economic integration Flashcards
economic integration
process whereby countries coordinate to reduce trade barriers and to harmonise monetary/fiscal policy
trading bloc
a group of countries that join together and agree to increase trade between themsleves
preferential trading area (PTA)
countries that join together to reduce tariffs and quotas but only on certain G/S
Free trade areas
countries that join together and eliminate all trade barriers but are free to trade with any other country outside the area
e.g. NAFTA (pre 2020)
customs union
free trade area but without the freedom of trade without trade union (common external barrier)
e.g. EU - CEB is a tariff
common market
customs union but with deeper integration of common policies like regulation
free movemnt of labour/capital between member nations
e.g. EU
Economic and monetary union
countries decide to adopt the same currency and central bank and some monetary policy
e.g. Eurozone
full economic integration
countries completely harmonise all policy
e.g. UK
bi/multi-lateral trade agreement
agreement to reduce tariffs and quotas between 2/multiple countries
trade creation
theory that derives from a countrys membership of a customs union
movement from a high cost domestic producer to a low cost producer inside the customs union
trade creation analysis UK and France in EU comparison
when the UK joins the EU there is an extension of demand in France and contraction of domestic supply
before UK join EU, France was producing units inefficiently (high cost)
Uk joins = low cost producer as UK has comparative advantage
trade diversion
theory that derives from a countrys entry into a customs union
movement from a low cost foreign producer to a high cost producer within the customs union
trade diversion analysis UK and thailand
supply extends and demand contracts
due to tariffs EU products become more price competative even though thailand has the the comparative advantage
monetary union pros
-non-fluctuating exchange rate, more important for smaller nations with more volatile ER
-decrease in costs from currency conversions (trade in eurozone)
-increase in business confidence (greater investment in currency is more stable)
-more stable against speculation
-easy to compre prices
monetary union cons
-loss of monetary policy autonomy, if you have a dufferent set of economic problems then the monetary policy set may not be suitable to your economy
-no potential for countries to change their exchange rates
-cost of currency conversion is high
-lack of fiscal union
globalisation
process in which national economies have become increasingly integrated and inter-dependent
causes of globalisation
-trade liberilsation
-trade blocs
-growth of MNCs
-technological advancement
-mobility of labour and capital
