“Macroeconomic policy convergence may not be strictly necessary for countries within a regional trading arrangement to trade with each other using their existing economic capacity. The argument of this paper is that macro convergence around low rates inflation, with stable real exchange rates, is necessary where member countries do not have the economic capacity to take immediate advantage of new trading opportunities. Without this, they will not get their share of the short term benefits, and the free trade area will quickly fall apart. In order to create that capacity, private sector investment is necessary.”
