CHAPTER 5

INTERNATIONAL
ECONOMIC INTEGRATION

Instructor: Le Thi Mai Anh, M.A

International Finance Faculty, AOF.
 1. International economic
linkages
• Concept: An international economic linkage is the
establishment of an economic union between the
subject of countries on the basis of the general
provisions on coordination, regulation and
enhancement of mutual adaptation among members
to promote the development of international
economic relations.
 Characteristics
• The entities are governments, economic corporations,
international enterprises in different countries
influenced and regulated by the economic policies of
the government.
- The entities’ activities depend on local conditions
and governments’ regulation.
- IEL provides a legal framework for fair competition of
members (entities) and facilitate international economic
relations.
• IEL is a highly developed form of international division
of labor, which is the voluntary activity of its members.
• IEL is the linkage of economic activities that takes place
in the process of reproduction between the entities in
countries, simultaneously contribute to the gradual
elimination of isolation of the economies.
• IEL is a neutral solution between the 2 trends of trade
liberalization and trade protectionism. It is a framework
for competition between groups of countries or
economic corporations to ensure the interests of its
members.
 1.1 International
microeconomic Linkages

• Concept: A international microeconomic

linkage is the linkage between companies
and economic groups in different countries
to establish common economic relations
through contracts signed between the
parties.
Characteristics of international
microeconomic linkages

• Subjects : international corporations

• Legal basis: contracts

• Objectives:
 Minimize the negative effects of the trade
protection policies of countries.
 Improve the competitiveness of enterprises
in the conditions that technology innovation
requires a large amount of capital and high
tech level that an enterprise can not meet.
 Characteristics of international
microeconomic linkages
• Categories:
 Linkage to solve the economic relations related to the
parties to ensure the benefits for each member.
- Not establish a new legal entity
- Only deal with related economic relations including:
consumption market, international transportation, selling
price, etc.
- E.g. cartel, trust, Conglomerate, Consortium, Syndicate
( The western Europe, US); Keirtsu (Japan); Cheabol (Korea)
 Linkages to form international enterprises
- Be merger of small companies into a new big company
that create collective strength to expand markets and
increase competitiveness.
- E.g. MNCs, TNCs.
 1.2 The International
macroeconomic linkages
• Concept: An international macroeconomic linkage is the
linkage of nations through the agreement signed by the
government to coordinate economic relations between the
members.
• Subjects: Governments

• Legal basis: Agreements

• Objectives:
 To meet the requirements of increasing int’l division of labor
between countries, to exploit the advantages and overcome
the limitations of those countries
 To protect the domestic and foreign business markets of
members in order to achieve higher economic benefits for
these members and to increase their competitiveness for each
member and for the whole of linkage in the world economy.
 5 stages of int’l macroeconomic
linkages
Free Common Free flow Unificatio Monetary
exchange outside of labor n of integratio
of goods customs and economic n
and tariff capital politics
services

Free x
trade
area
Customs x x
Union
Common x x x
market
Economi x x x x
c Union
Monetary x x x x x
Union
 2. International economic
integration

• Concept: International economic

integration is the opening of the national
economy, the development of the national
economy associated with the region and the
world, more and more participation in
international economic activities and
multilateral trading systems
 Factors influencing international
economic integration
• External factors to IEI
 Due to the strong development of the productive
force, it has gone beyond national scope. It
promotes the strong development of international
labor division, which requires each country's
economy to integrate into the regional and world
economy.
 Due to the strong impact of the technological
revolution, it has created conditions and
demanded that the economies of each country
need to efficiently exploit the scientific and
technological achievements of the world to
develop.
 Peace, development and cooperation have become
trends of the times and represent the common
 Factors influencing international
economic integration
• Internal factors to IEI:
 In the process of economic development, no
country in the world has enough resources, so
international economic integration is needed to
address the constraints of resources for delivery.
 In the process of economic development,
countries do not want to lag too far so they have
to find ways to integrate into the general trend in
order to find ways to shorten the gap between
economic and technological production.
 International economic integration
• Contents of international economic integration
Commitment of international economic integration
 Commitment to preferential treatment for other
countries in economic and trade relations
 Commitment on the level and route of opening the
domestic market
 Commitments on the extent of tariff reductions and
the gradual removal of non-tariff barriers in trade and
investment relations
 Commitment to the principle of non-discrimination,
the principle of transparency and publicity of the legal
system and policies related to trade and investment.
Notes: However, the level of commitment to the above
contents, binding and implementation schedule in the
process of international economic integration of each
country with international economic organizations in the
region and the world are different.
 Assignment

• Opportunities and challenges of

Vietnam in International economic
integration process?
 Mid-term test
Test 1
1.What form of international investment allows investors to easily withdraw capital when
needed? How come?
2.Does the knowledge economy develop sustainably? How come? (2p)
Test 2
3.What international investment can help investors avoid the trade barriers? How come?
4.Under the MFN principle, Vietnam is obliged to apply the tariff rate 0-5% that Vietnam
signed when joining AFTA for all WTO member countries? How come?
Test 3
5.Why is the capital in the knowledge economy mainly focused on investing in the
education - training and science – technology?
6.The government spends the State budget on supporting export enterprises in the Central
region to purchase equipment for preventing natural disasters. In your opinion, does this
activity violate the SCM Agreement?