REGIONAL ECONOMIC INTEGRATION!
REGIONAL ECONOMIC INTEGRATION!
During the 1950s and 1960s regional economic integration gained significant momentum. Economic integration can be defined as
a process and ... a state of affairs. Regarded as a process, it encompasses measures designed to abolish discrimination between economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies.2
Since discrimination negatively affects economic activity between the countries in question, integration can be seen as valuable.
When we consider some of the major examples of economic integration, such as the European Community (EC), the European Free Trade Association (EFTA), the U.S.-Canada Free Trade Agreement, and the Latin American Integration Association (LAIA), the concept of geo- graphic proximity stands out. The major reasons that neighboring countries tend to become involved in integrative activities are:
the distances to be traversed are shorter in the case of neighboring countries;
tastes are more likely to be similar, and distribution channels can be more easily established in adjacent economies;
neighboring countries may have a common history, awareness of common interests, etc., and hence they may be more willing to coordinate policies.3
Also important are ideological and historical similarities. Cuba is a member of COMECON (the Council for Mutual Economic Assistance, an association of communist countries) because of its communist political and and economic philosophy.
There are four major forms of economic integration:
1. Free trade area (FTA). Tariffs are abolished among the members of the free trade area (FTA), but each member maintains its own external tariff against the non-FTA countries. Three examples of this form of economic integration are the U.S.-Canada Free Trade Agreement, the European Free Trade Association, and the Latin American Integration Association, a relatively loose form of free trade association that was established in 1980 with the demise of the Latin American Free Trade Association.
2. Customs union. In the case of a customs union, a common external tariff is combined with the abolition of all internal tariffs. This was the first stage of the European Community and is also descriptive of the Andean Group, the Central American Common Market (CACM), and the Caribbean Community and Common Market (CARICOM), three of the other major integrative groups in Latin America.
3. Common market. In a common market, all of the characteristics of a customs union are combined with the abolition of restrictions on factor mobility, such as labor and capital. This is the current state of affairs in the EC.
4. Complete economic integration. The complete economic integration
stage of the economic union "presupposes the unification of monetary, fiscal, social, and countercyclical policies and requires the setting up of a supranational authority whose decisions are binding for the member states."4 This form also implies a degree of political integration. Some would say that the institution of the European Parliament was a step in the direction of political unification of Europe, a condition nearly essential for economic integration. In addition, the establishment of a European Central Bank would help to establish uniform monetary policies in Europe.
Economic Effects of Integration
As noted in Chapter 5, the imposition of tariff and nontariff barriers disrupts the free flow of goods and therefore resource allocation. The impact of economic integration can be static or dynamic. When trade barriers are reduced, consumers tend to purchase goods with the best quality at the cheapest price. The static effect of economic integration implies that resources shift from the least efficient to the most efficient producers of goods that consumers demand. This means that trade is diverted from one country to another because of the reduction of barriers and the ability of consumers to get access to new goods. Companies that are protected in their domestic markets face real problems when the barriers are eliminated as they attempt to compete with more efficient producers.
Dynamic changes mean that there are changes in total consumption and in internal and external efficiencies as a result of growth in market size. The reduction of barriers automatically increases total demand. As resources shift to the more efficient producers, firms are able to expand output to take advantage of the larger market. This results in trade creation to take advantage of the expanded market size. This dynamic change in market size allows firms to produce goods at a cheaper price, since the fixed costs of the business can be spread out over more and more units of production.
An important dynamic effect is an increase in efficiency due to increased competition. Many firms in Europe have attempted to grow through merger and acquisition in order to achieve the size necessary to compete in the larger market.
During the 1950s and 1960s regional economic integration gained significant momentum. Economic integration can be defined as
a process and ... a state of affairs. Regarded as a process, it encompasses measures designed to abolish discrimination between economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies.2
Since discrimination negatively affects economic activity between the countries in question, integration can be seen as valuable.
When we consider some of the major examples of economic integration, such as the European Community (EC), the European Free Trade Association (EFTA), the U.S.-Canada Free Trade Agreement, and the Latin American Integration Association (LAIA), the concept of geo- graphic proximity stands out. The major reasons that neighboring countries tend to become involved in integrative activities are:
the distances to be traversed are shorter in the case of neighboring countries;
tastes are more likely to be similar, and distribution channels can be more easily established in adjacent economies;
neighboring countries may have a common history, awareness of common interests, etc., and hence they may be more willing to coordinate policies.3
Also important are ideological and historical similarities. Cuba is a member of COMECON (the Council for Mutual Economic Assistance, an association of communist countries) because of its communist political and and economic philosophy.
There are four major forms of economic integration:
1. Free trade area (FTA). Tariffs are abolished among the members of the free trade area (FTA), but each member maintains its own external tariff against the non-FTA countries. Three examples of this form of economic integration are the U.S.-Canada Free Trade Agreement, the European Free Trade Association, and the Latin American Integration Association, a relatively loose form of free trade association that was established in 1980 with the demise of the Latin American Free Trade Association.
2. Customs union. In the case of a customs union, a common external tariff is combined with the abolition of all internal tariffs. This was the first stage of the European Community and is also descriptive of the Andean Group, the Central American Common Market (CACM), and the Caribbean Community and Common Market (CARICOM), three of the other major integrative groups in Latin America.
3. Common market. In a common market, all of the characteristics of a customs union are combined with the abolition of restrictions on factor mobility, such as labor and capital. This is the current state of affairs in the EC.
4. Complete economic integration. The complete economic integration
stage of the economic union "presupposes the unification of monetary, fiscal, social, and countercyclical policies and requires the setting up of a supranational authority whose decisions are binding for the member states."4 This form also implies a degree of political integration. Some would say that the institution of the European Parliament was a step in the direction of political unification of Europe, a condition nearly essential for economic integration. In addition, the establishment of a European Central Bank would help to establish uniform monetary policies in Europe.
Economic Effects of Integration
As noted in Chapter 5, the imposition of tariff and nontariff barriers disrupts the free flow of goods and therefore resource allocation. The impact of economic integration can be static or dynamic. When trade barriers are reduced, consumers tend to purchase goods with the best quality at the cheapest price. The static effect of economic integration implies that resources shift from the least efficient to the most efficient producers of goods that consumers demand. This means that trade is diverted from one country to another because of the reduction of barriers and the ability of consumers to get access to new goods. Companies that are protected in their domestic markets face real problems when the barriers are eliminated as they attempt to compete with more efficient producers.
Dynamic changes mean that there are changes in total consumption and in internal and external efficiencies as a result of growth in market size. The reduction of barriers automatically increases total demand. As resources shift to the more efficient producers, firms are able to expand output to take advantage of the larger market. This results in trade creation to take advantage of the expanded market size. This dynamic change in market size allows firms to produce goods at a cheaper price, since the fixed costs of the business can be spread out over more and more units of production.
An important dynamic effect is an increase in efficiency due to increased competition. Many firms in Europe have attempted to grow through merger and acquisition in order to achieve the size necessary to compete in the larger market.
Comments
Post a Comment