Regional economic development

Regional Economic Integration... Regional Economic Integration Levels of economic integration among nations  Economic and political arguments for/against  History/scope, scope and fut

Regional Economic Integration

Regional Economic Integration

 Levels of economic integration among nations

 Economic and political arguments for/against

 History/scope, scope and future prospects for:

Regional Economic Integration

 Agreements among geographically proximate countries to reduce/remove

tariff and non-tariff barriers to free flow of:

– Goods

– Services

– Factors of production

Levels of Economic Integration

– removes tariffs among members

– members retain own trade policies toward others

– common trade policy toward others

– eliminates intra-market factor of production movements

– full integration of member economies (common policy)

Political Union: EU+

Reasons for Regional Integration

Economic enhancement of the member states

Political Reasons

reduce the potential for violent conflict

Impediments

European Union

 25 member countries; 450mm people; GDP > US

 1951 6 members of coal and steel community

– France, Germany (W.), Italy, Belgium,

Netherlands, Luxembourg

 1957 Treaty of Rome: European Community

– Common market

– Elimination of internal trade barriers

– Common external tariff

– Free movement of factors of production

 1973 1st enlargement: Britain, Ireland,

Denmark

European Union

 1981 2nd enlargement: Greece

 1983 3rd enlargement: Portugal, Spain

 1992 single European act

 Remove all frontier controls

 Principle of mutual recognition to product standards

 Open public procurement to non-national suppliers

 Lift barriers of competition to banks and insurance

 Remove restrictions on foreign exchange transactions

 Abolish restriction on cabotage (trucking)

 1994 Maastricht treaty: European Union

 1996 4th enlargement: Austria, Finland, Sweden

 2003 5th enlargement: Poland, Hungary, Czech Republic, Lithuania, Estonia, Latvia, Slovenia, Cyprus, Malta,

Slovakia

The Euro (€)

 Maastricht treaty:

– European common currency adopted 1/1/99

– Common foreign and defense policy

– Common citizenship

– EU parliament with “teeth”

 € now used by 12 countries (since 1/1/02)

– Sweden, Denmark, Britain opted out

– 10 new countries have to qualify

Benefits of the Euro (€)

 Lower transaction costs for individuals / business

 Prices comparable across the continent;

increased competition

 Rationalization of production across Europe to reduce cost

 Pan-European capital market

 Increase range of investment options available to both individuals and institutions

Costs of the Euro (€)

ECB has monetary policy control not nations

EU is not an optimal currency area

(e.g., Finland vs Portugal)

for economically booming regions

depressed regions

Early Experience of the Euro (€)

 Volatile trading history

 EU enlargement will complicate Euro adoption;

new members with weaker economies

 Major members ignoring monetary union rules to retain control over their fiscal and monetary

policies

Enlargement of the EU

More member disparity, more difficult

governance

Norway opted out of the EU (1994)

Membership applications pending: Turkey , Bulgaria, Rumania, Croatia

– Turkish application controversial (economic

development, religion, labor movement problems)

Other non-European countries will seek

membership

The Americas

 North American Free Trade Agreement

 The Andean Pact: Bolivia, Chile, Ecuador, Colombia, Peru

Paraguay, Uruguay

 Central American Free Trade Agreement

El Salvador, Guatemala, Honduras,

The Americas

 Association of Southeast Asian Nations (ASEAN)

– Brunei, Indonesia, Laos, Malaysia,

Myanmar, the Philippines, Singapore, Thailand, Vietnam

 Asia Pacific Economic Cooperation

– USA, Japan, China + 15 Pacific nations

 USA, Canada, Mexico (FTA-1988)

relationship

 Trade opening process through tariff

NAFTA - Key provisions

 General (effective 1/1/94)

– Tariffs of all sectors reduced by 99% over 10 yrs

– FDI unrestricted (x-oil and railways in Mexico, Culture in Canada, airlines-communications US)

– No free movement of labor (x-white collar

easement)

– Protection of intellectual property rights

– Cross-border flow of services unrestricted

– Application of environmental standards

– Two commissions have the right to impose

penalties on issues of health/safety, child labor, minimum wages

Implications for Business

Opportunities

– Less protectionism; higher economic growth

– Lower cost of doing business (fewer borders)

Threats

– Cultural differences persist

– Increased price competition within blocks

– Across-trading-block rivalry can increase

barriers

– Improvement of competitiveness of many local