4.3 Economic integration Flashcards
economic integration
Cooperation between countries and coordination of economic policies, facilitating the free exchange of goods and services, labor, investments and technology
preferential trade agreement (PTA)
Agreement between two or more countries to lower trade barriers between each other on particular products; trade barriers can remain on other products and imports from non-member countries
bilateral trade agreements
between two countries
multilateral trade agreements
between many countries
regional trade agreements
Between a group of countries within a geographical region
trading blocks
Income diverted out of the circular flow and not spent on goods and services
Free Trade Area (FTA)
Group of countries that agree to gradually eliminate trade barriers between themselves, but no common external trade barriers This creates a problem as products could enter the FTA via the country with the lowest trade barriers, hurting domestic production of countries with higher trade barriers (“rule of origin problem”)
customs unions
FTA + common external trade barriers; all member countries must impose the same trade barriers to non-members to eliminate the“rule of origin” problem However, it could be difficult to agree on common external barriers
common market
Customs union + eliminate all restrictions on movements of any factors of production (mainly labor and capital) within the common market, promoting more efficient utilization of resources as unemployed workers could move to countries with labor shortages However it could be difficult to coordinate economic policies between members
monetary union
Common market + common central bank, common currency and common monetary/exchange rate policy, together with coordination of macroeconomic goals (inflation targets) and fiscal budgets (restrictions on the size of public debt)
terms of trade
A measure of export prices relative to import prices (both export and import prices are measured in domestic currency)
