0% found this document useful (0 votes)
62 views

Lecture 1 - Introduction

The document discusses economic integration and its challenges. It defines economic integration as the elimination of barriers between economies, allowing free movement of goods, services, capital and labor. Integration can be achieved through negative integration, which removes restrictions, and positive integration, which harmonizes policies between countries. While global institutions aim to promote worldwide integration, regional agreements may integrate more deeply due to greater cultural similarities. However, they risk discriminating against non-member states. The challenges of Brexit and US-China trade tensions show that economic disintegration is also a reality that must be understood.

Uploaded by

zxzxczx
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
62 views

Lecture 1 - Introduction

The document discusses economic integration and its challenges. It defines economic integration as the elimination of barriers between economies, allowing free movement of goods, services, capital and labor. Integration can be achieved through negative integration, which removes restrictions, and positive integration, which harmonizes policies between countries. While global institutions aim to promote worldwide integration, regional agreements may integrate more deeply due to greater cultural similarities. However, they risk discriminating against non-member states. The challenges of Brexit and US-China trade tensions show that economic disintegration is also a reality that must be understood.

Uploaded by

zxzxczx
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 20

Economic Integration I

(L11115)

Module Convenor: Dr. Zhihong Yu


Autumn 2019

1
Economic Integration , or Disintegration?
 We are living in a economically integrated world but facing
unprecedented challenges of economic disintegration , e.g.

Brexit , US-China Trade War


 To understand these pressing challenges , we fist need to
develop a deep understanding of what is economic integration ,
how it works and its consequences.
1 What is ‘economic integration’?

 two or more countries are economically integrated if there


are no barriers or restrictions on trade, investment and
migration between them
 hence market prices should be similar and should
converge, with only small differences due to trade costs
 economic integration can also be defined as a process
 ‘the elimination of economic frontiers between two or
more economies’
 negative integration removes barriers e.g. tariffs
 positive integration coordinates/ harmonises government
policies: e.g. banking regulations
3
negative integration
 economic frontiers restrict movement of goods, services,
production factors (capital and labour)
 restrictions on movement of goods: e.g. customs duties
 restrictions on migration: e.g. visa, work permit , etc.
 restrictions on international investments
 controls on financial flows

 economic case for removing barriers/restrictions across


countries is essentially argument for markets:
bigger markets
 increased competition,
 specialisation,
 greater use of economies of scale,
 wider consumer choice 4
positive integration

 ‘international policy harmonisation’


 national economic policies have impacts on other countries
(spillovers) which national governments may ignore
 such non-cooperation is economically inefficient,
 but international cooperation involves some loss of national
sovereignty (argument for Brexit!)
 gains from cooperation likely to be greater as international
economic interdependence increases, e.g. through trade

 should cooperation be regional or global, or both?

5
regional & global integration

 global integration: economic integration across the world


 governments attempt to support this through institutions such
as the World Trade Organisation which in principle are open
to all countries
 global institutions avoid discrimination and have a wider
impact
 but may be slower to act because of the diversity of views

 regional integration (e.g. EU, NAFTA) may be quicker and


deeper because members are more similar
 but may involve damaging discrimination (see Lecture 2)

6
2 Global institutions for economic integration

 World Trade Organisation began as GATT in 1940s


 rules for world trade (enforceable through dispute settlement system)
 periodic negotiations to reduce trade barriers
 Covers 97% of world trade and GDP
 International Monetary Fund (IMF):
 exchange rates/ short term capital flows
 began when exchange rates were fixed (Bretton Woods system)
 World Bank:
 long term capital flows,
 initially for European reconstruction, later for developing economies

 GATT/ WTO (success in reducing trade barriers & establishing a body of


rules with dispute settlement body)
 IMF/ World Bank have been called in to help countries in crisis, but 7
regarded with suspicion by some: ‘tools of western neo-colonialism’
Global economic governance: G20

 19 large economies + EU
 (Norway: ‘arbitrary, self-appointed’)
 80% world production & trade; 2/3rds world population

8
G20

 ‘the premier forum for our international economic cooperation’


