1. Ch 25: Economic Integration
IB Economics
Ch 25: Economic Integration

2. Integration Issues Globalization Trading Blocks
Obstacles to Economic Integration (HL)
Trade Creation & Trade Diversion

3. Globalisation
Increased integration leading to global not national markets
Liberalized capital flows
Liberalized trade
IT advances
Reduction in transport costs
Globalisation has rapidly increased since 1980’s
The role of MNCs
Integrated international production
FDI and MNCs

4. MNC Facts 25% of worlds output
51 of the largest economies are MNCs and not countries
More than 60,000 MNCs
The combined revenue of MMCs is greater than the US economy
MMCs have been widely criticized and we will examine their role in developing economies in Unit 5

5. Trading Blocks DEF: a group of countries, agreement to increase trade
Béla Balassa’s 6 stages of integration
Preferred trading areas
Free trade areas
Customs unions
Common markets
Economic and monetary union
Complete economic integration
Increased integration

6. Preferred Trading Areas (PTA)
Preferential access to certain products/markets
Reduced but not eliminated tariffs/protection
E.g. EU and ACP (Africa, the Caribbean & the Pacific)
71 countries
Guarantees raw materials for EU
Allows ACP to enjoy reduced tariffs
Allows ACP access to funds to help with price stabilization schemes e.g. agriculture and mining

7. Free Trade Areas Countries agree to trade without protection
E.g. NAFTA
US, Canada and Mexico
Started in 1994
Virtually all trade is now without tariffs
Increased trade flows between the countries

8. Free Trade Area Diagram
USA
MEXICO
CANADA
COUNTRY X

9. Customs Union Free trade between members Common External Tariff (CET)
E.g. Switzerland-Liechtenstein customs union
All common markets and economic & monetary unions are also customs unions

10. Customs Union Diagram
USA
MEXICO
CANADA
COUNTRY X

11. Common Markets
A customs union with common policies on product regulation, and the free movement of goods and services, capital and labour EU
CARICOM Single Market and Economy (CSME)

12. Economic & Monetary Union
A common market with a common currency
Eurozone

13. Complete Economic Integration
The FINAL stage!
No control of domestic economic policy
Monetary union
Complete fiscal harmonisation
Sound familiar?

14. An Evaluation of Trading Blocks
Similar analysis to free trade
May increase FDI from within and outside of the bloc
Political stability
Easier world trade negotiations (like trade union theory)
May increase barriers between blocs