5. Economic Integration (2011)Apunte Inglés
|Universidad||Universidad Internacional de Cataluña (UIC)|
|Grado||Administración y Dirección de Empresas (ADE) English Programme - 1º curso|
|Año del apunte||2011|
|Fecha de subida||05/06/2014|
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Economic Integration: is relevant because it can promote and restrict trade at the same time. It’s created by interaction of economic agents and comes from official agreements. • Levels of economic integration: o Customs Union: countries remove tariff and quotas on their intra group trade. Introducing a common external tariff with third countries. They negotiate at a single entity. o Common Market: a custom union that allows free mobility of factors of production. Restrictions with third countries. o Economic Union: A common market with coordinated fiscal, monetary, industrial, regional, etc. policies o Total Economic Union: single economic policy and a supranational economic authority. No administrative barriers to the movements of stuff (UE) • Static effects: o Trade creation (Custom Union encourages of trade creation as the result of a shift from a more expensive to a cheaper source of supply) § A less efficient protected domestic supplier is replaced by a more efficient foreign one (cuz the first one has a comparative disadvantage) o Trade Diversion: (cheapest foreign supplier is changes in favor of a relatively more expensive customs union partner) § Due to external tariffs à global welfare lost § This takes place at a protected (higher) levels of pricesà benefits to internal exporters § Importers loose because they pay at a higher prices. The country loses tariff revenue • Unilateral tariff vs. Custom Union o Bilateral trade offers unexpected returns à multilateral negotiations § Elimination of tariffs and some non-‐tariff barriers are eliminated (import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at custom, etc) § Trade disputes are settled and countries can use the WTO or the bilateral mechanism in disputes. • Politics of commercial integration: expansion implies an incentive until the whole world is included. o There are compensation mechanism for losses (to make the expansion more favorable) § The larger the custom the larger the need to compensate. • Dynamic effects o Economies of scale: firms expand their production in order to achieve lower costs o Custom Unions can set international prices § Large unions can alter the terms of trade • Third countries may have to increase exports • If there’s an improvement of TOT (when the price of exports exceeds the price of imports) a country can gain with third countries. • • • • Shifting Bargaining power: their power is bigger if they are in a union o It’s used as a weapon o What matters is the size of the union à to improve the term of trade is one of the major goals in a union and it’s an effect on the enlargement. Non economic motives to integrate o Securing market access to partner countries. o Trade barriers are adapted to the preferences of its members. o Greater competition o Bargaining tools Monetary integration: MAX LEVEL à single currency o It can exist without having a market integration o Market integration may exist without monetary integration. Optimum Currency Areas: is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. It describes the optimal characteristics for the merger of currencies or the creation of a new currency. The theory is used often to argue whether or not a certain region is ready to become a monetary union, one of the final stages in economic integration. o Allows to achieve low unemployment and inflation (macro economically speaking) o Factor mobility as a criterion to determine the region § Factors have to be mobile. § Fluctuating exchange rates to adjust and factor mobility to balance. § Adjustment through exchange rates. o Openness as a criterion: a high degree implies high specialization. § The greater the openness • The smaller the effect of exchange rates to stabilize. • Small economies are advised to peg their currency to their major trading partner. • Small economies can peg their currency together § Forces small economies into more rigorous economic policy that fluctuating exchange rates. ...