31 May 2017
School
Department
Course
Professor
IB 150 – Lecture 13
Regional Economic Integration
What is Regional Economic Integration?
Agreements among geographically proximate countries to reduce/remove tariff and non-tariff
barriers to enable free flows of:
Goods
Services
Factors of production: labor and capital
La Raison D’Etre for Regional Economic integration
Economic reasons
Enlargement of market and opportunities
Complementary of economies
Political reasons
Political amenability within group
Linkages of economies create interdependencies that reduce the potential for violent
conflict
Grouping gives countries more political clout worldwide
Political competition/threat from outside
Geographic proximity
Social/cultural factors
Cultural similarity: ASEAN, Mercosul, etc
Linguistic similarity:
Common religious heritage: The EU
Levels of Economic Integration
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Forms of Regional Integration
Free-Trade Area
Eliminate tariff/non-tariff barriers, but
No common external trade barriers
Customs union
Eliminate tariff/non-tariff barriers, and
Common external tariffs
Common Market
Free flow of labor and capital
Complete Economic Union
Unification of monetary, fiscal and social policies
Political Union
Effects of Economic Integration
Political, economic, and social effects
More political power vs. loss of national sovereignty (ex: exchange of national currency for
the euro)
Economy of scale s. infant industry
Structural unemployment: dislocation of workers
Preservation of national cultural identity
Trade Creation
Trade resulting from a production shifts from country to another within a trade block for
reasons of comparative advantage
Low-cost foreign producers within the block replace high-cost domestic producers
Trade Diversion
Trade privileges shift trade from low-cost producers outside the block to high-cost
producers within the block
Low-cost producers outside of a block are replaced by high-cost producers within the block
The upshot: discrimination against outsiders
Economy of Scale
Increased market size and capacity to satisfy the enlarged market
Major Regional Integrations
The European Union (EU)
North American Free Trade Area (NAFTA)
MERCOSUL
Asia Pacific Economic Cooperation Forum
Association of South East Asian Nations
African Cooperation Efforts
E.g. ECOWAS, East African Community, etc
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