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?

Additional Search Words

Inter-country collaborationInternational collaboration

Success DriversCase Studies’ Evidence

IssuesCase Studies’ Evidence

Apply to EU case?

What other

search te

rms?