Economic Integration Flashcards
What is Regional Economic Integration?
Reducing or eliminating trade barriers only among the nations joining together
What are the four types of integration?
i) Free Trade Area
All barriers removed on trade among members, but each member have its own external policies against nonmembers
ii) Customs Union
FTA + common external policies against nonmembers
iii) Common Market
Customer Union + free movement of labor and capital among members
iv) Economic Union
Most advanced type of economic integration, unifying the monetary and fiscal policies of members
Multilateralism VS. Regionalism in the global trading system
i) Multilateralism: trade liberalization and non-discrimination with the application of mfn tariff rates to WTO members
ii) Regionalism: trade liberalization with preferential treatment to the members (exception of the non-discrimination principle)
Which GATT Article allows REI?
GATT Art. XXIV allows REI
What is Trade Creation under an REI?
Domestic production is replaced by lower-cost imports from another member nation of the REI
What is the effect of Trade Creation on the national welfare under an REI?
The price lowers after REI
Change in national welfare = b+d
=> NW always improves by the formation of REI in case of trade creation
What is Trade Diversion under an REI?
Lower-cost imports are replaced with high-cost imports from a union member
What is the effect of Trade Diversion on the national welfare under an REI?
Change in national welfare = (b+d)-e
=> When trade diversion occurs, national welfare may improve or deteriorate by the formation of an REI
What are the six other aspects to be considered when forming an REI?
a. administrative costs
b. more bargaining power
c. political strenghtening
d. economies of scale
e. stimulus for investment
f. free movement of production factors
