Regional Economic Integration | International Business | From A Business Professor
Summary
TLDRThis video explains regional economic integration, an agreement among countries in a geographic region to reduce or eliminate trade barriers, enhancing the flow of goods, services, and production factors. It outlines five levels of integration: free trade area, customs union, common market, economic union, and political union. Benefits include increased trade, job opportunities, and political cooperation, while costs involve trade diversion, employment shifts, loss of national sovereignty, and rising crime rates linked to immigration. The video also discusses specific trade agreements like the EU, NAFTA, and Mercosur, and invites viewers to share their thoughts on the global impact of such integration.
Takeaways
- 🌍 Regional economic integration involves agreements between groups of countries to reduce or eliminate tariffs and barriers for the free flow of goods and services.
- 📈 By 2020, there were nearly 300 regional trade agreements in effect globally, covering a vast majority of the World Trade Organization members.
- 🇪🇺 The European Union is a major example of regional integration, evolving from a customs union to an economic union, though not all members have adopted the euro.
- 🇬🇧 Brexit marked the UK's departure from the European Union, raising questions about the future of the EU project.
- 🤝 North America has integrated through agreements like NAFTA, later renegotiated into the USMCA, which aimed to balance regional trade benefits.
- 🌎 Latin America also pursues integration through agreements like Mercosur, despite facing slow progress and challenges.
- 🔄 Five levels of economic integration range from free trade areas to full political unions, with each stage requiring increased cooperation and coordination.
- 📉 Integration can have both positive and negative effects, such as trade creation, employment opportunities, and political cooperation, but also trade diversion, job shifts, and loss of sovereignty.
- ⚖️ A key challenge of integration is balancing national sovereignty with the need for collective management of fiscal and monetary policies.
- 🚨 Regional agreements can lead to issues like rising crime rates due to increased immigration, as seen in some European countries.
Q & A
What is regional economic integration?
-Regional economic integration is an agreement between groups of countries within a geographic region to reduce or remove tariff and non-tariff barriers, allowing the free flow of goods, services, and production factors between them.
How has Europe led the movement toward regional economic integration?
-Europe has been more ambitious in regional economic integration, with the European Union removing many barriers to business across member countries, creating a single market. By 2020, the EU had over 500 million people and a GDP of $18 trillion.
What was the impact of Brexit on regional economic integration in Europe?
-Brexit, the UK's decision to leave the EU, cast doubt on the future of European integration. The UK voted to exit in 2016, with the withdrawal formalized in January 2020, affecting both economic and political ties.
What are the five levels of regional economic integration?
-The five levels are: Free Trade Area, Customs Union, Common Market, Economic Union, and Political Union. Each level represents a deeper form of integration, from removing trade barriers to full political and economic integration.
What is the difference between a Free Trade Area and a Customs Union?
-In a Free Trade Area, all trade barriers between member countries are removed, but each country sets its own trade policies with non-members. A Customs Union goes further by also establishing a common external trade policy for all members.
What benefits do countries gain from regional economic integration?
-Benefits include trade creation, employment opportunities, cheaper goods, technology sharing, and political cooperation. It often leads to higher growth rates, especially for less developed countries.
What are some of the potential costs of regional economic integration?
-Costs include trade diversion, employment shifts, loss of national sovereignty, and a rising crime rate associated with immigration. Some sectors or countries may not benefit equally from integration.
How does economic union differ from a common market?
-An economic union includes all elements of a common market, but also requires a common currency, harmonized tax rates, and common fiscal and monetary policies, necessitating even greater cooperation and sacrifice of national sovereignty.
How has the North American region approached regional economic integration?
-Canada, Mexico, and the United States have pursued integration through NAFTA, which later evolved into the USMCA. This agreement aims to eliminate trade barriers between the three countries, though it has faced criticism for job losses in some sectors.
What are the challenges of achieving a common market?
-Achieving a common market requires significant collaboration on fiscal, monetary, and employment policies. The free movement of labor and capital, and the need to harmonize laws and regulations, can be difficult for member countries to achieve.
