Why does Regional
Integration Matter?

Development challenges increasingly transcend borders. Issues such as climate change, conflict, pandemics, etc. require cross-border responses that are equal in magnitude to the scope of the challenges. Regional integration can help overcome divisions between countries and manage shared resources.

It is also a “building block” of an integrated global economy, which includes international policy coordination. In the long term, the benefits of regional integration can include improvements in intraregional trade and economic factor flows (for example, labor, capital).

However, the pursuit of regional integration is not without costs and risks, including political risks (such as threats to national security and loss of sovereignty); immediate loss of fiscal resources, increased volatility in economic factor flows, and uneven distribution or lack of mutual benefits between the nations involved. 

Read more about the background and context for Regional Integration

Client countries of the World Bank Group have turned to regional integration as one of the pathways toward faster economic development and peace, and to help overcome development challenges.

The World Bank Group fosters regional integration, playing three overlapping roles:

  • enabling clients through advisory and analytical work,
  • financing projects through policy and investment loans, and
  • convening state and nonstate actors for coordination and collective actions.

This evaluation applied three sets of methods to gather the evidence related to the Bank Group’s effectiveness, including: (1) Portfolio review and analysis of a stratified sample of regional integration interventions; (2) Regional case studies in East Africa, Central Asia, and South Asia based on the intensity (high or low) of Bank Group regional integration activities; and (3) Econometric analysis on the macroeconomic effects of Bank Group support, construction of a regional integration index, and a data-envelopment analysis to identify frontier regions and subregions with the most potential for regional integration.

Main Findings

Overall, the Bank Group’s efforts to foster regional integration have led to mostly positive development outcomes in the Sub-Saharan Africa Region and in infrastructure sectors. Bank Group regional integration efforts in other regions and sectors have been sporadic and not prioritized according to regional needs or client demand.

Though the IDA Regional Window program has also contributed to regional integration (mainly in the Africa Region), the development outcomes of its interventions are not significantly different from similar projects co-financed outside the program.

Read more about the World Bank Group’s approaches to Regional Integration

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Findings by Region, Sector, and Instrument

Spanning 867 projects with a combined commitment volume of $37+ billion during the 15-year evaluation period, the regional integration lending portfolio includes a wide spectrum of practice areas, multiple instruments, regional institutions, and sectoral approaches.

This upstream support at the local, national, subregional, and regional levels was evidenced in:

  • enhanced capacity and client knowledge on regional integration;
  • regional and cross-border policy, regulation, and harmonization of standards; and
  • setting up new regional integration agencies and institutions.

The most promising outcomes were increased knowledge exchange and clients’ enhanced understanding of  regional benefits and regional issues.  The Bank Group contributed, to a lesser extent, to regional policy harmonization and formation of new regional institutions or functional agencies.

RI_RegionalInvestment.PNGA share of 69 percent of World Bank regional integration lending (by commitment volume), 51 percent of IFC investment, and 89 percent of Multilateral Investment Guarantee Agency (MIGA) guarantees were in the infrastructure sector, particularly in the transport sector.

The performance of the regional integration portfolio across sectors is summarized as follows:

  • Seventy percent of transport operations were successful in improving regional transport infrastructure, leading to reduced transit time and user costs. The Bank Group’s portfolio in other sectors has achieved mixed results;
  • The Bank Group’s support for regional transport and trade integration projects had a weak, yet positive, effect on intraregional trade volumes.
  • In the energy sector, the Bank Group was more successful in improving regional energy infrastructure and service reliability, whereas developing regional energy markets for improved trade remains unfinished business.
  • In the information communications technology (ICT) sector, the Bank Group has been successful in developing regional infrastructure and increasing the region’s access to services.
  • Beyond such sectoral efforts, there is little evidence on the wider economic benefits of the spillover effects of Bank Group interventions at the subregional or regional level to foster economic integration.

Read more about the World Bank Group’s Regional Integration Engagement and Achievements

Note: The Composite Regional Integration (CRI) analysis should not be viewed as a unique or exhaustive assessment of potential regional integration outcomes. The CRI index is just one option to assess regional integration. The analysis presented in this report represents work in progress subject to further review.

Comparative Advantages and Challenges

Stakeholder consensus analysis, and effectiveness analysis of its support to fostering regional integration reveal the Bank Group’s comparative advantage in:

  • global knowledge: coverage that facilitates knowledge exchange and the transfer of good practices and lessons from one region to another;
  • breadth of financial instruments: for example, Development Policy Loans focusing on policy and institutional actions are also potentially useful tools to prompt regional policy coordination and harmonization, which is usually the most difficult part of regional integration;
  • synergies derived from the strength of three Bank Group institutions (IBRD/IDA, IFC and MIGA): this gives the Bank Group the ability to catalyze finance and draw on synergies among its institutions for regional initiatives that cannot be entirely supported through its own balance sheet
  • convening power: resulting from its apolitical approach and neutral position during difficult conversations with clients on regional integration issues, which makes it possible to mobilize global expertise to strengthen regional public goods (RPG).

Yet, these advantages have not been fully utilized because of internal and external challenges, including:   

  • the confluence of the Bank Group’s single-country business model;
  • lack of strategic prioritization of, accountability and incentive for pursuing regional integration interventions; and
  • sub-optimal collaboration and partnership efforts with key stakeholders such as the Regional Economic Communities, the private sector, regional development banks, and other development partners.

If the Bank Group would like to fully use its comparative advantages, then it needs to address these challenges.

IDA Regional Window’s complementarity and challenges.

The IDA Regional Window has been a key source of co-financing, complementing the Bank Group’s comparative advantage in fostering regional integration, but its additionality beyond co-financing is not evident. The portfolio review and frontier analysis indicate that projects supported by the IDA Regional Window did not perform significantly better than those without this support. Further, Regional Window efforts suggest that there are challenges in targeting those regions and subregions with the most needs and demands. Finally, there is a lack of evidence that projects supported by the IDA Regional Window generated positive spillover effects, an important criterion for its use.

Read more about the World Bank Group’s Comparative Advantages and Challenges

Note: The Composite Regional Integration (CRI) analysis should not be viewed as a unique or exhaustive assessment of potential regional integration outcomes. The CRI index is just one option to assess regional integration. The analysis presented in this report represents work in progress subject to further review.

Recommendations

If the Bank Group institutions want to prioritize their regional integration engagements, the evaluation offers the following six recommendations to address key barriers and support clients’ regional integration aspirations:

1. Initiate high-level, strategic commitments to regional integration in all operational regions in addition to Sub-Saharan Africa, with tailored approaches.

2. Realign the Bank Group’s business model to achieve managerial accountability both at country management unit and Global Practice levels, and create incentives for project teams.

3. Rebalance the Bank Group regional integration projects to emphasize regions with high integration potential, and regional public goods.

4. Create and promote universally accepted frameworks at the region and sector levels, and crowd-in new partners, most notably the private sector, international industry associations, and regional institutions.

5. Strengthen the design of projects supported by the IDA Regional Window, to improve the assessment of spillover effects and to generate evidence based on robust indicators.

6. Recalibrate the IDA Regional Window’s resource allocation to expand support for subregions with high untapped potential for integration.

See Chapter 4: Conclusions, Lessons, and Recommendations

Social Network Analysis