Chapter 9: Regional Economic Integration
Regional Economic Integration can be described as an agreement between multiple countries found in a certain geographic area.
An agreement that states to reduce tariffs or eliminate them altogether so that goods, services and factors of production can flow freely between countries.
Free Trade Area: eliminates all kinds barriers related to trade among members. For example: NAFTA also known as The North Atlantic Free Trade Agreement. This free trade area contains member countries such as the USA, Canada and Mexico.
Customs Union: not only eliminates barriers to trade between members but adopts an external trade policy. For example, the European Union (EU) is a classic example of a customs union.
Common Market: there is free flow of goods and services and an external trade policy for members. For Example, the European Economic Community is referred to as a common market.
Economic Union: This union has free flow of factors of production, external trade policy as well as a common currency, tax rate and fiscal and monetary policy amongst members.
Political Union: Advanced form of integration where there is a common government that governs the social, economic and foreign policy of member states.
The benefits countries gain from free trade.
Exploit the benefits that are achieved through investment and regional economic integration.
Regional Economic Integration helps link countries together which reinforces cooperation and dependency on one another.
Minimizes chances of violence and conflict.
Provides countries with political power when they deal with other countries.
Countries may lose their national sovereignty due to regional economic integration.
Regional Economic Integration is beneficial when the trade it creates surpasses the trade it diverts.
Trade Creation: this occurs when high cost domestic producers are replaced by low cost producers within the regional integration free trade area.
Trade Diversion: This occurs when there are high cost suppliers within the free trade area and those are replaced by domestic suppliers that are much cheaper.
There are 2 trade blocs in Europe
European Union, that currently has 27 members.
The European free trade area, this has 4 members.
European Union is the result of the two world wars that had a lasting impact on Europe.
After the two world wars countries wanted lasting peace where they could trade smoothly and have their own political power.
In the year 1987 the Single European Act (SEA) established the European communities and a single market was created by 1992.
There are 4 main institutions in the EU, these include:
The European Commission.
The European Parliament.
The European Council.
The Court of Justice.
This treaty was the turning point for Europe.
It not only helped create the EU but also emphasized on having a single currency.
This ultimately created the second largest currency after the US dollar.
One of the most popular Regional Integrations is America is NAFTA. An agreement between the US, Canada and Mexico.
There are other integrations and trade agreements as well. Such as MERCOSUR, this is an agreement between the common markets of the South.
Pros:
Allows various countries to enter new markets.
Allows countries to specialize in goods that they can efficiently produce.
Factors of production can move freely.
Cons:
Decline in national sovereignty.
Competitive business environment.
‘Trade Fortresses’ can be created in order shut countries out of the single market place.
Regional Economic Integration can be described as an agreement between multiple countries found in a certain geographic area.
An agreement that states to reduce tariffs or eliminate them altogether so that goods, services and factors of production can flow freely between countries.
Free Trade Area: eliminates all kinds barriers related to trade among members. For example: NAFTA also known as The North Atlantic Free Trade Agreement. This free trade area contains member countries such as the USA, Canada and Mexico.
Customs Union: not only eliminates barriers to trade between members but adopts an external trade policy. For example, the European Union (EU) is a classic example of a customs union.
Common Market: there is free flow of goods and services and an external trade policy for members. For Example, the European Economic Community is referred to as a common market.
Economic Union: This union has free flow of factors of production, external trade policy as well as a common currency, tax rate and fiscal and monetary policy amongst members.
Political Union: Advanced form of integration where there is a common government that governs the social, economic and foreign policy of member states.
The benefits countries gain from free trade.
Exploit the benefits that are achieved through investment and regional economic integration.
Regional Economic Integration helps link countries together which reinforces cooperation and dependency on one another.
Minimizes chances of violence and conflict.
Provides countries with political power when they deal with other countries.
Countries may lose their national sovereignty due to regional economic integration.
Regional Economic Integration is beneficial when the trade it creates surpasses the trade it diverts.
Trade Creation: this occurs when high cost domestic producers are replaced by low cost producers within the regional integration free trade area.
Trade Diversion: This occurs when there are high cost suppliers within the free trade area and those are replaced by domestic suppliers that are much cheaper.
There are 2 trade blocs in Europe
European Union, that currently has 27 members.
The European free trade area, this has 4 members.
European Union is the result of the two world wars that had a lasting impact on Europe.
After the two world wars countries wanted lasting peace where they could trade smoothly and have their own political power.
In the year 1987 the Single European Act (SEA) established the European communities and a single market was created by 1992.
There are 4 main institutions in the EU, these include:
The European Commission.
The European Parliament.
The European Council.
The Court of Justice.
This treaty was the turning point for Europe.
It not only helped create the EU but also emphasized on having a single currency.
This ultimately created the second largest currency after the US dollar.
One of the most popular Regional Integrations is America is NAFTA. An agreement between the US, Canada and Mexico.
There are other integrations and trade agreements as well. Such as MERCOSUR, this is an agreement between the common markets of the South.
Pros:
Allows various countries to enter new markets.
Allows countries to specialize in goods that they can efficiently produce.
Factors of production can move freely.
Cons:
Decline in national sovereignty.
Competitive business environment.
‘Trade Fortresses’ can be created in order shut countries out of the single market place.
