Regional Economic Integration:
The Theoretical Reason
Countries agreeing to
come together
(collaborate) to form
regional economic
development
agreements
WHY?
Regional Free Trade
Economic Philosophies of
Adam Smith & David Ricardo
Absolute & Comparative Advantage:
•
•
•
Greater production efficiencies
Trade liberalism  Free trade
Greater competition
Modern day push:
The Governments of many
countries, including USA ,
advocate for Milton
Friedman’s principles of
capitalism and freedom in
their trade policies:
http://www.youtube.com/
watch?v=RWsx1X8PV_A
How – collaboration at what levels?
1
1. Bilateral integration across 2
countries
2. Multilateral integration
across >2 countries
3. Regional integration within a
cohort of countries
4. Multi-regional integration
within a cohorts of regions
5. International integration
across regions and/or
countries
Within each
integration
configuration
there is also the
focus of
integration one
or more parts
of the economy
system
Advantages & Disadvantages
1. Economic benefits – eg
access to larger markets
2. Political benefits – eg
better inter-country
relationships
3. Social/culture integration
4. Better globalisation
capacity
5. Strong united voice in
international matters
1. Marginalising small groups
2. National / homeland
security risks
3. Trade diversion by stronger
countries under the
disguise of trade creation
4. Cost-benefit threshold
conditional – benefits
come only when trade
created > trade diverted
Reality Bites
6. Peace & unity
7. Free from manipulated
protectionism
Have advantages materialise &
sustainable for everyone?
Have disadvantaged experiences been
effectively prevented, mitigated or
recovered?
How – delivery dimensions?
Location Based Free Trade Areas
Eg: European Free Trade Assoc
(EFTA); North America Free Trade
Agreement (NAFTA)
Facilitated by
Aims for
Customs Union
Eg: Andean community –
Bolivia, Columbia, Ecuador
& Peru
Facilitated by
Common Markets
Eg: MERCOSUR – Brazil,
Argentina, Paraguay &
Uruguay
Facilitated by
Economic Union
Eg: European Union
Political Union
Eg: European Union
Assignment 1 asks is this framework working?
NAFTA – Strategic Outcomes
US
Canada
Mexico
Help Mexico growth
Getting cheaper goods from Mexico
Tut Question 1 Guide
Higher capacity to compete
with Asian & European rivals
EU – Strategic Outcomes
Single Market
Single Currency
Location efficiency &
specialisation (cheaper
production  goods &
services)
No trade & FX barriers
between countries
(less cross border costs)
Efficiency Advantage
Higher Global Competition Capacity
Tut Question 2 Guide
Australian & ASEAN strategic positioning
ASEAN
Others
Global Competition
ANZCERTA
EU
NAFTA
Question
Only exporting?
Or should be more
FDI to increase
Australia’s global
competitiveness?
Tut Question 3 Guide
NAFTA Case Study
No border inspection for Trucks  save time & $
Who benefits most? Mexican Truckers  Why?
NAFTA Case Study
Economic Justification
1. Time saving
2. Costs saving
Economic & Social Impact
1. Loss of Businesses & Jobs
2. Reduction in income &
wages
3. Safety standards
compromise
4. Homeland security risks
NAFTA Case Study
1994 NAFTA setup
S11 Incident  homeland security priority
US Safety & Environment Standards breaches tariff conditions
Now homeland security Standards can also compromise NAFTA agreement
Has rights to retaliate against NAFTA agreements
Assignment 1
Why is Economic Integration Working or Not Working?
OUTSIDE The EI Consortium Organisation eg EU
Who are the stakeholders?
What are the systematic structures & processes?
What are the business environmental drivers?
Lessons learnt for EU?
EU
 What interacting roles?
 Effectiveness of Roles?
EFTA
Which works
better? Why?
INSIDE The EI Consortium Organisation
Who are the decision makers?
What are the common goals?
What have been achieved so far?
What is the governance framework?
What are its internal strengths & Weaknesses?
NAFTA
ANZCERTA
ASEAN
Additional Search Words
Inter-country collaboration
International collaboration
Success Drivers
Case Studies’ Evidence
Issues
Case Studies’ Evidence
Apply to EU case?