Year 12 Economics Study Guide - International Economic Integration
Main Forms of Economic Integration
Free Trade Area (FTA)
Definition: A group of member countries that abolish trade restrictions amongst themselves while retaining restrictions against non-member countries.
Example: The North American Free Trade Agreement (NAFTA), now known as the USMCA (US-Mexico-Canada Agreement). Tariffs within member countries (USA, Canada, Mexico) have been removed; however, each country maintains its own tariffs towards non-member countries.
Customs Union
Definition: Member countries abolish trade restrictions among themselves and adopt a common set of trade restrictions against non-member countries.
Example: The European Economic Community (EEC) before 1993; it abolished tariffs among member states while establishing a Common External Tariff (CET) towards non-EEC countries.
Common Market
Definition: Includes the features of a customs union but permits the free mobility of labor and capital, alongside the free flow of goods and services among member countries.
Example: The European Community (EC) operated as a common market from 1993 to 1998, later evolving into the European Union (EU) under the Maastricht Treaty. The EU, which has 27 member countries after the UK's Brexit in June 2016, represents a significant case of a common market.
Monetary Union
Definition: Contains features of a common market, adds a common currency, and coordinates monetary policy through a single central bank. Fiscal, welfare, and competition policies may also be coordinated among member nations.
Example: The Economic and Monetary Union (EMU) of the EU consisting of 20 members who adopted the Euro in 1998 (or later) and have their monetary policy established by the European Central Bank (ECB).
The Global Economy and Economic Integration
Definition: The global economy is composed of all the countries that produce goods and services, contributing to the Gross World Product (GWP) or global output, equivalent to global GDP.
Engagements: Most countries participate in world trade of goods/services and engage in flows of foreign direct and portfolio investment.
Historical Context: Economic integration has progressed due to the persistent reduction of trade barriers like tariffs and subsidies, although modern challenges (such as US-China trade tensions, COVID-19 disruptions, Russia-Ukraine conflict, and rising inflation) threaten this integration.
Economic Integration: Refers to the liberalization of trade either between two countries or many countries within a region or across regions, potentially leading to various forms of economic unions as previously described.
Examples of Regional Economic Integration:
European Union (EU)
North American Free Trade Agreement (NAFTA)
Asia-Pacific Economic Cooperation (APEC)
ASEAN Free Trade Agreement (AFTA)
Advancements: Enhanced integration has resulted in increased intra-regional trade and intra-industry trade particularly in the EU, East Asia, and North America, which as geographical regions, significantly dominate global output and trade.
Benefits of Economic Integration: Boosts trade, raises investment flows, and improves living standards. Associated with growing intra-company trade involving multinational corporations (MNCs) like Toyota, Google, and Amazon operating globally integrated supply chains.
Global Economy - Advanced, Emerging and Developing Economies
International Monetary Fund (IMF) Classification (April 2023):
Advanced Economies (41 countries):
Characterized by high levels of economic development and average per capita incomes exceeding US$40,000.
Political systems are typically democracies with market-based economies, emphasizing free enterprise and limited government intervention.
Examples: USA, Japan, Germany, United Kingdom, France, Italy, Canada (G7), Australia, and New Zealand.
Emerging and Developing Economies (155 countries):
Include nations like China, India, Mexico, Brazil, and former Communist countries experiencing economic growth but with lower per capita incomes.
Major emerging economies: Brazil, Russia, India, China (BRICs) contributing to 31% of world GDP in 2022.
Statistical Overview - Advanced Economies
Percentage Distribution (2022):
Advanced Economies accounted for:
41.7% of global GDP
60.5% of world exports
13.9% of total world population
Major Sub-groupings:
Major Advanced Economies (G7):
7 countries accounting for 30.6% of global GDP, 30.5% of world exports, but only 10% of global population.
Euro Area (20 countries):
12% of global GDP, 25% of world exports, 4.4% of population.
Largest economies: Germany, France, Italy, Spain.
Other Advanced Economies (17 countries):
6.7% of world GDP, 17.3% of exports, 2.2% of global population.
Statistical Overview - Emerging and Developing Economies
Percentage Distribution (2022):
Emerging and Developing Economies accounted for:
58.3% of world GDP
39.5% of world exports
86.1% of global population
Regional Breakdown:
Emerging and Developing Europe (15 countries):
7.4% of world GDP, 6.3% of exports.
Notable members: Russia, Poland, Hungary.
Emerging and Developing Asia (30 countries):
32.8% of world GDP, 19.6% of exports.
Population share: 48.1%
Major countries: China (18.5% of GDP), India (7.3% of GDP).
Middle East and Central Asia (32 countries):
7.6% of world GDP, 6.7% of world exports.
Sub-Saharan Africa (45 countries):
3.1% of world GDP, 1.7% of exports, despite having 14.3% of global population.
Latin America and the Caribbean (33 countries):
7.3% of world GDP, 5.3% of exports. Major economies in this region include Brazil and Mexico.
Gross World Product - World GDP
Definition: The total market value of all goods and services produced by all countries, adjusted for national price variations and exchange rates, valued in purchasing power parity (PPP) terms.
2022 World GDP at PPP: US$163,510 billion, with a 6.3% expansion post-COVID-19 recession.
World Output Composition: In 2022, 41 advanced economies accounted for 41.7% and 155 emerging and developing economies accounted for 58.3% of GDP. This disproportion indicates the relatively smaller number of advanced economies dominate global production despite their fewer numbers.
Comparative Growth Trends: Emerging economies display superior growth rates (4%-6%) compared to advanced economies (1%-3%), contributing to their rising share of world GDP.
Growth Comparison - Advanced vs Emerging Economies
Trends evidenced during significant economic events:
During the Global Financial Crisis (2009): Advanced economies contracted at -2.7% while China (8.7%) and India (5.7%) showed positive growth, mitigating the global GDP decline to -0.5%.
Economic recovery post-2010 was predominantly led by China, India, and East Asian economies while advanced economies lagged.
By 2018, global growth peaked at 3.6% aided by robust contributions from China (6.7%) and India (6.5%).
The onset of the COVID-19 pandemic in 2020 caused a contraction of -2.8% in global growth, with recovery of 6.3% in 2021.
The geopolitical events (Ukraine invasion by Russia) in 2022 triggered further inflationary pressures and growth forecasts were lowered by the IMF: 2.8% for 2023, and 3% for 2024.
World GDP Growth Forecasts 2020-2024
Forecast for key regions and countries:
Country/Region
2020
2021
2022
2023 (f)
2024 (f)
United States
-2.8%
5.9%
2.1%
1.6%
1.1%
Euro Area
-6.1%
5.4%
3.5%
0.8%
1.4%
Japan
-4.3%
2.1%
1.1%
1.3%
1.0%
China
2.2%
8.4%
3.0%
5.2%
4.5%
Other East Asia
-0.5%
7.5%
4.4%
5.3%
5.1%
India
-5.8%
9.1%
6.8%
5.9%
6.3%
World
-2.8%
6.3%
3.4%
2.8%
3.0%
Source: IMF (2023), World Economic Outlook, April. (f) indicates forecasts.