PRE-VIEWING:
- What are the benefits and opportunities of regional cooperation?
WHILE-VIEWING:
While watching, pay attention to the following words and expressions in context. Use them in your answers to the questions
- environmentally-friendly mode of transport
- strategic location for global trade
- hydropower potential
- supply the entire region with electricity
- tap complementarities
- building cross-border transmission lines
- conflicting demands cause tension, distrust, and little cooperation
- landlocked countries and subregions
- circuitous routes
- border crossing is heavily congested
AFTER-VIEWING:
- What areas in South Asia need cooperation?
- Why does South Asia remain the least economically integrated region?
- What potential does the region possess?
- Why is South Asia considered to be ideal for intra-regional trade?
ADVANTAGES AND IMPLICATIONS OF REGIONAL INTEGRATION
HIGHLIGHTS:
- read the passage
- focus on key terms
- summarise the information
- elaborate on:
- Advantages of Regional Economic Integration
- The scale of the marketplace
- Expansion of market size
- Preferential treatment
- Defensive and Political Posture
- Internationalization inside and outside the bloc
Regional integration is the most popular form of reciprocal trade liberalization. In pursuing regional integration, nations seek at least four advantages:
Expand Market Size
Regional integration greatly increases the scale of the marketplace for firms inside the economic bloc. For example, although Belgium has a population of just 10 million, membership in the EU gives Belgian firms free access to a total market of nearly 500 million EU buyers.
Achieve Scale Economies and Enhanced Productivity
Expansion of market size within an economic bloc gives member-country firms the opportunity to increase the scale of operations in both production and marketing, gaining greater concentration and increased efficiency. Although a German firm may be only moderately efficient when producing 10,000 units of product for Germany, it greatly increases its efficiency by producing 50,000 units for the much larger EU market. Internationalization inside the bloc helps firms learn to compete outside the bloc as well. More efficient resource usage can lead to greater productivity and lower prices for consumers.
Attract Direct Investment from Outside the Bloc
Foreign firms prefer to invest in countries that are part of an economic bloc because factories they build there receive preferential treatment for exports to all member countries within the bloc. Many non-European firms—for example, General Mills, Samsung, and Tata—invested heavily in the EU to take advantage of Europe’s economic integration. By establishing operations in a single EU country, these firms gain free trade access to the entire EU market.
Acquire Stronger Defensive and Political Posture
Regional integration helps strengthen member-countries relative to other nations and world regions. This was one of the motives for creating the European Community (the precursor to the EU), whose members sought to fortify their mutual defense against the former Soviet Union. Today, the EU is one way Europe counterbalances the power and international influence of the United States. Broadly speaking, countries are more powerful when they cooperate than when they operate alone.
In 1990, there were approximately 50 regional economic integration agreements worldwide. Today, some 400 are in various stages of development. Many nations belong to more than one. Regional economic integration is not slowing the progress of global free trade. Rather, global free trade will tend to emerge as economic blocs link with each other over time. The evidence suggests regional economic integration is gradually giving way to a system of free trade worldwide.
Managerial implications of regional integration include:
Internationalization inside the bloc. The elimination of trade and investment barriers presents new opportunities. Regional integration pressures or encourages member-companies to internationalize into neighboring countries within the bloc.
Restructuring operations. In the early stages of regional integration, firms begin to view the bloc as a unified whole. Managers develop strategies suited to the region as a whole rather than to individual countries. For example, a firm might combine multiple plants into a single factory.
Regional products and marketing. As firms increasingly view the bloc as one large market, they tend to standardize their products and marketing. They start selling much the same products, using similar marketing approaches, to all countries inside the bloc.
Internationalization from outside the bloc. Emergence of an economic bloc makes a region more attractive to companies based outside the bloc. Many will use FDI to establish a physical presence inside the bloc to access better all the benefits the bloc can offer.Advantages of Economic Integration
The advantages of economic integration fall into three categories: trade creation, employment opportunities, and consensus and cooperation.
More specifically, economic integration typically leads to a reduction in the cost of trade, improved availability of goods and services and a wider selection of them, and gains in efficiency that lead to greater purchasing power.
Economic integration can reduce the costs of trade, improve the availability of goods and services, and increase consumer purchasing power in member nations.
Employment opportunities tend to improve because trade liberalization leads to market expansion, technology sharing, and cross-border investment.
Political cooperation among countries also can improve because of stronger economic ties, which provide an incentive to resolve conflicts peacefully and lead to greater stability.