Outlines
📈 Introduction to Regional Economic Integration
The video introduces the concept of regional economic integration and its global impact, noting the rise of trade agreements since the 1990s. By 2020, nearly all World Trade Organization members had participated in regional trade agreements, with around 300 in effect globally. Regional economic integration involves countries in a geographic area working to reduce trade barriers, exemplified by the European Union (EU) and its attempts to create a single market. Brexit, the UK's departure from the EU in 2020, is highlighted as a significant event, along with trade agreements like NAFTA, now replaced by the USMCA, and South American efforts like Mercosur.
🌍 The Levels of Regional Economic Integration
The video explains the five theoretical levels of economic integration. The first level, free trade areas, removes barriers to goods and services between members while allowing independent trade policies with non-members. Customs unions, the second level, eliminate trade barriers and adopt common external policies. A common market, the third level, removes trade barriers and allows free movement of labor and capital, requiring policy cooperation. The EU began as a customs union and progressed to an economic union, while Mercosur aims to become a common market. Political union, the final stage, involves a central political body coordinating policies among members.
💼 Regional Economic Integration Benefits and Costs
This section outlines the advantages and disadvantages of regional economic integration. The benefits include trade creation, employment opportunities, and improved cooperation among member nations, which lead to economic growth. However, the costs include trade diversion, employment shifts, loss of national sovereignty, and increased crime rates linked to immigration. The video emphasizes that while the overall impact of integration is viewed as positive, not all countries or industries benefit equally. The loss of national control over monetary policies is one of the key challenges associated with higher levels of integration.
Mindmap
Keywords
💡Regional Economic Integration
💡Tariff and Non-Tariff Barriers
💡European Union (EU)
💡Brexit
💡North American Free Trade Agreement (NAFTA)
💡Customs Union
💡Common Market
💡Economic Union
💡Trade Creation
💡Trade Diversion
Highlights
Regional economic integration is an agreement between groups of countries in a geographic region to reduce and remove barriers to trade and the flow of goods, services, and production factors.
By 2020, nearly all World Trade Organization members have participated in at least one regional trade agreement, with around 300 agreements currently in effect.
The European Union (EU) is a key example of regional economic integration, having removed many barriers to trade by creating a single market for 500 million people with a GDP of $18 trillion.
Brexit in 2020, where the UK formally left the EU, is a major event that casts uncertainty on the future of regional integration in Europe.
NAFTA, the North American Free Trade Agreement between the US, Mexico, and Canada, was renegotiated into the United States-Mexico-Canada Agreement (USMCA) after criticism from the Trump administration.
South America has made progress in regional integration through MERCOSUR, involving Argentina, Brazil, Paraguay, and Uruguay, though its progress has slowed.
There are five theoretical levels of economic integration: free trade area, customs union, common market, economic union, and full political union.
A free trade area eliminates trade barriers between members but allows individual countries to maintain their own trade policies with non-members.
A customs union takes integration further by adopting a common external trade policy among member countries.
A common market allows the free movement of labor and capital between member countries, beyond just goods and services.
An economic union requires the adoption of a common currency, harmonized tax rates, and a shared monetary and fiscal policy.
A political union represents the highest level of integration, where a central political apparatus coordinates economic, social, and foreign policies of member states.
Regional economic integration has major benefits, including trade creation, job opportunities, and enhanced political cooperation.
The costs of regional economic integration include trade diversion, employment shifts, loss of national sovereignty, and rising crime rates associated with immigration.
Despite the benefits, not all countries, industries, or individuals benefit equally from regional economic integration, which has led some countries to slow or halt integration efforts.
