Lecture 1 - Introduction

Question 1

What is economic integration?

Answer 1

• Two or more countries are economically integrated if there are no barriers or restrictions on trade, investment and migration between them
• Economic integration is the elimination of economic frontiers between two or more economies

Question 2

What does positive integration do?

Answer 2

Positive integration coordinates/harmonises government policies such as banking regulations

Question 3

What does negative integration do?

Answer 3

Negative integration removes barriers such as tariffs

Question 4

What do economic frontiers do?

Answer 4

Economic frontiers restrict the movement of goods, services and factors of production

Question 5

What are the benefits of removing barriers and restrictions between countries?

Answer 5

Removing barriers and restrictions leads to bigger markets which include:
- Increased competition
- Specialisation
- Greater use of economies of scale
- Wider consumer choice/varieties

Question 6

What is global integration and how do governments attempt to support this?

Answer 6

Global integration is economic integration across the world
- Governments attempt to support this through institutions such as the World Trade Organisation which is open to all countries

Question 7

What are some benefits and drawbacks of global insitutions?

Answer 7

• Global institutions avoid discrimination and have a wider impact
• Global institutions may be slower to act because of the diversity of views

Question 8

Why may regional integration be better than global integration?

Answer 8

Regional integration such as the EU and NAFTA may be quicker and deeper because members are more similar

Question 9

Give some examples of global institutions

Answer 9

World Trade Organisation:
- The WTO began as GATT in the 1940s
- It creates the rules for world trade which are enforceable through the dispute settlement system
- It had periodic negotiations to reduce trade barriers
International Monetary Fund:
- The IMF regulates exchange rates and short term capital flows
- The IMF began when exchange rates were fixed
World Bank:
- Handles long term capital flows
- It was created initially for European reconstruction but now it is mainly for developing economies

Question 10

What success has the WTO had?

Answer 10

The WTO has had success in reducing trade barriers and establishing a body of rules with dispute settlement body

Question 11

Explain the 4 stages of regional integration given by the Balassa (1961) classification

Answer 11

1- Free trade area: Tariffs and quotas are abolished on internal trade within the area while member countries maintain their own tariffs with external countries
2- Customs union: Tariffs and quotas are abolished on internal trade and each member country now has a common external tariff on non-member countries
3- Common market: CU + no restrictions on factor movement
4- Monetary union (European union): CM + some harmonisation of national policies

Question 12

What are some critiques of the Balassa (1961) classification of regional integration?

Answer 12

• The Balassa classification is not necessarily a progression, eg. The EU started as a CU not FTA
• CU/FTA/CM in practice need some policy harmonisation therefore even looser forms of integration need some supranational policy-making and supranational powers imply loss of national sovereignty