Regional Economic Integration

Introduction  Regional economic integration is the political and economic integration among countries that give preference to member countries to the agreement.  The idea of economic integration was started after World War II as countries realized the benefits of cooperation and larger market size.  MNCs need to adjust organizational structure and operating strategy to take advantage of regional trade groups.

Regional Economic Integration Issues : i)distances ii)similarity in consumers preferences iii)common history and interest among neighboring countries Types : i)Free trade area – no internal tariffs ii)Customs union – common external tariffs iii)Common market – factor mobility iv)Economic integration – coordinate fiscal & monetary policy

The Effects of Integration Regional integration has social, cultural, political and economic effects Static effects & dynamic effects Trade creation & trade diversion Economies of scale

The European Unions  The EU is an effective common market that has abolished most restriction on factor mobility  Harmonising national political, economic and social policies  Among the member of EU; Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy

Goals of The European Unions  EU’s major goals are to abolish intrazonal restrictions on the movement of goods, capital, services & labor.  To establish a common external tariff  To achieve a common agricultural policy  To harmonise tax and legal systems  To devise a uniform policy concerning antitrust  To establish common currency and monetary policy

North American Free Trade Agreement (NAFTA)  is designed to eliminate tariff barriers.  To liberalise investment opportunities and trade services  Key provisions in NAFTA are labour & environmental agreements.

Commodity Agreements Two types : i)Producers’ Alliances ii)International Commodity Control Agreements (ICCAs) Introduce stabilisation schemes to stabilise commodity prices. Quota system