Chapter 5 Presentation

UNIVERSITY OF SOUTHERN MINDANAO
Regional Economic Integration

Prepared by: R. Panaguiton
Business Administration Department
College of Business, Development Economics, and Management
Chapter Objectives
1. Describe the different levels of regional economic integration.

2. Understand the economic and political arguments for regional
economic integration.
3. Understand the economic and political arguments against
regional economic integration.
4. Explain the history, current scope, and future prospects of the
world's most important regional economic agreements.
5. Understand the implications for business that are inherent in
regional economic integration agreements.
What Is Regional
Economic Integration?
• Regional economic integration - agreements between
countries in a geographic region to reduce tariff and non-
tariff barriers to the free flow of goods, services, and
factors of production between each other
• Question: Do regional trade agreements promote free
trade?
• In theory, yes, but the world may be moving toward a
situation in which a number of regional trade blocks
compete against each other
What Are The Levels Of
Regional Economic Integration?
1. A free trade area eliminates all barriers to the trade of
goods and services among members
2. A customs union eliminates trade barriers between
members and adopts a common external trade policy
3. A common market has no trade barriers between
members, a common external trade policy, and the free
movement of the factors of production
4. An economic union has the free flow of products and
factors of production between members, a common
external trade policy, a common currency, a
harmonized tax rate, and a common monetary and
fiscal policy
5. A political union involves a central political apparatus
that coordinates the economic, social, and foreign
policy of member states
Levels of Economic Integration
Why Should Countries
Integrate Their Economies?
• All countries gain from free trade and investment -
regional economic integration is an attempt to exploit the
gains from free trade and investment
• Linking countries together, making them more dependent
on each other
• creates incentives for political cooperation and reduces
the likelihood of violent conflict
• gives countries greater political clout when dealing with
other nations
What Limits Efforts
At Integration?
• Economic integration can be difficult because
• while a nation as a whole may benefit from a regional free
trade agreement, certain groups may lose
• it implies a loss of national sovereignty
• Regional economic integration is only beneficial if the amount of
trade it creates exceeds the amount it diverts
• trade creation occurs when low cost producers within the free
trade area replace high cost domestic producers
• trade diversion occurs when higher cost suppliers within the
free trade area replace lower cost external suppliers
What Is The Status Of Regional Economic
Integration In Europe?
• Europe has two trade blocs
1. The European Union (EU) with 27 members
2. The European Free Trade Area (EFTA) with 4 members
• The EU is seen as the world’s next economic and
political superpower
What Is The Status Of Regional Economic
Integration In Europe?
Member States of The European Union in 2011
What Is The European Union?
• The devastation of two world wars on Western Europe
prompted the formation of the European Union (EU)
• members wanted lasting peace and to hold their own on the
world’s political and economic stage
• The Single European Act (1987) committed the countries to
work toward establishment of a single market by December 31,
1992
• The main institutions in the EU include:
1.The European Council
2.The European Commission
3.The European Parliament
4.The Court of Justice
What Is The European Union?
• The Maastricht Treaty committed the EU to adopt a single

currency
• created the second largest currency zone in the world
after that of the U.S. dollar
• used by 17 of the 27 member states
• Many countries have applied for EU membership
• Turkey has been denied full membership because of
concerns over human rights
What Is The Status Of Economic Integration
In The Americas?
• There is a move toward greater regional economic integration in the
Americas
• The most significant attempt is the North American Free Trade Area
(NAFTA) between the United States, Canada, and Mexico
• Other significant agreements include the
• Andean Community
• MERCOSUR
• a Free Trade of the Americas is under discussion
• Two smaller trade pacts in the Americas are
• the Central American Trade Agreement
• CARICOM
What Is The Status Of Economic Integration
In The Americas?
Economic Integration in the Americas
What Is The Status Of
Economic Integration In Asia?
• Various efforts at integration have been attempted in
Asia, but most exist in name only
• Association of Southeast Asian Nations (ASEAN)
• Asia-Pacific Economic Cooperation (APEC)
What Is The Status Of
Economic Integration In Africa?
• Many countries are members of more than one of the
nine blocs in the region
• But, since many countries support the use of trade
barriers to protect their economies from foreign
competition, meaningful progress is slow
• East African Community (EAC)
What Does Economic
Integration Mean For Managers?
• Regional economic integration
• opens new markets
• allows firms to realize cost economies by centralizing
production in those locations where the mix of factor costs and
skills is optimal
• But
• within each grouping, the business environment becomes
competitive
• there is a risk of being shut out of the single market by the
creation of a “trade fortress”
References
[1] Geringer, M., McNett, J., Minor, M., & Ball, D. (2015). International Business - Standalone book (1st ed.).
McGraw-Hill Education.
[2] Griffin, R., & Pustay, M. (2014). International Business: A Managerial Perspective (8th ed.). Pearson.
[3] Hill, C. (2014). International Business: Competing in the Global Marketplace (9th ed.). McGraw-Hill
Education.
[4] Hill, C., & Hult, T. G. M. (2018). International Business: Competing in the Global Marketplace (12th ed.).
McGraw-Hill Education.
[5] Hill, J. (2008). International Business: Managing Globalization. SAGE Publications, Inc.

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UNIVERSITY OF SOUTHERN MINDANAO

Regional Economic Integration

1. Describe the different levels of regional economic integration.

• The Maastricht Treaty committed the EU to adopt a single

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