Economic Integration Flashcards
(16 cards)
Economic integration
The extent to which nations have abolished trade restrictions
Preferential trade agreement
When two or more countries remove or reduce trade barriers on specific goods and services produced in the participants countries.
Free trade area
When a group of countries remove trade barriers between themselves on all goods and services but have the ability to retain their own protectionism policies.
Customs union
An agreement between countries where there is a common trade barrier set for non-member countries and free trade between member countries
Common market (ie european economic area)
Free movement of all factors of production, unified non-tariff barriers, taxes
Economic and monetary union
A common market plus all states and countries adopt a common currency.
Advantages of monetary unions
- Exchange rate fluctuations decrease
- Increased currency credibility
- Price differences within the union become more obvious
- No conversion cost of currency
Disadvantages of monetary unions
Interest rates are set, so cannot use monetary policy. Irresponsible countries may change value of currency for other countries. Cannot adjust currency value for exports. Cost of changing currencies.
Complete economic integration
When a country unifies all economic policy tools ie fiscal and monetary with one new country being formed.
Advantages of trading bloc
- Greater market size, increased competition, greater employment opportunities, greater political stability and world trade negotiations are easier.
Disadvantages of trading bloc
Trading blocs favour member countries, entering a trade bloc can result in domestic production falling
Trade diversion
Production of goods moves from a low cost producer to a higher cost producer
World Trade Organisation
An organisation made up of 164 countries that set the rules for trade and resolves disputes between member countries
Functions of the WTO
Administer trade agreements, be a forum for trade negotiations, handle disputes, monitor trade policies, provide tech assistance, cooperate with other international organisations
Aims of the WTO
More free trade, no discrimination between domestic and foreign producers, encourages fair competition, transparency of trade rules, developing countries are given extra help, environment is protected.
Three factors that limit the effectiveness of the WTO
Some countries have greater influence (as they are rich), some trade rules are unfair for developing countries, trade deals negotiated outside of the WTO make the WTO look weaker.
