Fins2622 Notes

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REGIONAL ECONOMIC INTEGRATION The Political Economy of Free Trade  Free Trade: David Ricardo (support free trade) o Theory of comparative advantage: For two nations without input factor mobility, specialisation and trade could result in increased total output and lower costs than if each nation tried to produce in isolation.  Both nations can benefit from trade if each specialises in good that they have the lowest opportunity cost, even if one economy is more efficient in making everything.  However, Comparative advantage in not static, and changes over time in reality.  Also, comparative advantage assumes that factors of production can’t move between countries  therefore comparative advantage is set to be outdated…show more content…
 Economic interdependence means lesser escalation of political conflicts. Impediments to Integration  Inefficient industries lose out (e..g US steels, and textiles) however, if a country protects these inefficient industries, this in turn will make other industries become less internationally competitive, due to the high cost of imports.  Governments are forced to compromise some degree of national sovereignty.  National interests may not equal regional instruments  Political/industrial interest groups (need to be overcome).  Third largest population of 500 million (after China and India), 340 million high income consumers.  World largest economy in terms of GDP  Reasons for formation of this union: o Avoid future political conflict o Gain size, scope and efficiency advantages that allow European nation state to compete with the US and Japan.  Some argue that the current degree of integration is an economic union with an evolving common political structure (but this is not entirely true given that all countries do not share a common fiscal policy). EU Objectives  Provide for free internal flow of production factors: o Labour o Capital o Products  Provide protection for European industry and workers (free trade within and protection outside countries) o Tariffs and quotas applied to most basic commodities and services  Steel, Coal, Textiles, Agricultural Products  Banking,
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