3 Economic Integration slides

3 Economic Integration slides - Regional Cooperation on...

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Regional Cooperation on Trade Several Levels Free Trade Area (FTA) --NAFTA --No Internal Tariffs Customs Union (CU) --FTA + Common External Tariff Economic Union (EU) --European Union --CU + Free Flow of Resources Political Union
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Do Regional Blocks Help or Hinder Trade? Yes: * They Create Larger Blocks for Production * They Make Goods Cheaper Inside by Dropping Tariffs * They Standardize Rules within the Block NO: * Trade gets Diverted from Low Cost Producers * Coalitions for Protection can Appear * Less Support for Worldwide Institutions Key: Trade Creation Versus Trade Diversion
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Effects of an Economic Union When Does Trade Creation Dominate? More Competition Allowed Within More Overlap Within the Union When the Union is Larger When Duties Between Countries Are Reduced Substantially When Transportation Costs are Low Within Key: Can Growth Make Everyone Better Off?
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Who Gains from the FTA Insider Countries Member Country Characteristics * Countries with Effective Domestic Institutions * Countries with Good Internal Markets * Country Commitment to the New System -- Philosophical Commitment -- Expectation of Economic Payoff
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Outsiders Can They Have a Net Gain? -- Trade Diversion Hurts Outsiders -- Trade Creation Helps Everyone, Even Outsiders * Sources of Trade Creation -- Higher Growth in the FTA -- Better Institutions in the FTA -- Greater Predictability of Institutions/Policy in the FTA -- Bargaining to Gain Acceptance Hold Dangers for Outsiders
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Who Gains from Free Trade Areas? Firm Level
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This note was uploaded on 02/10/2009 for the course MGMT 370 taught by Professor Tomroehl during the Fall '08 term at Western Washington.

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3 Economic Integration slides - Regional Cooperation on...

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