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Flashcards in Economic Integration Deck (15)
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1

Economic Integration definition

agreement among countries to reduce / abolish trade barriers (protectionism) and promote free trade and to coordinate monetary and fiscal policies.

2

List the types of economic integration (increasing in integration as you go down)

1) Free trade area.
2) Customs union.
3) Monetary union (currency union).
4) Economic union.
5) Economic and monetary union.
6) Complete economic and monetary union

3

Free Trade Area

a group of countries (trade bloc) that promote free trade between themselves but have their own trade barriers against other countries.
etc. North American Free Trade Agreement (NAFTA)

4

Customs Union

a group of countries (trade bloc) where there is free trade between themselves and they impose a common external tariff on non-members.
etc. East African Community

5

Monetary Union (currency union)

a group of countries that share a common currency and may also have a common monetary policy (but not always).
etc. Eastern Caribbean Dollar

6

Economic Union

a group of countries (trade bloc) where there is free trade, a common external tariff and some common economic policies over rules and regulations. There may be a common currency but it is not necessary for all members to use it.
etc. European Union (19 out of 28 members use a common currency)

7

Economic and Monetary Union

Economic and monetary union = Economic union + Monetary union
- Trade bloc with free trade.
- Common external tariff on non-members.
- Common economic policies regarding rules and regulations.
- Single currency.
- Common monetary policy.

8

Complete Economic and Monetary Union

- Trade bloc with free trade.
- Common external tariff on non-members.
- Common economic policies regarding rules and regulations.
- Single currency.
- Common monetary policy.
- Common fiscal policy.

9

Trade Creation

the creation of new trade as a result of the reduction or elimination of trade barriers.

10

Impacts of Trade Creation

- When a trading bloc is created, trade barriers are eliminated.
- Businesses take advantage of new opportunities in new markets due to free trade.
- There will be increased international specialisation
and trade according to comparative advantage.
- High cost domestic production is replaced by more efficient low cost products from other member countries inside the trade bloc.

11

Trade Diversion

where a certain amount of trade is lost as a result of the imposition of trade barriers.

12

Impacts of Trade Diversion

Members of a trade bloc are:
- more likely to trade with each other (no trade barriers).
- less likely to trade with non-members (trade barriers).

- Efficient countries outside the trade bloc suffer as they do not compete on equal terms.
- Members of the trade bloc are unable to buy at the cheapest price from non-members.

13

Free Trade

international trade without protectionism (trade barriers).

14

Benefits of free trade

- Increased international specialisation as countries exploit their comparative advantage.
- Trade creation occurs.
- Increase in output (shown using the trading possibility curve - next slide).
- Increase in economic growth.
- Resources are allocated more efficiently.
- Improved standard of living and quality of life.

15

Trade liberalisation

the removal of protectionist measures (trade barriers).