Definition of Economic Integration (L1) Flashcards
What is economic integration?
Two or more countries are economically integrated if there are no barriers or restrictions on trade, investment and migration between them
What happens to prices after integration?
Prices converge and are similar
What is negative integration?
Removing barriers
What is positive integration?
Harmonising/Coordinating government policies (like banking regulations - EBA)
Which is trickier, positive or negative integation?
Positive integration is trickier as you are making up new rules not everyone must follow, there will be some unhappiness.
What are some examples of barriers
Restrictions on:
1. Movement of goods (Customs duties)
2. Migration (visa, work permit)
3. International investments
4. Controls on financial flows
Why would you want to lower restrictions between countries?
A bigger market for more efficiency.
This will bring about:
- Increased competition (more economic welfare, lower prices)
- Specialisation
- Economies of scale (bigger output + innovation)
- Wider consumer choice
What is an example of positive integration?
Environmental policies
i.e., Paris or tokyo agreements by which they agreed to reduce c02 emissions to slow down global warming.
Argument FOR policy harmonisation?
To prevent negative spill overs.
What is a negative spill over?
When a country A has a policy that impacts another country, which government A may ignore. (Bad efficiency)
Argument AGAINST policy harmonisation?
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
When are gains from policy harmonisation likely to be greater?
If the countries are more interdependent across eachother, because the closer they are, the more impactful a negative spill over will be for them.
Should harmonisation be regional or global?
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
What are the 3 main global institutions for integration?
- WTO
- IMF
- World bank
What are each of the 3 global institutions’ main topic?
WTO - TRADE
IMF - FINANCE
WORLD BANK - DEVELOPMENT
What does the WTO do?
Sets rules for world trade and has periodic negotiations to reduce trade barriers.
Rules enforced through dispute settlement system
What does the IMF do?
Aims to provide shorter-term loans or capital flows to stabilise exchange rates.
Stabilises the financial side of countries.
What does the world bank do?
Focuses on low income countries and provides them with long term loans and capital flows
When talking about regional integration who’s name must we remember?
Balassa
What did Balassa do in 1961?
Proposed a sequencing of regional integration process
Balassa’s 4 steps of integration
- FTA - no tariff or quotas
- Customs Union: no tariffs or quotas + CET
- Common Market: no tariffs/quotas, CET, free movement of labour + capital
- Economic union: no tariffs/quotas, CET, free factor movement, some harmonisation of national policies (creation of euro)
Critique of Balassa 1961?
Not necessarily a chronological sequence. We can start higher up than an FTA to begin with.
