Chap008 - Chapter 08 - Regional Economic Integration...

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Chapter 08 - Regional Economic Integration Regional Economic Integration INTRODUCTION A) One notable trend in the global economy in recent years has been the accelerated movement toward regional economic integration. Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. B) Despite the rapid spread of regional trade agreements designed to promote free trade, there are those who fear that the world is moving toward a situation in which a number of regional trade blocks compete against each other. In this scenario of the future, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs. LEVELS OF ECONOMIC INTEGRATION A) Several levels of economic integration are possible in theory (see Figure 8.1 in the textbook). From least integrated to most integrated, they are a free trade area, a customs union, a common market, an economic union, and, finally, a full political union. B) In a free trade area all barriers to the trade of goods and services among member countries are removed. In a theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between member nations. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. C) The most enduring free trade area in the world is the European Free Trade Association (EFTA). EFTA currently joins four countries-Norway, Iceland, Liechtenstein, and Switzerland. Other free trade areas include the North American Free Trade Agreement (NAFTA). D) The customs union is one step further along the road to full economic and political integration. A customs union eliminates trade barriers between member countries and adopts a common external trade policy. E) Customs unions around the world include the current version of the Andean Pact (between Bolivia, Columbia, Ecuador, and Peru). F) Like a customs union, the common market has no barriers to trade between member countries and a common external trade policy. Unlike in a customs union, in a common market, factors of production also are allowed to move freely between members. Thus, labor and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between markets. G) Currently, MERCOSUR, the South America grouping that includes Brazil, Argentina, Paraguay, Venezuela, and Uruguay, is aiming to eventually establish itself as a common market. 8-1
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Chapter 08 - Regional Economic Integration H) An economic union entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production between members and the adoption of a common external trade policy. Unlike a common market, a full economic union also requires a common currency, harmonization of the member
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This note was uploaded on 04/24/2010 for the course MARK 3336 taught by Professor Cox during the Spring '10 term at University of Houston - Downtown.

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Chap008 - Chapter 08 - Regional Economic Integration...

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