IB8 - ECONOMIC INTEGRATION JUAN CARLOS GARCA-PIA style...

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Click to edit Master subtitle style 8/18/11 ECONOMIC INTEGRATION JUAN CARLOS GARCÍA-PIÑA ROSETE
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8/18/11 Levels Of Economic Integration There are five levels of economic integration: 1. a free trade area eliminates all barriers to the trade of goods and services among member countries, but members determine their own trade policies for nonmembers the European Free Trade Association (between Norway, Iceland, Liechtenstein, and Switzerland), and the North American Free Trade Agreement (between the U.S., Canada, and Mexico) are both free trade areas
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8/18/11 Levels Of Economic Integration 2. a customs union eliminates trade barriers between member countries and adopts a common external trade policy The Andean Pact (between Bolivia, Columbia, Ecuador and Peru) is an example of a customs union 3. a common market has no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production
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8/18/11 Levels Of Economic Integration 4. An economic union has the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rates, and a common monetary and fiscal policy The European Union (EU) is an imperfect economic union 5. A political union involves a central political apparatus that coordinates the economic, social, and foreign policy of member states The EU is headed toward at least partial political union, and the United States is an
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8/18/11 Levels Of Economic Integration Figure 8.1
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8/18/11 The Economic Case For Regional Integration All countries gain from free trade and investment Regional economic integration is an attempt to exploit the gains from free trade and investment
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8/18/11 The Political Case For Regional Integration Linking countries together, making them more dependent on each other: creates incentives for political cooperation and reduces the likelihood of violent conflict gives countries greater political clout when dealing with other nations
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8/18/11 Impediments To Integration Economic integration can be difficult because: while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose it implies a loss of national sovereignty
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8/18/11 The Case Against Regional Integration Regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts Trade creation occurs when low cost producers within the free trade area replace high cost domestic producers Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers
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8/18/11 Regional Economic Integration In Europe Europe has two trade blocs: The European Union (EU) with 27 members The European Free Trade Area (EFTA) with 4 members The EU is seen as the world’s next economic and political superpower
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8/18/11 Regional Economic Integration In Europe Map 8.1: Member States of the European Union
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IB8 - ECONOMIC INTEGRATION JUAN CARLOS GARCA-PIA style...

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