economic integration Flashcards
what it involves [5]
- reducing trade barriers
- facilitate free flow of factors of production
- coordinating policies
- environment issue
- intellectual property
aim of preferential trade agreements
aim to reduce or remove tariffs or quotas that have been placed on traded items
4 levels of economic integration
- monetary unions
- common market
- customs unions
- free trade area
advantages of monetary union [4]
- eliminate currency exchange rate risk and uncertainty
- importers, exporters, consumers, investors
- eliminate transaction cost (fro the conversion of currencies)
- estimated to save 1% of eurozone gdp
- price transparency (no need for calculations and conversions)
- quicker economic decisions which promote competition and efficiency
- greater inward investment (investment form outsiders)
- 27 member countries
disadvantages of monetary union [3]
- loss of monetary policy (interest rates and exchange rate) as a tool to achieve economic objectives (not economic sovereignty)
- single central bank monetary policy impacts each country differently
- high initial costs of converting the individual currencies into one currency
free trade area advantage
less disagreements due to the freedom from non-common trade policy
free trade area disadvantages [2]
- goods entered from countries with lower external barriers
- complicated “rules of origin” policies to prevent complications
customs union adv
no problem of complicated “rules of origin”
customs union disadvantages
more disagreements on setting common external barriers to the non-member countries
common market adv [2]
- better use of factors of production (better factor mobility)
- improves allocation of resources
common market disadvantages [2]
- loss of more economic autonomy
- time and cost to set up the agreement
relationship between economic integration and economic sovereignty
bigger the economic integration, lower the economic sovereignty
relationship between economic integration and disagreement
bigger the economic integration, bigger the disagreement among the members
trading blocs adv [6]
- increased competition
- greater market access
- increased choices for consumers from more imports
- increased investment
- better political linkages
- economies of scale
trading blocs disadvantages [3]
- still discriminatory
- makes it more difficult to achieve global trade liberalisation
- unequal distribution of gains and losses within the trading blocs
- for less developed countries, increased competition may lead to lower profit in the export industries
- changes in economic conditions of on member country are likely to affect the economic performance of all member countries
- negative side of better political linkages
wto aim [3]
- set and enforce rules for international trade
- resolve trade disputes
- monitor further trade liberalisation
mechanism of economies of scale with trading blocs
- lratc will fall due to higher output from free trade (assuming they are efficient producers)
- greater international competitiveness
- lower price for consumers
