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Economic integration
Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states.
The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and notrade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist.
Introduction
Economic Integration
1. Etymology
2. Objective
3. Stages
4. Economic theory
5. Success factors
6. Obstacles to economic integration
Conclusion
Global economic integration
List of literature
Economic integration
Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states.
The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and notrade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist.
Etymology
In economics, the word integration was first employed
in industrial organisation to refer to combinations of business firms
through economic agreements, cartels, concerns, trusts, and mergers—horizontal integrationreferring to combinations of competitors, vertical integration to combinations of suppliers with customers. In the
current sense of combining separate economies into larger economic regions,
the use of the wordintegration can be traced
to the 1930s and 1940s.[1] Fritz Machlup credits Eli Heckscher, Herbert Gaedicke and Gert
von Eyern as the first users of the term economic integration in
its current sense. According to Machlup, such usage first appears in
the 1935 English translation of Hecksher's 1931 book Merkantilismen (Mercantil
Objective
An increase of welfare has been recognized as a main objective of economic integration. The increase of trade between member states of economic unions is meant to lead to the increase of the GDP of its members, and hence, to better welfare. This is one of the reasons for the global scale development of economic integration, a phenomenon now realized in continental economic blocks such as ASEAN, NAFTA, SACN, the European Union, and the Eurasian Economic Community; and proposed for intercontinental economic blocks, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area.
The other objective for the states pursuing economic integration is to become or stay regionally and globally competitive, as the goods of the states outside economic blocks become more expensive.
Stages
Stages of economic integration around the World:
(each country colored according to the most advanced agreementthat it participates into.)
Economic and Monetary Union (CSME/EC$, EU/€)
Economic union (CSME, EU)
Customs and Monetary Union (CEMAC/franc, UEMOA/fran
Common market (EEA, EFTA, CES)
Customs union (CAN, CUBKR, EAC, EUCU,
Multilateral Free Trade Area (AFTA, CEFTA, CISFTA, COM
Free trade around the World:
Multilateral free trade agreements or more advanced agreements
Bilateral free trade agreements advanced agreements
No free trade agreements, but World Trade Organizationmembers
A world map of World Trade Organization participation:
Members
Members, dually represented with the European Union
Observer
Non-member
The degree of economic integration can be categorized into six stages:
These differ in the degree of unification of economic policies, with the highest one being the political union of the states.
A "free trade area" (FTA) is formed when at least two states partially or fully abolish custom tariffs on their inner border. To exclude regional exploitation of zero tariffs within the FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA.
A "customs union" introduces unified tariffs on the exterior borders of the union (CET, common external tariffs). A "monetary union" introduces a shared currency. A "common market" add to a FTA the free movement of services, capital and labor.
An "economic union" combines customs union with a common market. A "fiscal union" introduces a shared fiscal and budgetary policy. In order to be successful the more advanced integration steps are typically accompanied by unification of economic policies (tax, social welfare benefits, etc.), reductions in the rest of the trade barriers, introduction of supranational bodies, and gradual moves towards the final stage, a "political union".
Economic theory
The framework of the theory of economic integration was laid out by Jacob Viner (1950) who defined the trade creation and trade diversion effects, the terms introduced for the change of interregional flow of goods caused by changes in customs tariffs due to the creation of an economic union. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration. The next attempts to enlarge the static analysis towards three states+world (Lipsey, et al.) were not as successful.
The basics of the theory were summarized by the Hungarian economist Béla Balassa in the 1960s. As economic integration increases, the barriers of trade between markets diminish. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economically (via monetary unions) but also politically—and, thus, that economic communities naturally evolve into political unions over time.
The dynamic part of international economic integration theory, such as the dynamics of trade creation and trade diversion effects, the Pareto efficiency of factors (labor, capital) and value added, mathematically was introduced by Ravshanbek Dalimov. This provided an interdisciplinary approach to the previously static theory of international economic integration, showing what effects take place due to economic integration, as well as enabling the results of the non-linear sciences to be applied to the dynamics of international economic integration.
Equations describing:
were successfully applied towards:
The straightforward conclusion from the findings is that one may use the accumulated knowledge of the exact and natural sciences (physics, biodynamics, and chemical kinetics) and apply them towards the analysis and forecasting of economic dynamics.
Dynamic analysis has started with a new definition of gross domestic product (GDP), as a difference between aggregate revenues of sectors and investment (a modification of the value added definition of the GDP). It was possible to analytically prove that all the states gain from economic unification, with larger states receiving less growth of GDP and productivity, and vice versa concerning the benefit to lesser states. Although this fact has been empirically known for decades, now it was also shown as being mathematically correct.
