Question 2: Regional Economic Integration & Government Trade Intervention Flashcards
1
Q
What are the Levels of Regional Integration?
A
- Free-Trade Area
- Customs Union
- Common Market
- Economic Union
- Political Union
2
Q
Define Free-Trade Area
A
- Encourages trade among members
- Eliminates trade barriers
- Members can decide individually on policies imposed on non members
3
Q
Define Customs Union
A
- Encourages trade among members
- Eliminates trade barriers
- Adopts common external trade policies toward non members, avoiding trade deflection problem
4
Q
Define Common Market
A
- Encourages trade among members
- Eliminates trade barriers
- Adopts common external trade policies toward non members, avoiding trade deflection problem
- Eliminates barrier that inhabit movement of factors of production
- Benefits can be uneven due to brain drain in lower-wage countries
- Difficult to attain due to the required cooperation of economic and labor policies
5
Q
Define Economic Union
A
- Full integration of the economies of members
- Eliminates trade barriers
- Adopts common external trade policies toward non members, avoiding trade deflection problem
- Eliminates barrier that inhabit movement of factors of production
- Benefits can be uneven due to brain drain in lower-wage countries
- Required coordination of economic policies to be blended into a single entity
6
Q
Define Political Union
A
- Complete political and economic integration of members, effectively making them one country
- Members are given a degree of freedom in setting certain territorial policies
7
Q
What are the Benefits of Integration?
A
- Create new trade opportunities and deliver a wider selection of goods and services at a lower cost
- Building consensus is easier in small groups of nations than larger ones
- Political cooperation reduces potential military conflict
- New employment opportunities
8
Q
What are the Drawbacks of Integration?
A
- Diversion of trade due to lower tariffs imposed on members, unintentionally reward a less efficient member
- Productivity decides where a good job or service is produced, relocating jobs
- Surrendering some degree of national sovereignty
9
Q
List the 4 Political Motives for Government Trade Intervention
A
- Protect Jobs
- Preserve National Economy
- Respond to “Unfair Trade”
- Gain Influence
10
Q
Explain the Political Motive of ‘Protect Jobs’
A
- High rates of unemployment can potentially oust governments
- Politicians promise efforts to increase employment to secure votes
- Free trade’s benefits are drawn away
11
Q
Explain the Political Motive of ‘Preserve National Economy’
A
Imports
- Certain restricted imports protect domestic sectors
- Can hamper profits of workers, forcing them to find way to stay profitable
- Added cost of domestic production albeit more efficient countries present
- May last longer than initially implemented for
Exports
- Banning of exports with dual uses - both industrial and military applications
- Requires special government approval
- Propelled by continuous threat of terrorism and fear of weapons of mass destruction
12
Q
Explain the Political Motive of ‘Respond to “Unfair” Trade’
A
- Unfair if a nation freely trades with another that imposes heavy restrictions
- Firms have to drive wages lower in order to offset trading costs
- Governments retaliate to get nation to loosen their restrictions
13
Q
Explain the Political Motive of ‘Gain Influence’
A
- Larger nations want to gain influence over small nations
14
Q
List the 2 Economic Motives for Government Trade Intervention
A
- Protect Infant Industries
- Pursue Strategic Trade Policy
15
Q
Explain the Economic Motive of ‘Protect Infant Industries’
A
- Protection of emerging industries from international competition
- Believed that industries can only gain knowledge to become competitive only after it has matured
- Government may protect the wrong industry
- Industries can grow complacent
- Consumers absorb higher prices when industries lack the will the cut production costs
