Regional Economic Integration Flashcards
Broadly what kinds of economic integration are there?
- Bilateral
- Two countries cooperate closely, usually in the form of tariff reductions
- Regional
- A group of countries located in the same geographic proximity decide to cooperate
- Global
- Countries worldwide cooperate through the WTO
What forms can economic integration take?
- FTA
- Customs union
- Common market
- Economic Union
- Political union
What is an FTA?
- “Free-er” trade agreement
- No internal tariffs
- Each country may determine its own trade policies with nonmembers
What is a customs union?
- No internal tariffs plus common external tariffs
- Necessitates significant administrative machinery
What is a common market?
Customs union plus factor mobility
What is an economic union?
- Characteristics of a common market, harmonised monetary and fiscal policies, and a common currency
- Demands a coordinating bureaucracy and sacrifice of sovereignty
What is a political union?
Common foreign and security policies, and judicial cooperation
What is regional economic integration?
- Agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services and factors of production between each other
- Overlapping group of nations
- Difference degrees of regional economic integration
- Five forms of integration
What are the benefits of regional economic integration?
- Trade Creation
- Occurs when low cost producers within the free trade area replace high cost domestic producers
- New employment opportunities
- New investment opportunities
- Closer political cooperation results in greater collective influence in dealing with other nations
- Greater consensus e.g. lower risk of violent conflicts
What are the drawbacks of regional economic integration?
- Trade diversion
- Occurs when higher cost suppliers within the free trade area replace lower cost external suppliers
- In theory the WTO should ensure that this does not occur
- Shifts in employment
- Loss of national sovereignty
- May lead to increased competition between regional trade blocs
What is ASEAN?
- 1967: Political organisation in SE Asia
- 1992: Initiative for AFTA (ASEAN FTA)
- EU, NAFTA
- SE Asia to compete as bloc for foreign investment
What is APEC?
21 members including US, Japan, China
What are commodity agreements?
Commodities-raw materials or primary products that enter intro trade, such as metals or agricultural products
What are the overall downsides of regional economic integration for businesses?
- Cultures don’t change
- Within each grouping, the environment becomes competitive
- There is a risk of being shut out of the single market by the creation of a “trade fortress”
What are the benefits of regional economic integration for businesses?
- Lower costs of doing business in single markets
- Opens new markets
- Allows firms to realise cost economies by centralising production in those locations when the mix of factor costs and skills is optimal
- Free movement of inputs and good
- Simplified tax regimes
