Economic Integration 1: Unit 1

According to Nello (2012), how is economic integration defined?

The elimination of barriers to the movement of products and factors of production between countries and the introduction of common policies.

What type of barrier to the movement of products is a tariff?

A tax on imported or exported goods.

Besides tariffs, name another example of a barrier to the movement of products.

Quantity restrictions or outright bans.

What is negative integration?

The removal of barriers to trade and the movement of goods, services, and production factors.

What is positive integration?

The introduction of common policies and the building of common institutions.

Negative integration involves removing economic frontiers that restrict the movement of goods, services, and production factors like _____ and _____.

capital and labour

List two examples of barriers removed under negative integration.

Import taxes (customs duties), migration restrictions, or controls on financial flows.

What is the primary economic argument for removing frontiers (negative integration)?

It creates bigger markets, leading to increased competition, specialisation, and economies of scale.

What is an alternative term for positive integration?

International policy harmonisation.

Why is international cooperation (positive integration) considered necessary from an economic perspective?

National economic policies can have spillovers that governments ignore, leading to economic inefficiency.

What is the primary trade-off or cost associated with positive integration?

It involves some loss of national sovereignty.

Global integration is typically led by what type of organizations?

Multinational corporations.

What is a major advantage of global integration institutions like the World Trade Organisation (WTO)?

They avoid discrimination and have a wider impact.

What is a major disadvantage of global integration institutions?

They may be slower to act because of the diversity of views among members.

What is a key advantage of regional integration (e.g., EU, NAFTA) over global integration?

It may be quicker and deeper because the members are more similar.

What is a potential negative consequence of regional integration?

It may involve damaging discrimination against non-member countries.

What is the first stage in Balassa's classification of economic integration?

Free trade area (FTA).

How does a free trade area (FTA) operate?

Member states abolish trade barriers between themselves but maintain independent trade barriers with non-member countries.

To prevent goods from entering an FTA through the country with the lowest external tariff, what must be established?

Rules of origin.

What is the second stage in Balassa's classification, which builds upon a free trade area?

Customs union (CU).

What key feature distinguishes a customs union from a free trade area?

A customs union introduces a common external tariff towards the rest of the world.

What is the third stage in Balassa's classification of economic integration?

Common market (CM).

What feature is added to a customs union to create a common market?

The free movement of factors of production (e.g., capital and labour).

What is another term for a common market?

Single market.

According to Nello, a common market entails the 'so-called four freedoms', which are the free movement of _____, _____, _____, and _____.

goods, services, labour, and capital

What is the fourth stage in Balassa's classification of economic integration?

Economic union.

What is added to a common market to form an economic union?

The harmonisation of some national economic policies.

According to Nello, what is the stage of integration beyond a common market that includes a common currency and central bank?

Economic and monetary union.

Name one of the examples of a free trade area mentioned in the source material.

USMCA (successor of NAFTA), EFTA (European Free Trade Association), or SAFTA (South Asian Free Trade Area).

Name one of the examples of a customs union mentioned in the source material.

The European Union–Turkey Customs Union or the Southern African Customs Union (SACU).

What is the primary example of a common market given in the texts?

The European Single Market.

What is the primary example of an economic union?

The European Union (EU).

What is one major critique of Balassa's (1961) classification of integration stages?

It is not necessarily a linear progression; for example, the EU started as a customs union, not a free trade area.

According to a critique of Balassa's model, even looser forms of integration like FTAs and CUs require some degree of what?

Policy harmonisation or supranational policy-making.

How does Nello's example of the Italian government subsidizing Fiat challenge a simple view of negative integration?

It shows that domestic state intervention can act as a barrier to trade, requiring common policies (positive integration) for effective elimination.

What six countries were the original members of the European Economic Community (EEC)?

Belgium, France, Germany, Italy, Luxembourg, and the Netherlands.

What is trade creation?

It’s the moving from high domestic cost to lower partner cost.

What is trade diversion?

It’s the moving from low rest of the world cost to high partner cost.