Economic Integration and Regional Trade Agreements

Step 1: Clarifying What We Are Talking About

Globalization

Globalization is increasing economic integration among countries due to trade, migrations, and capital flows.

Trade

• Imports and exports of goods and services
• Imports and exports of licenses, patents, copyrights -> licensing, franchising market entry modes

Migrations

• Movement of people -> remittances, working visas

Capital Flows

• Inward and outward Foreign Direct Investment (FDI) (long term, owning and controlling assets) -> mergers, acquisitions, equity alliances
• Inward and outward Foreign Portfolio Investment (FPI) (short-term speculative investment)

Step 2: Identify Data Sources

Identify data sources where to find data from these variables (OECD, EUROSTAT).

Step 3: Gather the Data

Step 4: Organize the Data Based on the Research Question

Types of Economic Integration

Regional vs. Multilateral Trade Liberalization

Multilateral Trade Liberalization

• GATT and WTO

Regional Trade Liberalization

• Free Trade Area: Removal of tariffs and quotas (NAFTA)
• Customs Union: Common external tariff (ECC, 1968) (ARANCEL COMUN)
• Common Market: Free movement of factors (EU 1993)
• Economic and Monetary Union: Common monetary policy and coordination of economic policies (EMU, 1999)

Static Effects of Economic Integration (Short Run)

Trade Creation

1. Occurs when high-cost domestic production is replaced by low-cost imports from other members (e.g., EU with some food).

Trade Diversion

1. Occurs when low-cost imports from non-members are diverted to high-cost imports from member nations (e.g., UK with butter from EU).

Dynamic Effects of Economic Integration

1. Effects linked to market enlargement: Producing on a bigger scale improves efficiency.
2. Effects stemming from the elimination of barriers between markets: More competitive pressure, more incentive for innovation, relative price gap between countries narrows.

Eurosclerosis

1. Second half of the 1980s and early 1990s: stagnation in the European integration process: Eurosclerosis and Europessimism.

Great Recession and Euro Crisis (2008-Today)

1. Fears of euro breakdown, tensions among member states.

The MERCOSUR Accord

• In 1991, the governments of Argentina, Brazil, Paraguay, and Uruguay signed the MERCOSUR accord, an agreement to create a customs union among themselves.

The Andean Pact

• The Andean Pact is a 1969 agreement to promote free trade among five South American countries: Bolivia, Chile, Colombia, Ecuador, and Peru, in order to make them more competitive with the continent's larger countries.

The Australian-New Zealand Agreement

• The Australian-New Zealand Closer Economic Relations Trade Agreement, known as ANZCERTA, or simply CER, took effect on January 1, 1983.