4.4 Economic Integration Flashcards
What is economic integration
is a process through which countries coordinate and link their economic policies and decrease trade barriers
6 stages of economic integration
- Preferential trading areas
- Free trade areas
- Customs Union
- Common Markets
- monetary union
- Complete economic integration
What is a preferential trade agreement
An agreement between two or more countries to lower trade barriers on particular products in trade between each other
Types if preferential trade agreements and define them
Bilateral trade agreement - agreement made by two countries
Multilateral trade agreement - agreement between many countries
Regional trade agreements - agreements between a group of countries within a geographical region
What is trade liberalization
Free trade by reducing or eliminating trade barriers between members
What is a trading bloc
Group of countries that have agreed to reduce trade barriers for the purpose of encouraging free or freer trade
Types of trading blocs
Free trade area
Customs union
Common market
What is free trade area
Consists of a group of countries that agree to gradually eliminate trade barriers between themselves
What is a customs union
Consists of a group of countries that fulfills the requirements of a free trade area and in addition adopts a common policy towards all non-member countries (agree to have common barriers reducing trade outside of the customs union)
What is a common market
An even higher degree of economic integration
The further elimination of remaining trade barriers; continue to have a common external policy and in addition, agree to eliminate all restrictions on movements of any factos of production within them
Advantages of trading blocs
Trade creation
greater access to markets offer potential for economies of scales
with freedom of labour, there are greater employment opportunities
membership in a trading bloc may allow for stronger bargaining power in multilateral negotiations
greater political stability and cooperation
Explain trade creation
occurs when entry of a country into a customs union leads to the
production of a good or service transferring from a high–cost producer to a low–cost producer
Disadvantages of trade unions
Trade diversion
loss of sovereignty
challenge to multilateral trading negotiations
Explain trade diversion
occur if there is a trade bloc which is also a customs union. This has the opposite effect, and transfers production from a low–cost producer onto a high–cost producer
What is a monetary union
Occurs when the member countries of a common market adopt a common currency and a common central bank responsible for monetary policy
