Bilateral/Multilateral/ Regional (Handout) ECONOMIC INTEGRATION Bilateral/Multilateral/ Regional (Handout)

6 main types but you only need to memorise 4 (in blue) 1) Preferential trading area just for a few products Trading blocs 2) Free Trade Area (FTA) eg  problem of ………………………………….. (eg need “RULES of ORIGIN”  3) Customs Union (with a “common external tariff” or other barriers)

 More and more integration 4) Common Market + free movement of labor (and capital) UNIONS 5) Economic and Monetary Union eg +Common currency; a budget and central bank harmonized taxation systems and fiscal and monetary policies and pensions etc 6) Full integration eg…………………………….

ISSUE ---- which is more likely? TRADE CREATION Is when there is more trade according to the principle of comparative advantage a more efficient allocation of resources and lower costs TRADE DIVERSION Is when trade is diverted from a lower cost (more efficient) producer, who is outside the bloc, to a higher cost (less efficient) producer inside the bloc

EVALUATION of trading blocs Advantages Disadvantages

EVALUATION of ECONOMIC/MONETARY UNIONS all the above PLUS Advantages Disadvantages

International Organizations World Trade Organisation (WTO) International Monetary Fund (IMF) World Bank

World Bank FUNCTIONS EVALUATION extend long-term loans (“soft” or concessional) to ELDC governments Alleviate poverty in ELDCs Add to infrastructure in ELDCs Promote FDI (foreign direct investment) by private companies in ELDCs

World Trade Organisation (WTO) FUNCTIONS…… for its member countries EVALUATION • to provide a forum for negotiating trade liberalization • to monitor/regulate further trade liberalization • to resolve trade disputes (eg on dumping) to increase the transparency of decision-making processes • to help ELDCs benefit fully from the global trading system.

International Monetary Fund (IMF) FUNCTIONS EVALUATION oversees the global financial system, stabilize exchange rates Help countries that experience difficulties making their international payments ie DEFICITS on current account of BOP extending them short-term loans