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Lecture 8

BUEC342 Lecture 8: Chapter 8

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Department
Business Economics
Course
BUEC342
Professor
Runjuan Liu
Semester
Winter

Description
Learning Objectives 1. Describe the different levels of regional economic integration Understand th economic and political arguments for regional economic integration. 3. Understand the economic and political arguments against regional economic integration. 4. Explain the history, current scope, and future prospects of the world's most important regional economic agreements, for example, NAFTA Introduction Regional Economic Integration Agreements among countries in a geographical region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production amongeach other Examples: EU (European Union) NAFTA (North American Trade Agreement) APEC (Asia Pacific Economic Cooperation) TRANS PACIFIC PARTNERSHIP CANADA JAPAN UNITED STATES OF AMERICA SINGAPORE MALAYSIA AUSTRALIA NEW ZEALAND Level of Economic Integration 5 types of economic integration: o Free Trade Are Customs Union a Common Market o Economic Union o Political Union Level of Economic Integration Free Trade Area All barriers to the trade of goods and services among members are removed Each member country can determine its own trade policies with regard to non-member countries Examples NAFTA (North Am Free Trade Agreemen) Includes US, Canada and Mexico Level of Economic Integration Customs Union +least ment Eliminates trade barriers betwcen mcmbers CETA takes Learning Objectives 1. Describe the different levels of regional economic integration Understand th economic and political arguments for regional economic integration. 3. Understand the economic and political arguments against regional economic integration. 4. Explain the history, current scope, and future prospects of the world's most important regional economic agreements, for example, NAFTA Introduction Regional Economic Integration Agreements among countries in a geographical region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production amongeach other Examples: EU (European Union) NAFTA (North American Trade Agreement) APEC (Asia Pacific Economic Cooperation) TRANS PACIFIC PARTNERSHIP CANADA JAPAN UNITED STATES OF AMERICA SINGAPORE MALAYSIA AUSTRALIA NEW ZEALAND Level of Economic Integration 5 types of economic integration: o Free Trade Are Customs Union a Common Market o Economic Union o Political Union Level of Economic Integration Free Trade Area All barriers to the trade of goods and services among members are removed Each member country can determine its own trade policies with regard to non-member countries Examples NAFTA (North Am Free Trade Agreemen) Includes US, Canada and Mexico Level of Economic Integration Customs Union +least ment Eliminates trade barriers betwcen mcmbers CETA takesAdopts a common external trade policy Example: Andean Community Includes Bolivia, Colombia, Ecuador, Peru Establishes free trade among member countries and imposes a commonexternal tariff (5%-20%) on products imported from tsid Level of Economic Integration Common Market Has no barriers to trade between members Has common external trade policy Allows factors of production to move freely among members Customs union, not common market yet Example Includes Argentina, Brazil, Paraguay and Uruguay, and Venezuela. Aims to eventually establish itself as a common market MERCOSUR Level of Economic Integration Economic Union Allows free flow of products and factors of production between members Has common external trade policy Has common currency Harmonization of members' tax rates Has common fiscal and monetary policy Consists of 28 Europea countries yEusazané However, not all members adopted the euro (currency of the EU and difference in tax rates across countries still remains EUROPEAN UNION Current member Official candidate potential candidate Level of Economic Integration Political Union The move towards economic union raises the issue of how to make coordinating bureaucracy accountable to the citizens of member nations Political Union coordinates the economic, social and foreign policy of the member states EU ison the road towards at least partial political union. Example: European Parliament is elected by citizens of the EU countries The Case for Regional Integration Economic case for integration Case o Stimulates economic growth in countries Increases FDI and world production Adopts a common external trade policy Example: Andean Community Includes Bolivia, Colombia, Ecuador, Peru Establishes free trade among member countries and imposes a commonexternal tariff (5%-20%) on products imported from tsid Level of Economic Integration Common Market Has no barriers to trade between members Has common external trade policy Allows factors of production to move freely among members Customs union, not common market yet Example Includes Argentina, Brazil, Paraguay and Uruguay, and Venezuela. Aims to eventually establish itself as a common market MERCOSUR Level of Economic Integration Economic Union Allows free flow of products and factors of production between members Has common external trade policy Has common currency Harmonization of members' tax rates Has common fiscal and monetary policy Consists of 28 Europea countries yEusazané However, not all members adopted the euro (currency of the EU and difference in tax rates across countries still remains EUROPEAN UNION Current member Official candidate potential candidate Level of Economic Integration Political Union The move towards economic union raises the issue of how to make coordinating bureaucracy accountable to the citizens of member nations Political Union coordinates the economic, social and foreign policy of the member states EU ison the road towards at least partial political union. Example: European Parliament is elected by citizens of the EU countries The Case for Regional Integration Economic case for integration Case o Stimulates economic growth in countries Increases FDI and world productionCountries specialize in production of those goods and services which th could produce most efficiently Achieves additional gains from free trade beyond the international campe next step NAFTA h as WTO The Case for Regional Integration -p reasa Political case for integration depend political reduces potential for violent confrontation Example: After World War II, the European nation-states were no longer large rld politi ugh to hold th eded to d th the United Sta ed E Soviet Union The European Community (EC was established (The forerunner of the Impediments to Integration 3 potental costs Winners loses Integration is hard to achieve and sustain for 2 reasons: y b fit but g d US Example: Under NAFTA, C Lose mai ty and Example: Great Britain remained u Impediments to Integration Whether regional int ts of the participants depends pposed to trade di trad Free hade uoah prod high mamber fahans Trade diversion occurs when higher cost suppliers Most suppliers outside the free trade The European Union The devastation of two world wars on Western Europe prompted the formation of d lasting p d
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