Economic integration.pptVIP

Economic integration What is economic integration? Economic integration is concerned with the removal of trade barriers or impediments between at least two participating nations and the establishment of cooperation and coordination between them. Economic Integration: Different Cooperation Level Global cooperation: occurs through WTO and international economic agreements. Regional cooperation: occurs through trade blocs like EU, NAFTA, APEC. Commodity cooperation: occurs through international cartel among commodity lines, like OPEC. The forms of economic integration EU (1958/1994)---- The European Union Development of regional economic integration Growth of trade blocs in 1950s-1960s Laggardly growth even stagnantly in mid-1970s～mid-1980 Flourish since mid-1980s Expansion in E.U. America-Canada FTA come into being Initiation and development of APEC Trade blocs initiated by developing countries increase Regional integration agreements Two opposing ideas: Good news: forming a trade bloc must be good because it is a move toward free trade. WTO rules are opposed to trade discrimination in principle—MFN. However, other parts of WTO rules permit deviations from MFN under specific conditions, fore example, trade blocs if the trade bloc removes tariffs and other trade restrictions on most of the trade among its members, and if its trade barriers against nonmembers do not increase on average. the static and dynamic benefits from trade blocs Theory of customs union developed by J. Viner, and R.G.Lipsey. The static, partial equilibrium effects of forming a customs union are measured in terms of trade creation and trade diversion. Trade creation ---- occurs when some domestic production of one customs-union member is replaced by another member’s lower-cost imports. Prior to Viner’s work on customs union in1950, it was widely believed that any movement toward freer trade would also increase welfare. Therefore, it was believed that the formation of a customs union could inc