Week 4 Seminar on Economic Integration

Contemporary issues in Global Economics

Readings
Dominick Salvatore, International Economics, 11th ed. Chapter 10.
Michael Todaro, Economic Development, 12th ed. Chapter 9.
Beth V. Yarbrough and Robert M. Yarbrough, The World Economy,
6th ed. Chapter 9.

Seminar questions
1. Please define following terminologies:
Economic frontier demarcation over the mobility of goods and
services , the factors of production (capital and labour) and
communication flows.
Preferential trading agreements provide lower barriers on trade
amongst participating nations than on trade with nonmembers.
Free trade area all barriers removed on trade amongst members
each member retains national tariffs and quotas with respect to non-
members.
Customs union FTA + common trade policy with respect to non-
members
Common market CU+ free movement of labor and capital across
member countries
Economic union CM + some harmonization of national economic
policies across members
Total economic integration unification of fiscal, monetary and
social policies setting up a supranational authority where decisions
are binding for member states

2. Explain trade creating customs union with graph.

 2

3. Explain trade diverting customs union.

4. Ask students to work in groups and answer the following questions:

What is the motivation behind for countries to integrate? What is the
role economic integration in economic growth?

5. Ask students to think about possible hindrances towards economic

integration? Why some countries hesitate to deepen integration?

6. How can economic integration create more trade?

7. What are the benefits from economic integration?

8. Provide students with table about NAFTAs impact on Mexico.

What are the possible reasons that expectations were not met?
Averages 1995-2005 Estimates with Without Difference Actual
NAFTA NAFTA results

Growth of real 5.2 3.8 1.4 2.8

GDP %
Inflation rate % 9.7 14.5 -4.8 13.9

Inflow FDI $bn 9.2 6.0 3.2 16.9

Growth exports % 10.4 8.3 2.1 9.2

Net fin. Capital 14.7 10.6 4.1 16.8

inflow $bn
Trade deficit ($bn) 14.9 9.7 5.2 7.7