Regional Economic Integration And The European Union

993 words - 4 pages

This paper will evaluate regional economic integration and its role in promoting global business and will discuss the advantages and disadvantages of it. The European Union (EU) will be looked at and discussed and the different countries involved in that union will be evaluated as well as their stage of economic development.The world is changing rapidly. One hundred years ago the world was very much separated by borders. With the advent of technology, the situation has changed drastically. Communications and transportation technology has created a regional and global marketplace in which to conduct business. One notable trend has been the regional economic integration. "Regional Economic Integration refers to agreements among countries in an economic region to reduce, and ultimately remove, tariff and non tariff barriers to the free flow of goods, services, and factors of production between each other." (Hill, 2005, 268) The common theory of comparative advantage supports the current trend towards regional economic integration. This allows countries to produce what they are best at and trade for other goods and services. Regional trade agreements also allow countries to increase production when there are fewer trade restrictions. Freeing up those trade restrictions benefits countries also because each country is different in their production capabilities. "They vary from one another because of differences in natural resources, levels of education of their workforces, relative amounts and qualities of physical capital, technical knowledge, and so on."(Congressional Budget Office [CBO], 2003)Regional Economic Integration no doubt has its staunch supporters and critics. One of the obvious advantages of regional economic integration greater world production by freeing up the trade barriers that was there previously. Another benefit of these agreements is increased balance of exports and imports. According to the CBO, another pro would be an "irrelevance in the balance of trade." Their current research concludes that an imbalance in trade has a minimal effect economically. There are other pros in regional economic integration besides economically. Some argues that these agreements also can serve to help stabilize regions that were previously in turmoil. According to the C.W. Hill, ''linking neighbor countries and making them increasingly dependent creates incentives for political cooperation." (Hill, 2005, 271)On the opposite side there are many argue against regional economic integration. Some argue that integrating can make a country lose its identity and autonomy. Another worry with integration is that it does not actually increase production and that it only creates what is know as trade diversion. Trade diversion occurs when a country simply starts trading with a new partner who offers the product or service for a cheaper price or in some cases shift from a higher cost producer internal to that country to a lower cost producer in another country....

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