D080 - Lesson 16 - Regional Economic Integration exam with complete verified solutions

Regional Economic Integration

* Agreement among region of nations to reduce tariff and non-tariff barriers

REI Purpose

* Helps attain higher living standard by encouraging:

-- Specialization

-- Lower prices

-- Providing more choices on goods and services

-- Increasing production

-- More efficient use of natural resources

-- Helps countries focus on issues relevant to their stage of development

Regional Economic Integration Stages

* Free trade area

* Customs union

* Common market

* Economic union

* Political union

Free Trade Area

* Trade barriers removed between member countries

* Most basic form of economic cooperation

-- NAFTA

Free Trade Area Purpose

* Increases trade volume among member countries

Customs Union

* Trade barriers removed between member countries

* Common policy towards trade with non-members

-- MERCOSUR

* Uses same external tariff with non-member countries

NAFTA

* North American Free Trade Agreement

-- Canada, Mexico, United States

Customs Union Purpose

* May cause business and job opportunities to flow to member countries

* Removes need for workers to require visa or work permit to work in other member country

MERCOSUR

* Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area

Common Market

* Labor, technology, and capital move throughout member countries

-- COMESA

COMESA

* Common Market for Eastern and Southern Africa

Common Market Disadvantage

* Labor moves to country with highest wages

* Investment capital transferred to country with highest ROI

Economic Union

* Barriers removed between countries

* Common economic policy is adopted

-- European Union

* Members may use common currency, harmonized taxes, monetary and fiscal policies

* Members should have similar political goals and aspirations

Economic Union Similarity

Members of an economic union may use:

-- Common currency

-- Harmonized taxes

-- Monetary and fiscal policies

-- Similar political goals and aspirations

Economic Union Membership Requirements

* Low inflation

* Low unemployment

* Reasonable wages

* Stable economy

Economic Union Purpose

* Standardized products and labeling

* Eliminate border controls

* Establish unified energy, agricultural, and social service policies

* Standard set of laws and regulations regarding competition

Political Union

* Unification of all policies by common organization

-- United States, United Arab Emirates

* Creation of common political and foreign policies