EFFCETS OF REGIONAL ECONOMIC INTEGRATION

i. Trade Creation - Increase in the level of trade between nations that results from regional

economic integration. This occurs when imports from a regional partner displace goods

that have been produced domestically at higher cost, goods that can no longer compete

once the tariffs on imports from the regional partner are removed.

ii. Greater Consensus -The Benefits of trying to eliminate trade barriers in smaller groups

of countries. It can be easier to gain consensus from fewer members as opposed to many.

iii. Political Cooperation - The political benefits from efforts toward regional economic

Integration. A group of nations can have significantly greater political weight than each

nation has individually.

iv. Employment Opportunities - Expand employment opportunities by enabling people to

move from one country to another. Simply to earn a higher wage.

Regionalism enables continued protection of sectors that would not survive in global

competition. Regionalism allows for larger markets and increased foreign investment.

Drawbacks of Regional Integration

 Trade diversion - Diversion of trade away from nations not belonging to a trading

bloc and toward member nations. Trade diversion occurs when imports from a

regional partner displace those that originated outside the regional arrangement, the

displacement occurring because the extra- regional imports are no longer price

competitive when the tariffs on trade within the region are removed.

 Shifts in Employment - Industries requiring mostly unskilled labor

 Loss of National Sovereignty - Successive levels of integration require that nations

surrender more of their national sovereignty