, the United Nations Statistical Office, or the World Trade Organization where rAevant expertise exists.However, it must be recognized that the formulation, adoption, and continuation of initiatives to up-grade the information content of these key statistics will require a strong and lasting commitment on the part of the African governments themselves. Without such a commitment Africa...

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