Midterm3_Study_Guide - MKT 310 Fall 2010 International...

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MKT 310 – Fall 2010 International Business Midterm Exam 3 – Study Guide The study guide below lists the book sections as well as slides in the modules that will be featured in the exam questions. Therefore, please focus your studying on these sections. Also, please remember that there will be questions from the in-class lectures. Book Chapter 8: Regional Economic Integration Levels of Economic Integration o 1. 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 nonmembers Most popular form of integration Ex. European Free Trade Association , NAFTA o 2. Customs Union: eliminates trade barriers between member countries and adopts a common external trade policy Most countries that consider a customs union desire further integration in the future Ex. Andean Pact o 3. Common Market: no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production Can be difficult to achieve and requires significant harmony among members in fiscal, monetary, and employment policies Ex. MERCOSUR
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o 4. 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 fiscal policy Involves sacrificing a significant amount of national sovereignty Ex. European Union o 5. Political Union: independent states are combined into a single union Requires that a central political apparatus coordinate economic, social, and foreign policy for member states US is close to a political union The Case for Economic Integration o Regional economic integration is an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the WTO o Since it is easier to form an agreement with a few countries than across all nations, there has been a push toward regional economic integration The Case against Regional Integration o The benefits of regional integration are determined by the extent of trade creation (defn: occurs when high-cost domestic producers are replaced by low cost producers within the free trade area), as opposed to trade diversion (defn: occurs when lower cost external suppliers are
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replaced by higher cost suppliers within free trade area) In theory, WTO rules should ensure a free trade agreement does not result in trade diversion Regional Economic Integration in Europe o Evolution of the European Union (EU): Product of 2 political factors 1. Devastation of Western Europe during two world wars and the desire for a lasting peace 2. European nations’ desire to hold their own on the world’s political and
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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Midterm3_Study_Guide - MKT 310 Fall 2010 International...

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