ECONOMIC INTERGRATION Flashcards
levels of economic intergration
- PTA
- FTA
- Customs Union
- Common market
- Economic and monetary union
- complete economic intergration
trading bloc
an agreement between govs of 2 or more nations where regional barriers to trade
tariffs, quotas…
are reduced or eliminated in the participates states
PTA
preferential trade agreement
when two or more countries reduce to remove tariffs on particular G+S produced in participating countries
or make other agreements reducing the barriers to free trade between nations
e.g 2007 chile and india
bilateral/ multilateral PTA
bi- 2
multi- more than 2
FTA
when two or more nations make an agreement to completely eliminate tariffs on most if not all G+S traded between between member countries
NAFTA
customs union
an agreement between nations through which tariffs on all G+S produced by member nations are traded tariff free
while the member nations agree on common tariff rates on imports from all non-member countries
2005 MERCOSUR- southern common market: argentina, brazil, paraguay, uruguay
common market
like a customs union in that G+S are traded w/o tariffs
but in addition the four FoPs flow freely between member nations
aim: improve allocation of resources within member nations and between them
e. g. EEA- european economic are
monetary unions
trading bloc in which member states eliminate all barriers to trade between them
allow free flow of FoPs
adopt common tariffs on non-member states
use a common currency managed by a shared central bank
complete economic intergration
monetary union +
member states completely forego independence of both monetary and fiscal policies
U.S but not the EU as EU countries can determine their own fiscal policies
benefits of complete economic intergration
the fact that the euro is not a form of complete economic integration is the major cause for global uncertainty over the future of the currency itself
fiscal irresponsibility of severals nations PIIGS has threatened the stability of of the euro as a globally traded currency
the 5 countries have for years run large gov deficits
advantages of economic intergration
- greater efficiency
- -> resource allocation is more efficient when artificial barriers to trade are eliminated and G+S are produced in the nation with the lowest dom opp cost - higher real incomes
- ->cheaper M= > disp Y for consumers= improve quality of life + variety of G+S available - larger export markets
- -> dom industries to compete internationally and increase their output, hire more workers + expand
disadvantages of economic intergration
- fall in employment in certain industries
- -> increased competition may force dom firms to shut down - exploitation of workers
- -> regulation are not common between nations - environmental effects
- ->environmental reg also differ between countries which may cause producers to open factories in countries with lower standards= > pollution - rising trade imbalance
- ->if it causes a nation’s imports to rise faster that its exports, then large C.A imbalances between countries could result: US with NAFTA
loss of economic sovereignty
at higher levels of economic integration, monetary union, member nations must give up the ability to control their own monetary policies
explains why some of the nations in the EU are not currently seeking to become a part of the eurozone
trade creation
when a free trade agreement shifts production of certain goods or services a high cot country to a low cost country
NAFTA
trade diversion
the formation of a trading bloc between two or more nations results in the production of a good or service transferring from a nation with a lower opportunity cost to one with a higher opportunity cost
when Poland joined the EEA in 2004 car production switched to them from China as there still tariffs on China
