Regional Economic Integration 8 chapter Regional Economic Integration McGraw-Hill/Irwin Global Business Today, 5e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter 8: Regional Economic Integration INTRODUCTION Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. While regional trade agreements are designed to promote free trade, there is some concern that the world is moving toward a situation in which a number of regional trade blocks compete against each other.

Chapter 8: Regional Economic Integration LEVELS OF ECONOMIC INTEGRATION There are five levels of economic integration: Free trade area Customs union Common market Economic union Political union

Chapter 8: Regional Economic Integration THE CASE FOR REGIONAL INTEGRATION The case for regional integration is both economic and political. The Economic Case for Integration The Political Case for Integration Impediments to Integration

Chapter 8: Regional Economic Integration THE CASE AGAINST REGIONAL INTEGRATION Regional economic integration only makes sense when the amount of trade it creates exceeds the amount it diverts Trade creation occurs when low cost producers within the free trade area replace high cost domestic producers Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers

Chapter 8: Regional Economic Integration REGIONAL ECONOMIC INTEGRATION IN EUROPE There are two trade blocks in Europe: the European Union (EU) and the European Free Trade Association. Of the two, the EU is by far the more significant, not just in terms of membership, but also in terms of economic and political influence in the world economy.

Chapter 8: Regional Economic Integration Evolution of the European Union Political Structure of the European Union The Single European Act The Establishment of the Euro Enlargement of the European Union

Chapter 8: Regional Economic Integration REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS Regional economic integration is on the rise in the Americas. The North American Free Trade Agreement (NAFTA) is the most significant attempt. Other efforts include the Andean group and MERCOSUR. In addition, there are plans to establish a hemisphere-wide Free Trade Area of the Americas (FTAA).

Chapter 8: Regional Economic Integration The North American Free Trade Agreement The Andean Community MERCOSUR Central American Common Market, CAFTA and CARICOM Free Trade Area of the Americas

Chapter 8: Regional Economic Integration REGIONAL ECONOMIC INTEGRATION ELSEWHERE Various efforts at economic integration are taking place in other parts of the world. Association of Southeast Asian Nations Asia Pacific Economic Cooperation Regional Trade Blocs in Africa

Chapter 8: Regional Economic Integration IMPLICATIONS FOR MANAGERS Regional economic integration creates both opportunities and threats for managers. Opportunities Threats