Chapter 08 - Regional Economic Integration
Regional Economic Integration
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).
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
In a theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or
administrative impediments are allowed to distort trade between member nations.
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 currently joins four countries-Norway, Iceland, Liechtenstein, and Switzerland. Other free trade
areas include the North American Free Trade Agreement (NAFTA).
is one step further along the road to full economic and political integration.
customs union eliminates trade barriers between member countries and adopts a common external trade
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
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.