Economic Integration or

Regional Integration
 2

Type of regionalization
Stage of Integration
Abolition of Tariffs and Quotas
Common among
Tariffs
Abolition Members
and
of Quotas
Harmoni-zation System
Restrictions
and Unification
on Factor Movements
of Econom

NO
YES
Free trade area NO NO
NO
YES
Customs union YES NO
NO
YES
Common market YES YES
YES
YES
Economic union YES YES

Source: F.R. Root, 1992

 3

Levels of Economic Integration

Free-trade Area
Increasing Integration

remove bilateral barriers to trade

Customs Union
set common trade barriers
Common Market
free mobility of workers and capital
Economic Union
common fiscal and monetary policies
 4

Hierarchy of Economic Integration

Give up
most sovereignty Political
Union

Economic USA
Union Canada
Ex-Soviet Union (CIS)
Customs EU
Market (Post-1999)

Give up Customs EC
more sovereignty Union (Pre-1999)

Free Trade BENELUX

Area
Shared, EFTA
Free Zone NAFTA
LAFTA

Give up
least sovereignty

Source: Nelson (1999:224)

 5

Benefit of regional integration

• Economic benefits:
• Greater world production because free trade allows countries
to specialize in the production (economies of scale)
• Economic growth because of FDI (technology, marketing,
managerial know transferred)
• Protected markets are opened
• Political benefits:
• Reduce the risk political conflict between neighboring
countries
• Increase the political weight in the world.
Cost of regional integration
• Impediments to integration and cost:
• Painful adjustment for some countries
• Less national sovereignty
• Cost (trade diversion) might outweigh the benefit (trade
creation)
• More price competition

•
 7

Key Economic Blocs

European Union ASEAN Free

(EU) Trade Agreement
(AFTA)

North America
Africa, Caribbean
Free Trade
and the Pacific
Agreement
(ACP)
(NAFTA)

Southern America
Common Market Gulf Cooperation
(MERCOSUR) Council (GCC)
 8

Regional Economic Integration

2001

European Union (EU)

1957, Euro (2002) Members: 15 (+5)

Population: 377 mil.

GDP: US$ 7,884 bil.

GDP/head: US$ 20,889

Total trade: US$ 4,568 bil.

 9

EU Evolution
 10

Regional Economic Integration

2001

N. America Free-Trade
Agreement (NAFTA)
1989
Members: 3

Population: 414

GNP: US$ 11,466 bil.

GDP/head: US$ 27,670

Total trade: US$ 2,865 bil.

 11

Regional Economic Integration2001

ASEAN Free-Trade Area

(AFTA)
1967, AFTA (1993)
Members: 10

Population: 526 mil.

GDP: 555 $ bil.

GDP/head: 1,164$

Total trade: US$ 781 bil.

 12

ASEAN vs EAST ASIA

Source: IMF, Direction of Trade Statistics Yearbook 2001

 13

ASEAN Trade

Source: IMF, Direction of Trade Statistics Yearbook 2001

 14

ASEAN Trading Partners

Source: IMF, Direction of Trade Statistics Yearbook 2001

 15

Regional Economic Integration

2001

MERCOSUR
1991
Members: 4 (A, P, U, B)

Population: 219 mil.

GDP: US$ 797

GDP/head: US$ 3,637

Total trade: US$ 174 bil.