In one of our publications on OASES economies (Oriental Republic of Uruguay, Austria, Switzerland, Emirates (UAE) and Singapore) last year we observed a peculiar pattern in the global economic geography, namely that across the main regions of the world, small economies such as OASES served as bridges connecting some of the largest economies in the respective continents/regions[1]. We now take a broader look at the concept of bridge economies and attempt to explore the possible ways in which such countries could contribute to building new networks and platforms in the global economy. With the top-down pattern of globalization that heavily relies on impulses from global economic organizations encountering limitations, the bridge economies could play a pivotal role in re-building the bottom-up globalization momentum from the layer of national economies and regional blocs.
We define “bridge economies” broadly to denote those countries that are geographically positioned to intermediate economic cooperation among regional neighbors, that receive substantial revenues from such intermediation (well in excess of the average for the global economy) and that target such “bridge dividends” as part of their economic modernization/development strategy. In effect, such “bridge economies” become crucial venues for positive spillover effects in their regions and more broadly in the world economy, exercising thus a disproportionate effect on global growth.
The intermediation role of “bridge economies” may include transportation/transit services, roles as FDI hubs or a key supply chain nodes in regional and global value chains, with broader definitions of “bridge economies” also extending into exports of financial services or delivering a significant contribution to regional integration and digital connectivity. Accordingly, there may be a broad range of indicators that could employed to gauge countries’ “bridge capabilities”, including the share of transit/transportation exports in total exports or GDP; share of re-exports in total revenues; exports of services, including in financial intermediation.
As we have argued in our previous publications, any economy may transform itself into a bridge in its region or neighborhood – indeed, a “bridge economy strategy” could be an integral part of any economy’s long-term economic development plan. In order to perform the connectivity role across countries and regions, bridge economies will need to combine a number of the following characteristics:
- Openness in terms of trade and investment
- A “bridge economy” policy orientation: a bridge policy framework that is reflected in the economy’s national development strategy
- Macroeconomic stability and institutional maturity
- Connectivity framework and infrastructure
- An advanced regional integration framework
- Development of the services sector, most notably IT, transportation and financial sectors
- A diversified network of alliances/FTAs across the global economy
In terms of macroeconomic policy direction, solidifying “bridge economy” credentials would call for a more predictable and transparent policy framework that is conducive to macroeconomic stability. In this respect policy frameworks such as economic policy rules (monetary, fiscal, structural) could prove to be superior to the prevalence of discretionary economic policies. Just like the stability of a bridge as a construct is critical in logistics/transportation, so too does the macroeconomic stability in “bridge economies” become crucial in seamless economic intermediation. Having well-developed regional integration arrangements tends to be supportive for the emergence and orderly operation of such economic policy rules via the introduction of convergence criteria and other common economic policy frameworks.
A broader typology of such bridge economies could be categorized as follows[2]:
- Trade bridges: economies that have accumulated a significant number of free trade agreements and that can serve as important drivers of trade connectivity: Singapore, Chile, South Korea
- Logistics and transportation bridges:
- A. Coastal bridges: Uruguay, UAE, Singapore
- B. Inland bridges: Switzerland, Austria; landlocked in-between economies such as Mongolia, Nepal
- C. “Canals and straits”: countries that control key straits, trade routes and canals – Singapore, Turkey (Bosphorus, Dardanelles), Egypt (Suez canal), Panama (Panama canal), Spain/Morocco (Strait of Gibraltar)
- Digital bridges: Singapore as the key driver of Digital Economic Agreements (DEAs) in the global economy, ASEAN as a regional bloc that promotes cross-border digital connectivity
- Financial bridges: Switzerland, Uruguay, Singapore, UAE – the global financial centers in such economies (Dubai, Geneva, Zurich) may serve as financial gateways into the global economy/markets
- Micro-regional bridges: border sub-national regions/municipalities that serve as key conduits of trade and transportation – San Diego-Tijuana in the Americas, Singapore-Johor Bahru in Asia, Lagos-Cotonou and Kinshasa-Brazzaville in Africa, Benelux border regions and Oresund region in Europe.
- Macro-regional bridges: cross-regional economies such as Russia, Turkey, Kazakhstan that connect Asia and Europe
Based on the classification above, national economies and regions may be assessed in terms of their “bridge potential” – an integral indicator of such capabilities that includes trade, infrastructural connectivity, digital connectivity, financial/investment connectivity, and migration. This potential may then be compared to the actual flows and “bridge dividends” obtained by a given economy – in a similar vein compared to the gravity model comparison of the potential and actual trade flows. The gaps between the actual bridge dividends and potential may identify areas where additional investment may be needed to fully exploit the “bridge capabilities” of the respective region or national economy.
Some of the “bridge economies” and regional blocs may compete in taking a leading role in intermediating key trade routes as is the case with the BRI’s alternative routes involving Central Asia, Russia, ASEAN or other economies. Bridge economies may serve as gateways into a region or a regional integration bloc or they may also be seen as a conduit into a large market through existing regional trade mechanisms – as is the case with Mexico and its maquiladora economy used by FDI from Asia as a platform to access the large US market. Within such a conceptual framework, the BRICS platform may be perceived as a multimodal and multiregional bridge that provides access to markets in a wide array of diverse regions/regional integration blocs of the Global South.
[1] https://brics-plus-analytics.org/from-chokepoints-to-bridges-a-different-look-at-the-world-map/
[2] In the political sphere countries or regional groups that serve as conflict mediators may also be considered as bridges, a quality that tends to be reinforced by “bridge capabilities” in the economic sphere. Neutrality may be an important asset in building such “bridge capabilities” in conflict mediation.
To be continued in Part 2
Yaroslav Lissovolik, Founder, BRICS+ Analytics
Image by Kanenori via Pixabay