KEY TERMS
MATCH THE TERM WITH ITS DEFINITION:
| compete | easily obtainable and ready for use |
| preferential treatment | a growth strategy which involves offering your existing product/service to a new market |
| acquire | become known or apparent |
| counterbalance | come into possession or ownership; obtain |
| emerge | the amount of goods and services that can be purchased with a unit of currency |
| employment | the economic scenario in which enterprises put effort to be leaders in their industry and increase their market share |
| reduction | any concession or privilege granted to the party |
| purchasing power | have an equal but opposite effect on something in a positive way |
| availability | a relationship between two parties regulating the provision of paid labour services |
| market expansion | the act of making something smaller in size, amount, number |
RESTORE THE SENTENCE BY FILLING IN THE KEY TERM:
| 1. Internationalization inside the bloc helps firms learn to ……………….. outside the bloc as well. |
| 2. Foreign firms prefer to invest in countries that are part of an economic bloc because factories they build there receive ……………….. for exports to all member countries within the bloc. |
| 3. ……………….. Stronger Defensive and Political Posture |
| 4. Today, the EU is one way Europe ……………….. the power and international influence of the United States. |
| 5. Global free trade will tend to ……………….. as economic blocs link with each other over time. |
| 6. The advantages of economic integration fall into three categories: trade creation, ……………….. opportunities, and consensus and cooperation. |
| 7. More specifically, economic integration typically leads to a ……………….. in the cost of trade, improved availability of goods and services and a wider selection of them, and gains in efficiency that lead to greater………………... |
| 8. Economic integration can reduce the costs of trade, improve the ……………….. of goods and services, and increase consumer purchasing power in member nations. |
| 9. Employment opportunities tend to improve because trade liberalization leads to ……………….., technology sharing, and cross-border investment. |
COMPLETE THE PASSAGE WITH THE WORDS FROM THE BOX:
| single market complete integration remove trade barriers regional integration border restrictions political integration economic integration common external tariff common currency coordinating bodies |
1) …………….. is the process by which two or more nation-states agree to co-operate and work closely together to achieve peace, stability and wealth.
Usually integration involves one or more written agreements that describe the areas of cooperation in detail, as well as some 2) …………….. representing the countries involved.
This co-operation usually begins with 3) …………….. and as it continues, comes to include political integration. We can describe integration as a scale, with 0 representing no integration at all between two or more countries. Ten would represent 4) …………….. between two or more countries. This means that the integrating states would actually become a new country — in other words, total integration.
We could also say that on the table below, 1-4 represents economic integration while 6-10 represents political integration. The halfway stage, 5, represents the single market, or the completion of economic integration.
| Economic Integration | Political Integration |
| 0 | 5 | 10 |
| No integration | Single Market | Total Integration |
In economic integration different countries agree to 5) …………….. between them. Trade barriers can be tariffs (taxes imposed on imports to a country), quotas (a limit to the amount of a product that can be imported) and 6) …………….. .
The 7) …………….. is the midpoint of the integration scale between political and economic integration. It is the point at which the economies of the cooperating states become so integrated that all barriers to the movements of labour, goods and capital are removed. At this stage the integrating states set a 8) …………….. on goods from other countries – this is called a customs union. A further step in the process of economic integration might be adoption of a 9) …………….. , with monetary policy regulated by a single central bank.
As the economies of the cooperating countries become completely integrated into a single market, there appears a need for common policies in social policy (education, health care, unemployment benefits and pensions) and common political institutions. This is 10) …………….. and its culmination occurs when the co-operating countries are so integrated that they share the same foreign policies and merge their armies. In effect, they form a new country.
MIXED BAG
Based on Europe’s experience, most studies indicate that regional integration coincides 1) to/ with a substantial decrease 2) of/ in income inequality between countries. While 3) economic/ economical factors are important 4) x/, it is political integration that appears 5) to drive/ driving this convergence. It suggests that institutional forces outweigh market forces 6) in bringing/ to bring national economies closer together. Economic arguments show freer trade and factor mobility from integration allow less-developed members to grow faster than 7) more-developed/ more-developing ones. Factor price equalization 8) further/ farther supports the convergence hypothesis. In 9) x/ a two-country resource-rich/resource-poor model, lowering tariffs has a negative effect on real wages in the resource-rich country (most gains accrue 10) for /to resource rent), while the resource-poor country benefits through terms-of-trade (TOT). This also supports the convergence hypothesis.