Definition of Economic Integration (L1)

Question 1

What is economic integration?

Answer 1

Two or more countries are economically integrated if there are no barriers or restrictions on trade, investment and migration between them

Question 2

What happens to prices after integration?

Answer 2

Prices converge and are similar

Question 3

What is negative integration?

Answer 3

Removing barriers

Question 4

What is positive integration?

Answer 4

Harmonising/Coordinating government policies (like banking regulations - EBA)

Question 5

Which is trickier, positive or negative integation?

Answer 5

Positive integration is trickier as you are making up new rules not everyone must follow, there will be some unhappiness.

Question 6

What are some examples of barriers

Answer 6

Restrictions on:
1. Movement of goods (Customs duties)
2. Migration (visa, work permit)
3. International investments
4. Controls on financial flows

Question 7

Why would you want to lower restrictions between countries?

Answer 7

A bigger market for more efficiency.

This will bring about:

1. Increased competition (more economic welfare, lower prices)
2. Specialisation
3. Economies of scale (bigger output + innovation)
4. Wider consumer choice

Question 8

What is an example of positive integration?

Answer 8

Environmental policies

i.e., Paris or tokyo agreements by which they agreed to reduce c02 emissions to slow down global warming.

Question 9

Argument FOR policy harmonisation?

Answer 9

To prevent negative spill overs.

Question 10

What is a negative spill over?

Answer 10

When a country A has a policy that impacts another country, which government A may ignore. (Bad efficiency)

Question 11

Argument AGAINST policy harmonisation?

Answer 11

Loss of national sovereignty

• A main reason for support over BREXIT
• The more we stay in the EU, the more we sacrifice national sovereignty like the controls of our border and immigration

Question 12

When are gains from policy harmonisation likely to be greater?

Answer 12

If the countries are more interdependent across eachother, because the closer they are, the more impactful a negative spill over will be for them.

Question 13

Should harmonisation be regional or global?

Answer 13

Depends on the type of issues.

If environmental, usually global as otherwise it doesn’t make much sense.

Otherwise, may want to start off regional

Question 14

What are the 3 main global institutions for integration?

Answer 14

1. WTO
2. IMF
3. World bank

Question 15

What are each of the 3 global institutions’ main topic?

Answer 15

WTO - TRADE
IMF - FINANCE
WORLD BANK - DEVELOPMENT

Question 16

What does the WTO do?

Answer 16

Sets rules for world trade and has periodic negotiations to reduce trade barriers.
Rules enforced through dispute settlement system

Question 17

What does the IMF do?

Answer 17

Aims to provide shorter-term loans or capital flows to stabilise exchange rates.

Stabilises the financial side of countries.

Question 18

What does the world bank do?

Answer 18

Focuses on low income countries and provides them with long term loans and capital flows

Question 19

When talking about regional integration who’s name must we remember?

Answer 19

Balassa

Question 20

What did Balassa do in 1961?

Answer 20

Proposed a sequencing of regional integration process

Question 21

Balassa’s 4 steps of integration

Answer 21

1. FTA - no tariff or quotas
2. Customs Union: no tariffs or quotas + CET
3. Common Market: no tariffs/quotas, CET, free movement of labour + capital
4. Economic union: no tariffs/quotas, CET, free factor movement, some harmonisation of national policies (creation of euro)

Question 22

Critique of Balassa 1961?

Answer 22

Not necessarily a chronological sequence. We can start higher up than an FTA to begin with.