regional economic integration: the theoretical reason countries agreeing to come together...
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Regional Economic Integration:The Theoretical Reason
Countries agreeing to come together
(collaborate) to form regional economic
development agreements
WHY?Regional Free Trade
Economic Philosophies ofAdam Smith & David Ricardo
Absolute & Comparative Advantage:• Greater production efficiencies• Trade liberalism Free trade• Greater competition
Modern day push:The Governments of many countries, including USA , advocate for Milton Friedman’s principles of capitalism and freedom in their trade policies: http://www.youtube.com/watch?v=RWsx1X8PV_A
How – collaboration at what levels?
1
1. Bilateral integration across 2 countries
2. Multilateral integration across >2 countries
3. Regional integration within a cohort of countries
4. Multi-regional integration within a cohorts of regions
5. International integration across regions and/or countries
Within each integration configuration there is also the focus of integration one or more parts of the economy system
Advantages & Disadvantages
1. Economic benefits – eg access to larger markets
2. Political benefits – eg better inter-country relationships
3. Social/culture integration
4. Better globalisation capacity
5. Strong united voice in international matters
6. Peace & unity
7. Free from manipulated protectionism
1. Marginalising small groups
2. National / homeland security risks
3. Trade diversion by stronger countries under the disguise of trade creation
4. Cost-benefit threshold conditional – benefits come only when trade created > trade diverted
Reality Bites
Have advantages materialise & sustainable for everyone?
Have disadvantaged experiences been effectively prevented, mitigated or
recovered?
How – delivery dimensions?Location Based Free Trade Areas
Eg: European Free Trade Assoc (EFTA); North America Free Trade
Agreement (NAFTA)
Customs UnionEg: Andean community –
Bolivia, Columbia, Ecuador & Peru
Common MarketsEg: MERCOSUR – Brazil, Argentina, Paraguay &
Uruguay
Economic UnionEg: European Union
Political UnionEg: European Union
Aims for
Facilitated by
Facilitated by
Facilitated by
Assignment 1 asks is this framework working?
NAFTA – Strategic Outcomes
USCanadaMexico
Help Mexico growthGetting cheaper goods from Mexico
Higher capacity to compete with Asian & European rivals
Tut Question 1 Guide
EU – Strategic Outcomes
Single MarketSingle Currency
Location efficiency & specialisation (cheaper production goods &
services)
No trade & FX barriers between countries(less cross border costs)
Efficiency Advantage
Higher Global Competition Capacity
Tut Question 2 Guide
Australian & ASEAN strategic positioning
EU NAFTA
ASEAN
Others
Global CompetitionANZCERTA
QuestionOnly exporting?Or should be more FDI to increase Australia’s global competitiveness?
Tut Question 3 Guide
NAFTA Case Study
No border inspection for Trucks save time & $Who benefits most? Mexican Truckers Why?
NAFTA Case Study
Economic & Social Impact1. Loss of Businesses & Jobs2. Reduction in income &
wages3. Safety standards
compromise4. Homeland security risks
Economic Justification1. Time saving2. Costs saving
NAFTA Case Study
1994 NAFTA setupS11 Incident homeland security priority
US Safety & Environment Standards breaches tariff conditionsNow homeland security Standards can also compromise NAFTA agreement
Has rights to retaliate against NAFTA agreements
Assignment 1
As exemplified by the European
Union (EU), regional economic
integration is replete with political,
economic & cultural danger. Discuss
through the use of valid, real-life
examples.
Why is Economic Integration Working or Not Working?
OUTSIDE The EI Consortium Organisation eg EUWho are the stakeholders?
What are the systematic structures & processes?What are the business environmental drivers?
INSIDE The EI Consortium OrganisationWho are the decision makers?What are the common goals?
What have been achieved so far?What is the governance framework?
What are its internal strengths & Weaknesses?
EU What interacting roles? Effectiveness of Roles?EFTA
NAFTAANZCERTAASEAN
Which works better? Why?
Lessons learnt for EU?