Transcripts
hello everyone welcome to business
school 101
since the 1990s the world has witnessed
an unprecedented proliferation of
regional trade blocs that promote
regional economic integration
by 2020 nearly all of the world trade
organizations members
have participated in one or more
regional trade agreement
the total number of regional trade
agreements currently in effect is around
300.
so what is regional economic integration
how can it affect the global economy are
there some differences among regional
trade agreements regarding levels of
integration
this video will answer these questions
for you
regional economic integration is an
agreement between groups of countries in
a geographic region
to reduce and ultimately remove tariff
and non-tariff barriers to the free flow
of goods
services and factors of production
between each other
since world war ii europe has been more
ambitious than any other country in the
world regarding the movement toward
regional economic integration
on january 1st 1993 the european union
or eu formally removed many barriers to
doing business across borders within the
eu
in an attempt to create a single market
with 340 million consumers
by 2020 the eu had a population of more
than 500 million
and a gross domestic product of 18
trillion dollars making it second only
to the united states in economic terms
however due to many economic and
political concerns the united kingdom
which was a founding member of the eu
voted to leave the organization in 2016.
in january of 2020 british lawmakers and
the european parliament voted to accept
the united kingdom's withdrawal
which has cast a shadow over the future
of the european project
because of its significance and
complexity we will learn more about
brexit in another video
in addition to europe similar moves
toward regional integration are being
pursued elsewhere in the world
for example canada mexico and the united
states have implemented the north
american free trade agreement
or nafta ultimately this arrangement
promises to remove all barriers to the
free flow of goods and services between
the three countries
while the implementation of nafta has
resulted in job losses in some sectors
of the american economy
most economists argue that the benefits
of greater regional trade outweigh any
costs however
the trump administration criticized
nafta blaming it for significant job
losses in the united states and
therefore negotiated a new agreement
known as the united states mexico canada
agreement
also referred to as the usmca
additionally south america has also made
advancements regarding regional
integration
in 1991 argentina brazil
paraguay and uruguay implemented an
agreement known as mercosur
to start reducing barriers to trade
between each other
although progress within mercosur has
been slowing down
the institution is still in place
there are also active attempts at
regional economic integration in central
america
the andean region of south america
southeast asia
and parts of africa
there are five levels of economic
integration that are possible in theory
from least integrated to most integrated
they are free trade area
a customs union a common market an
economic union
and finally a full political union let's
discuss each of them
individually
level 1 free trade area
in a free trade area all barriers to the
trade of goods and services among member
countries are removed
in the theoretically ideal free trade
area no discriminatory
tariffs quotas subsidies or
administrative impediments are allowed
to distort trade between members
however each country is allowed to
determine its own trade policies
regarding non-members
therefore the tariffs placed on the
products of non-member countries may
vary from member to member
free trade agreements are the most
popular form of regional economic
integration
accounting for almost ninety percent of
regional agreements
level two customs unions
the customs union is one step further
along the road to full
economic and political integration a
customs union eliminates trade barriers
between member countries
and adopts a common external trade
policy
the establishment of a common external
trade policy necessitates
significant administrative machinery to
oversee trade relations with non-members
most countries that enter into a customs
union desire even greater economic
integration down the road
the eu began as a customs union but it
has now moved beyond this stage
other aspiring customs unions around the
world include the current version of the
andean community
between bolivia colombia ecuador and
peru
but so far its implementation has been
flawed
the andean community established free
trade between member countries
and imposes a common tariff of five to
twenty percent on products imported from
the outside
level three common market the next level
of economic integration
known as a common market has no barrier
to trade between member countries
includes a common external trade policy
and allows factors of production to move
freely between members
labor and capital are free to move
because there are no restrictions on
immigration
immigration or cross-border flows of
capital between member countries
establishing a common market demands a
significant degree of harmony and
cooperation on fiscal
monetary and employment policies
achieving this degree of collaboration
has proven very difficult
the european union functioned as a
common market for years
but it's since made even more progress
toward economic integration
mercosur the south american grouping of
argentina brazil
paraguay and uruguay hopes to eventually
establish itself as a common market
venezuela was also accepted as a full
member of mercosur
but then was indefinitely suspended from
the group and december of 2016 due to
its undemocratic policies
level 4 economic union
an economic union entails even more
economic integration
and cooperation than a common market
like the common market
an economic union involves the free flow
of products and factors of production
