Economic Integration Flashcards
Define Economic Integration
Economic integration refers to the process of blurring the boundaries that separate economic activity in one nation state from that in another
The stages of economic integration (in terms of deepening integration) are
Free Trade Area Customs Union Common/Single Market Economic Union Monetary Union Fiscal Union
Trade deflection can occur in a Free Trade Area. Trade deflection is where . . .
one country in a free trade area imposes high tariffs on another to reduce imports but the imports come in from elsewhere in the free trade area
What is NAFTA?
NAFTA stands for the North American Free Trade Area. It is a free trade agreement between the USA, Canada and Mexico and has been in existence since 1994.
What is ASEAN?
ASEAN stands for the Association of Southeast Asian Nations. It is an alliance of 10 nations including Thailand, Malaysia and the Philippines. It was created to bring about peace and security as well as economic growth.
What is EU?
EU stands for the European Union. It is an association of European states seeking economic and political co-operation and integration.
Trade creation is . . .
where economic integration results in high-cost domestic production being replaced by imports from a more efficient source within the economically integrated area.
Trade diversion is . . .
where economic integration results in trade switching from low-cost supplier outside the economically integrated area to a less efficient source within the area.
The advantages of increased integration include
Opportunities for greater specialisation and trade
Opportunities for economies of scale
Reduction in monopoly power of domestic firms
Trade creation
The drawbacks of integration include
Centralised policy making constrains the ability of individual countries to respond to asymmetric economic shocks
Inflexible markets, e.g. trade unions
Trade diversion
