Growth of regional financial institutions, Microeconomics


We find many levels of groupings of nations in the international arena. Groups of countries that share borders often have semi-permanent cooperation agreements on immigration and customs and possess institutions that implement these. Other groupings of countries come together on the basis of and to advance an ethnic, a geographical and or a cultural identity. Institutions like the UN, the World Bank and IMF are global institutions. 

There is a particular type of grouping that is relatively large in terms of country coverage without being global, and one that deploys primarily financial instruments to advance its objectives. These are the Regional Financial Institutions (RFI's) Regional financial institutions are institutions that have financial dealings in a certain region rather than at a global level. For instance, the Asia Development Bank operates to assist financially countries in Asia and the Pacific. An important characteristic of these institutions is that both rich and poor countries are their members. The rich nations are usually donors and the poor the recipients. In other words, these institutions are primarily designed to be agents of development assistance. In some ways, the, RFI's are smaller scale versions of fully global financial institutions (GFIs), particularly the World Bank. The operations of the RFI's and GFI's may sometimes overlap in some countries.

There can exist, theoretically and actually, groups of firms, and groups of countries. There sometimes arise in these groupings, economies of scale as well as economies of scope. The size of the institutions will be determined by marginal costs and benefits of size, which will in turn depend on the specifics of the socioeconomic situation being discussed. Taking the perspective of costs and benefits, of scale and scope, we can ask as to the rationale for the co-existence of RFI's and GFI's, especially when ‘development assistanceresources' may be scarce. If there is such a rationale, is the current mix of RFI's and GFI's optimal? The issue is division of labour between RFI's and GFI's, and how both types of institutions can increase their effectiveness.

Posted Date: 11/9/2012 7:02:45 AM | Location : United States

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