Keeping traffic local improves network performance since traffic peered directly provides the shortest path between two networks.
As shown in the figure below, traffic that would normally go through a metered Internet Transit service is exchanged directly between two peers, thus bypassing the Internet transit service.
It is also important to note that the Internet Transit service is still needed; only customer to customer traffic is directly exchanged between the two peers. For access to the rest of the Internet, the Internet Transit service is still required.
Peering locally also increases the value of the local Internet Peering Ecosystem.
As more eyeballs and content providers peer together, the gravitational pull for others increases. As this trend continues, the flywheel effect causes the local exchange point to be valuable to national and even international ISPs. When all of these players participate, the cost and performance for the local population improves. The lowest cost best performing Internet services are often around these exchange points.
So, the country constituents benefit from the lower costs, from the better performance and from the gravitational pull when massive peering is done in-country.
We have also seen that adjacent countries benefit from having an Internet Exchange Point (IXP) in close proximity, even if in an adjacent country.
The in-country ISPs can easily and inexpensively purchase access into the adjacent country IXP and purchase transit in a competitive market for resale in the adjacent country. Further, this ISP can peer, further reducing its costs. The result is that the ISP can offer lower prices to the market in its home country. Once their competitors see this maneuver, they too will build into the adjacent IXP and do the same thing, and offer lower prices in its home market as well. The competitive market causes prices to drop for everyone.