A qualitative finding of the dynamic method is the similarity of a coherence policy of economic integration and a mixture of previously separate liquids in a retort: they finally get one colour and become one liquid. Economic space (tax, insurance and financial policies, customs tariffs, etc.) all finally become the same along with the stages of economic integration.
Another important finding is a direct link between the dynamics of macro- and micro-economic parameters such as the evolution of industrial clusters and the GDP's temporal and spatial dynamics. Specifically, the dynamic approach analytically described the main features of the theory of competition summarized by Michael Porter, stating that industrial clusters evolve from initial entities gradually expanding within their geographic proximity. It was analytically found that the geographic expansion of industrial clusters goes along with raising their productivity and technological innovation.
Domestic savings rate of the member states were observed to strive to one magnitude, and the dynamic method of forecasting this phenomenon has also been developed. Overall dynamic picture of economic integration has been found to look quite similar to unification of previously separate basins after opening intraboundary sluices, where instead of water the value added (revenues) of entities of member states interact.
[edit]Success factors
Among the requirements for successful development of economic integration are "permanency" in its evolution (a gradual expansion and over time a higher degree of economic/political unification); "a formula for sharing joint revenues" (customs duties, licensing etc.) between member states (e.g., per capita); "a process for adopting decisions" both economically and politically; and "a will to make concessions" between developed and developing states of the union.
A "coherence" policy is a must for the permanent development of economic unions, being also a property of the economic integration process. Historically the success of the European Coal and Steel Community opened a way for the formation of theEuropean Economic Community (EEC) which involved much more than just the two sectors in the ECSC. So a coherence policy was implemented to use a different speed of economic unification (coherence) applied both to economic sectors and economic policies. Implementation of the coherence principle in adjusting economic policies in the member states of economic block causes economic integration effects.
Obstacles to economic integration
Obstacles standing as barriers for the development of economic integration include the desire for preservation of the control of tax revenues and licensing by local powers, sometimes requiring decades to pass under the control of supranational bodies. The experience of 1990-2009 has shown radical change in this pattern, as the world has observed the economic success of the European Union. So now no state disputes the benefits of economic integration: the only question is when and how it happens, what exact benefits it may bring to a state, and what kind of negative effects may take place.
Economists argue that the negative consequences of economic integration include the suppression of local industries causing unemployment. Others say that there is no other way to exist in the current global economic environment for a state if it wishes to prosper. The conclusion is to prepare a state for economic integration before it will actually take place. There are different models of how to do it. The "South East Asian model" of economic integration is export oriented, while the "Latin American" one has fully open doors to imports consequently forcing local manufacturers to increase their standards of production.
Global economic integration
Members of WTO and negotiations status:
members (including dual-representation with the European Union)
Draft Working Party Report or Factual Summary adopted
Goods and/or Services offers submitted
Memorandum on Foreign Trade Regime submitted
observer, negotiations to start later or no Memorandum on FTR submitted
frozen procedures or no negotiations in the last 3 years
no official interaction with the WTO
Global unification of financial markets, which preceded formal global economic unification, along with turbulent 2008 economic crisis de facto raised an issue of the global regulation of the markets. At the same time, this seems impossible without global supranational bodies being in place.
This is a dilemma posed in discussions in the main international panels of the world (G8; G20; UN General Assembly): economic integration is both pushed by world economic development and stopped at the political level, including cultural differences between states (e.g., Iran and Israel).
Potential global economic integration may be able to solve an issue of reallocating the capital needed to develop less developed regions, blocs and states - on the one hand, and unwillingness of more industrialized part of the world to do it - on the other hand. As the global competition, sourcing and logistics becomes globally universal, it will eventually cause gradual harmonization of policies (within or outside the blocks, with or no formal global economic integration in place).
List of literature
Department of education and science, young people and sport of Ukraine the Odessa national polytechnic university
Business Institute, economy and information technologies
Department of economic cybernetics and information technologies
Calculation-graphic work
from discipline "International Economy "
on a theme “Economic Integration”
Executed:
St. of group OI-091
Lesniy Vasiliy
Checked:
Sokoly I.I.
Odessa 2012
Table of contents
Introduction
Economic Integration
1. Etymology
2. Objective
3. Stages
4. Economic theory
5. Success factors
6. Obstacles to economic integration
Conclusion
Global economic integration
List of literature