Description
What are the economic and political arguments for regional economic integration? Given these arguments, why don't we see more integration in the world economy?
Explanation & Answer
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Based on the theory of integration, the real economic argument is
the trade diversion.
That means the third countries which might have
lower opportunity cost than the member countries are excluded by the
import tariffs. The consumer surplus will decrease because of the
integration. But counter argument is that the trade creation will
exceed the trade diversion as we have seen in the case of the European
integration and NAFTA.
The political argument is that it is based mainly on geography. The
members countries have to be neighboring countries. But there are many
countries which have the main trade partners so far away. And many
neighboring countries have border disputes.ASEAN for example, has been
integrated because of the political factor. But at the beginning the
intra-trade between them was minimal. It has been taken for decades
until the PTA(partial trade agreement) could begin. Until now the
intra-trade in the ASEAN 10 is still less than 50%, compared to 80% in
Europe.
Politically and economically infeasible.Bilateral free trade agreement is used instead.
Despite
the strong economic and political arguments for integration, it has never been
easy to achieve (on a meaningful level).
There are two main reasons for this.
First, although economic integration benefits the majority, it has its
costs. While a set of nations as a whole
may benefit significantly from a regional free trade agreement, certain groups
may loose. The second impediment to
integration arises from concerns over national sovereignty.
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