 ‘a global economy needs a global governance’ Sept 2009
 the Crisis ‘has transformed global governance – emerging
economies are now equal partners’
 initial focus on coordinating stimulus programmes/ banking
reforms

9
3. Regional integration: Balassa (1961) classification

a) Free trade area (e.g. North American Free Trade Area)


tariffs and quotas abolished on internal area-origin trade
members keep national tariffs on outside trade
b) Customs union
tariffs and quotas abolished on all internal trade
equalisation of tariffs on outside trade
c) Common market
CU + no restrictions on factor movements
d) Economic union (e.g. the European Union)
CM + some harmonisation of national policies
Within the EU, 17 countries share the same currency ,
the euro €
10
Critique of Balassa (1961)

 Balassa classification useful starting point


 But not necessarily progression ad: EU started with
CU not FTA

 also: CU/ FTA/ CM in practice need some policy


harmonisation
 (example of European Free Trade Association formed
1960 by UK + 6)

 thus even looser forms of integration need some


supranational policy-making
 supranational powers imply loss of national sovereignty
11
4. Conclusions

 world economies are increasingly interdependent


 driven by globalisation through global institutions such as
WTO
 also by governments – prepared to give up national
sovereignty for economic and political benefits of closer
integration
 regional integration can take a number of forms
 EU ‘special case’
 future lectures will examine
 economic consequences of different forms of
integration
 EU and other experience of integration
12
Textbooks
 Main Textbooks
 Baldwin & Wyplosz (2012) The Economics of
European Integration (4th ed) HC241.B2
 Senior Nello (2011) The European Union: Economics,
policies and history (3rd ed) HC241.S4
 El-Agraa (2011) The European Union: Economics
and Policies (9th ed) HC241.E8

13
Appendix: European Integration

 historically, Europe was integrated by force: Romans,


Napoleon

 postwar: voluntary: initially to curb conflict between


nation states (WW II)

 1951 European Coal & Steel Community


 six members
 France, Germany, Italy
 Belgium, Luxembourg, Netherlands

 1952-3 proposals for Political Union/ Defence


Community : failed 14
‘ever closer union’?

 Treaty of Rome (in force 1958)’T on Functioning of EU’


 A customs union by 1970
 A common market
 A partial economic union (agriculture, competition etc)
 Single European Act (1987)
 Extended common market (Single European Market)
 Treaty on European Union (Maastricht) (in force1993)
 Monetary and (partial) economic union
 Treaty of Lisbon (in force 2009)institutional reform
 BUT many areas of economic policy remain substantially
under national control

 membership expanded from 6 to 28


15
 population 504 million (US 317, Japan 128)
Appendix:EU decision-making

 by Treaty, member states have given EU powers in


certain areas
 Council of Ministers of the EU is main decision-making
body
 comprises one representative from each country
 major issues (e.g. new members) decided unanimously
 others by qualified majority, based on country size

 European Commission proposes/ administers/ monitors


 one Commissioner per country

16
EU decision-making (2)

 European Parliament: 732 MEPs directly elected


 vote more along party than national lines
 on 80% issues, share control with Council (codecision
procedure)
 on some issues can only issue opinion, or veto

 Court of Justice in Luxembourg settles disputes about


EU law

17
Membership of EU

 28 countries
 big 6 of France, Germany, Italy, Poland, Spain, UK
 + smaller countries Austria, Belgium, Cyprus, Czech
Republic, Denmark, Estonia, Finland, Greece, Hungary,
Ireland, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Portugal, Slovakia, Slovenia & Sweden
 Romania & Bulgaria joined in 2007, Croatia 2013
 UK joined 1973

18
19
G20 agenda: (Pittsburg September 2009)

1. avoid premature withdrawal of stimulus & plan exit strategies


2. agree framework for strong sustainable and balanced growth
3. strengthen financial regulation (via reformed rules on capital
adequacy & remuneration of bank employees)
4. reform global institutional architecture, including a
reallocation of IMF quotas
5. phase out fossil fuel subsidies
6. complete Doha Round trade negotiations in 2010 
7. agreement on climate change in Copenhagen Dec 2009 
provides a framework for collaboration but slow progress

20

You might also like