Borders, border regions and economic integration: One world, ready or not

The effects of a border on economic interaction depend on the nature of that border with respect to the degree of openness, the degree of cultural, racial and linguistic differences, political relations between the respective regions and the degree of economic disparity. High walls and slow border crossings are detrimental to economic exchange. Economic and political tensions surrounding a border are directly related to the degree of economic disparity. At the same time, large differentials in relative factor costs (i.e. cheaper capital on one side and cheaper unskilled labor on the other) tend to encourage cross-border production sharing, as well as cross-border shopping and crossborder working. The extent and shape of border relationships vary widely and are strongly influenced by the degree of asymmetry in the neighboring economies, as well as the social and political organization of each. This paper presents a discussion of factors affecting the degree and nature of economic interactions between borders that are moving toward increased economic integration. It addresses the question of why in some cases with all political barriers removed, barriers to trade and cooperation persist, while in other cases large amounts of trade and cooperation exist despite substantial political barriers.