Chapter 8a Regional Economic Integration

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Unformatted text preview: 8-1Click to edit Master subtitle styleChapter 8Regional Economic Integration8-2IntroductionRegional economic integrationrefers to agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each otherIn theory, regional economic integration benefits all membersOver the last two decades, the number of regional trade agreements has been on the rise8-3IntroductionQuestion:Is regional economic integration a good thing?While regional trade agreements are designed to promote free trade, there is some concern that the world is moving toward a situation in which a number of regional trade blocks compete against each otherIf this scenario materializes, the gains from free trade within blocs could be offset by a decline in trade between blocs8-4Levels of Economic IntegrationThere are Five Levels of Economic Integration8-5Five Levels of Economic Integration1. Free Trade Area - all barriers to the trade of goods and services among member countries are removed, but members determine their own trade policies with regard to nonmembersThis is the most popular form of integrationExamples include the European Free Trade Association (between Norway, Iceland, Liechtenstein, and Switzerland)the North American Free Trade Agreement(between the U.S., Canada, and Mexico)8-6Levels of Economic Integration2. Customs Union- eliminates trade barriers between member countries and adopts a common external trade policyMost countries that enter a customs union desire further integration in the futureExamples includethe Andean Pact (between Bolivia, Columbia, Ecuador, Venezuela, and Peru)8-7Levels of Economic Integration3. Common Market - no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of productionThis type of integration can be difficult to achieve and requires significant harmony among members in fiscal, monetary, and employment policiesExamples includeMERCOSUR (between Brazil, Argentina, Paraguay, and Uruguay) hope to achieve this status8-8Levels of Economic Integration4. Economic Union - involves the free flow of products and factors of production between members, the adoption of a common external trade policy, and in addition, a common currency, harmonization of the member countries tax rates, and a common monetary and fiscal policyThis level of integration involves sacrificing a significant amount of national sovereignty Examples include the European Union (27 member states)8-9Levels of Economic Integration5. Political union- independent states are combined into a single union This requires that a central political apparatus coordinate economic, social, and foreign policy for member statesThe EU is headed toward at least partial political union, and the United States is an example of even closer political union8-10Classroom Performance SystemIn a _______, all barriers to the free flow of...
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Chapter 8a Regional Economic Integration - 8-1Click to edit...

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