BUS 460
ECONOMIC INTEGRATION
Introduction:
 Economic integration around the world has been one
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of the most significant trends since world war two.
The creation of regional groups is intended to provide
both economic stability and growth, as well as
Increasing the level of political cooperation amongst
the member nations.
The creation of common markets and the promotion
of free trade and investment flows. Requires
A willingness on the part of member nations to
subordinate national interests to those of the group.
The Pros and Cons of Integration:
First: The Pros (Advantages):
 (I).The pros (Advantages):
 1- Offers the opportunity for increased wealth. There is
evidence to suggest that the GNP of countries that are
members of major economic groups will rise faster
than that of non members.
 2- A greater level of political cooperation between
member countries and a sense that it is easier to reach
a consensus view with a small group.
The Pros and Cons of Integration:
Second: The cons (Disadvantages):
 (II).The cons (disadvantages):
 1- Can lead to a diversion of trade which favors
member countries at the expense of non-members.
 2- Possible employment consequences of greater levels
of integration. Within the EU, there are no restrictions
on the movement of labor between countries.
 Might lead to ‘brain drain’ )‫(هجرة االدمغة‬
 3- Possible impact upon national sovereignty –
subordination of national interests to those of the
group.
Levels of Economic Integration:
 Levels of integration (in ascending order):
 )‫(من األضعف الى األقوى‬
 I. Free trade area.
 II. Customs union.
 III. Common market.
 IV. Economic union.
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EXPLAINED IN DETAIL ON THE NEXT SLIDES
Levels of Economic Integration
 1- Free trade area:
 A region within which all trade restrictions between
member states are removed.
 2- Customs union:
 Members agree a common policy for the regulation of
trade with non-member countries.
Levels of Economic Integration
 3- Common market:
 The elimination of regulatory barriers extends beyond
the trade in gods and services into the establishment
of free movement of capital and labor across member
states.
 4- Economic union:
 Takes economic integration to its final conclusion via
the harmonization of national economic policies, Codetermined via a joint legislators.
The Economic Significance of The
Major Trading Blocs
 Europe:
 EU is the most integrated of all the economic blocs.
 Estimates have been made of the benefits likely to
have accrued from the single market.
 The single market creates more competitive economic
environment within Europe.
 Resulting is more efficient working practices and a
superior identification and satisfaction of consumer
wants.
The Economic Significance of The
Major Trading Blocs
 North America:
 NAFTA, mentioned earlier, is clearly dominated by the
huge US economy, with the USA being the most
important trading partner for both Mexico and
Canada.
 Mexico is by far the poorest economy in the trading
bloc and, as already indicated ..
 The NAFTA agreement has given rise to complaints by
US labor unions of job losses.
 Caused by companies investing in Mexico.
The Economic Significance of The
Major Trading Blocs
 North America:
 The aims of NAFTA are much ambitious than those of
the EU.
 The objective is the gradual elimination of restrictions
on trade and investment flows by 2010.
 The expansion of free trade area is now up for
discussion.
The Economic Significance of The
Major Trading Blocs
 Asia-Pacific:
 The Asia Pacific region is less structured economic
blocs than those of Europe and North America.
 The group’s declared objectives are to counterbalance
the power of NAFTA and the EU.
 And, encourage the liberalization of trade amongst
group members. The target of NAFTA is 2020.
 The major problem of APEC is the diversity of its
membership. The geographic spread of membership is
also very wide.
How Economic Integration Affects
World trade
 The importance of Intra-Regional Trade Flows (1999) Table
302 (p.60):
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Bloc
% total imports
which are intra-regional
North America
27.1
W. Europe
67.6
Asia
56.7
% total exports
which are intra-regional
39.6
69.1
46.6
 The statistics show that despite their size and diversity, the large
trading blocs still engage in trade with the rest of the world.
 Both Asia and the EU find that over half of local requirements
can be met from regional imports, but for NAFTA , the level of
regional self-sufficiency is much lower.
How Economic Integration Affects
World trade
 Intra-Regional Exports as % of Total Exports
(excluding services) Table 3.3 (p.61)
 Bloc
1990
1999
42.6
65.1
8.9
20.1
54.1
63.4
20.3
22.1
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 NAFTA
 EU
 Mercosur
 ASEAN
Average growth Rate (%)
of intra-regional exports
10
4
4
12
The Future: Regional Versus Global
Free Trade
 One problem of regional integration is that it raises the
prospect of conflict between the national sovereignty of
the member states and the needs of the group.
 At the same time, the individual states benefit from the
added bargaining power that goes with being part of a
large and influential trading bloc.
 It would seem that there are strong links between
international trade and regionalization, and as suggested
earlier,
 These links help influence corporate planning at a global
level.
Regional Integration And Its Effects
on Multinational Companies
 The potential roles for foreign subsidies:
 1- The supply of goods / services purely to local markets in
the host country.
 2- Using the law of comparative advantage, companies will
site subsidiaries in locations which can then export output
at relatively low cost.
 3- Well-established subsidiaries, with high levels of
expertise that can develop,
 Produce and market new products that will significantly
affect the multinational business.
‫مت حبمد هللا‬
‫‪THE END‬‬
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