between member countries
and the adoption of a common external
trade policy but it also requires a
common currency
harmonization of members tax rates and a
common monetary and fiscal policy
such a high degree of integration
demands not only a coordinating
bureaucracy
but also the sacrifice of significant
amounts of national sovereignty to that
bureaucracy
the eu is an economic union but it is an
imperfect one
because not all members have adopted the
euro
additionally differences in tax rates
and regulations across countries still
remain
and some markets such as the market for
energy are still not fully deregulated
level 5 political union the move toward
an economic union
raises the issue of how to hold a
coordinating bureaucracy accountable to
the citizens of member nations
the answer is through a political union
in which a central political apparatus
coordinates the economic
social and foreign policies of the
member states
the eu is on the road to at least a
partial political union
the european parliament which plays an
ever more important role in the eu
has been directly elected by citizens of
the eu countries
since the late 1970s in addition
the council of ministers is the
controlling and decision-making body
of the eu and it is composed of
government ministers from each
eu member
regional economic integration has both
benefits and costs
the major benefits of creating regional
agreements include the following
first trade creation regional agreements
create more opportunities for countries
to trade with one another by removing
barriers to trade
and investment due to either a reduction
or removal of tariffs
cooperation results in cheaper prices
for consumers in the block countries
studies indicate that regional economic
integration significantly contributes to
the relatively high growth rates in less
developed countries
second employment opportunities by
removing restrictions on labor movement
economic integration can help expand job
opportunities
normally employees would have to deal
with visas and immigration policies in
order to work in another country
however with economic integration
employees can move freely
it also leads to a greater market
expansion and technology sharing
which ultimately benefits all economies
third consensus and cooperation member
nations may find it easier to agree with
a smaller number of countries
regional understanding and similarities
may also facilitate closer political
cooperation
although most economists and business
scholars believe that the overall
effects of regional economic integration
on regional and global economies
are positive it is still true that not
every country
industry company and individual can
equally benefit from these integrations
this is why we have recently seen many
countries hit the breaks to the regional
integration progresses
the major costs that accompany the
creation of regional agreements
include the following first trade
diversion
member countries may trade more with
each other than with non-member nations
this may mean increased trade with a
less efficient or more expensive
producer
simply because they are in a member
country in this sense
weaker companies can be inadvertently
protected with the block agreement
acting as a trade barrier
essentially regional agreements can form
new trade barriers
with countries outside of the trading
block
second employment shifts and reductions
nations may move production to cheaper
labor markets and member countries
similarly workers may move to gain
access to better jobs and wages
sudden shifts in employment can put a
strain on the resources of member
countries
third loss of national sovereignty with
each new round of discussions and
agreements within a regional block
nations may find that they have to give
up more of their political and economic
rights
one notable feature of economic
integration is the loss of individual
central banks
that control monetary policy this leads
to less national autonomy
and the responsibilities of central
banks are instead delegated to an
external body
this outside control can become
troublesome in terms of managing a
cohesive fiscal
and monetary policy among many different
countries
fourth rising crime rate associated with
immigration
in many european countries local
residents complain about the increasing
number of criminal cases that are caused
by illegal immigrants
in 2018 for example an official report
from the germany government
found that the immigrant group makes up
about 2 percent of the overall
population
but contains 8.5 percent of all suspects
now let's do a quick review of today's
topic
regional economic integration is an
agreement between groups of countries in
a geographic region
to reduce and ultimately remove tariff
and non-tariff barriers
to the free flow of goods services and
factors of production between each other
there are five levels of economic
integration that are possible in theory
from least integrated to most integrated
they are a free trade area
a customs union a common market an
economic union
and finally a full political union
major benefits of regional economic
integration include trade creation
employment opportunity and consensus and
cooperation among members
although most economists and business
practitioners believe that the overall
effects of regional economic integration
on regional and global economies are
positive
not every country industry company and
individual can benefit from these
integrations equally
there are four major costs incurred with
regional economic integrations
these are trade diversion employment
shifts and reductions
loss of national sovereignty and rising
crime rate associated with immigration
so what do you think about the influence
of regional economic integration on the
global economy
how much will the u.s be able to benefit
from the new trade agreement with canada
and mexico
please leave your thoughts in a comment
below thanks for watching and i will see
you next time
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