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The Economics of Common Currencies (Collected Works of Harry Johnson) by Alexander K. Swoboda, Harry G. Johnson

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Chapter 6

THE THEORY OF OPTIMUM REGIONAL ASSOCIATIONS*

HERBERT G. GRUBEL

U.S. Treasury and Simon Fraser University

This paper presents a theoretical analysis of the welfare effects accompanying the formation of customs unions, common markets, currency areas and new nation states, which requires different degrees of integration and different institutional changes. It will be shown that the problem of choosing optimum currency areas is strictly analogous to that of choosing optimum regional associations of these other types.

The concept of an optimum regional association can be interpreted in two distinct ways. First, there is the interpretation that there is a world welfare-maximizing network of associations of which each one is an optimum optimorum. ...

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