Economic Integration and Dynamics in Eastern Europe and Asia

Prof. Dr. Paul. J.J. WelfensProf. Dr. Andre JungmittagVladimir UdalowTony IrawanDr. Ralf Wiegert

Lehrstuhl für Makroökonomische Theorie und Politik

Bergische Universität WuppertalWinter Term 2013/2014

Economic Integration and Dynamics in

Eastern Europe and Asia

Organization

- Contact:

Name: Vladimir Udalov

Mail: udalov@wiwi.uni-wuppertal.de

Phone number: 0202/439-3176

Room: M.12.12

Office Hours: Mo, 12:00 -13:00

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Content of the Course

1. Economic Integration and Dynamics in Eastern Europe and Asia

- Tony Irawan / Vladimir Udalow / Dr. Ralf Wiegert –

Date: TBA

2. Simulation Models for Policy Analysis

- Prof. Paul.J.J.Welfens / Prof. Dr. Andre Jungmittag-

Date: 29.11.2013 (09.00 – 15.00)

4. Monetary Integration

- Prof. Paul.J.J.Welfens –

Date: TBA

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Illustration

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Border – Economic Perspective

• Documents

• Tariffs

• Non-Tariffs (NTB)

• etc

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Documents

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Source: World Development Indicators (WDI)

Tariff rate, applied, simple mean,

manufactured products (%)

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Source: World Development Indicators (WDI)

The List of NTBs implemented

by ASEAN Member States

Irawan / Yushkova 2013

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Source: Ando and Obashi (2009)

What is Economic Integration

• Balassa (1961) :"the abolition of discrimination within an area".

• Kahnert, et.al (1969) : "the process of removing progressively

those discriminations which occur at national borders".

• Pinder (1969) : “removal of discrimination between economic

agents of the member countries”

• Pelkmans (1984): “elimination of economic frontiers between two

or more economies”

Some economists argue that:

Integration ≠ cooperation

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Types of Economic Integration

• Based on Balassa (1961) – “The Theory of Economic Integration”-

1. Free Trade Agreement (FTA)

2. Customs Union

3. Common Market

4. Economic Union

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Types of Economic Integration

1. Free Trade Agreement (FTA)

Member countries do not impose any trade barriers (zero tariffs)

on goods produced within the union. However, each country keeps

its own tariff barriers to trade with non-members.

example: NAFTA (USA, Canada, Mexico); ASEAN; etc

2. Customs Union

A FTA in which member countries apply a common external tariff

on a good imported from outside countries. This common external

tariff can, of course, differ across goods but not across union

partners.

example: European Community

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Types of Economic Integration

3. Common Market

A Custom Union which further allows free movement of labor and

capital among member nations.

example: European Union

4. Economic Union

The monetary and fiscal policies of member states are

harmonized and sometimes even completely unified. The extreme

case Monetary Union.

example: European Union

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Types of Economic Integration

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Source: Mikic (2007)

PTAs in the real world

Irawan / Yushkova 2013

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Source: Bonapace and Mikic (2006)

Advantages and Disadvantages of

Economic Integration

Trade Creation Versus Trade Diversion in the case of Custom

Union (Viner, 1950)

- Trade creation:

Occurs when high cost domestic production is replaced by low

cost imports from other members.

- Trade diversion:

Occurs when low cost imports from non-members are diverted to

high cost imports from favoured trading partners.

Rather than gaining tariff revenue on inexpensive imports from

world markets, a country is importing more expensive products

from a favoured trading partner but not gain any tariff revenue.

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Advantages and Disadvantages of

Economic Integration

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Country A

HP: $8

Import tariff:

$5/unit

Country B

HP: $6

Country C

HP: $4

Advantages and Disadvantages of

Economic Integration

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If Country A enters a custom union with Country B

Import Tariff:$5 /unitCountry A

HP: $8

Country B

HP: $6

Country C

HP: $4

Advantages and Disadvantages of

Economic Integration

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Country A

HP: $8

Import tariff:

$3/unit

Country B

HP: $6

Country C

HP: $4

Advantages and Disadvantages of

Economic Integration

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If Country A enters a custom union with Country B

Import Tariff:$3 /unitCountry A

HP: $8

Country B

HP: $6

Country C

HP: $4

Why some countries are really “careful”

to enter a particular FTA

• By using the idea of comparative advantage:

why should we produce a particular product if we are less efficient

than another country import JOIN FTA

• Consider 2 points:

- vulnerability to external shock

- existing producers production networks unemployment

poverty

• Sensitive list and General Exception list

example: AFTA Sensitive list: rice, sugar, wheat, garlic

General Exception: weapons and ammunition

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Evolution of Regional Trade Agreements

in the World, 1948-2013

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Source: WTO Secretariat (2013)

Evolution of Preferential Trade Agreements

in Asia-Pacific

• By using Asia-Pacific Trade and Investment Agreements

Database (APTIAD), Mikic (2007) found several interesting

findings:

- APTIAD was tracking 125 preferential trade agreements one

party of which was a member of ESCAP.

- 87 out of 125 agreements of various types are in force:

# 62 bilateral agreements

# 11 regional trade agreements (RTAs)

# 11 agreements between country and bloc

# the residual is made up of agreements of different scope, e.g.

global, and country-plurilateral, etc

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Source: Mikic (2007)

Evolution of Preferential Trade Agreements

in Asia-Pacific

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Source: Mikic (2007)

“Spaghetti bowl”

- ASEAN Free Trade Area

- Asia-Pacific Trade

Agreement

- European Free Trade

Association Melanesian

Spearhead Group

- Pacific Island Countries

Trade Agreement

- Commonwealth of

Independent States FTA

- South Pacific Regional

Trade and Economic

Cooperation

- South Asian FTA

- Bay of Bengal Initiative

for Multi-sectoral

Technical and Ec. Coop.

- South African Cust. Uni

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Source: Mikic (2007)

The next Possible Deals

• Transatlantic Trade and Investment Partnership (TTIP)

A trade agreement that is presently being negotiated between the

European Union and the United States. Both regions together

make up approximately 50% of global output, 37 percent of world

merchandise trade and 45 per cent of world trade in services

(2002).

• Trans-Pacific Partnership (TPP)

A free trade agreement currently being negotiated by nine

countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico,

New Zealand, Peru, Singapore, Japan, the United States, and

Vietnam, which together make up roughly 40 percent of global

gross domestic product and about a third of world trade.

Irawan / Yushkova 2013

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THANK YOU …………….

Irawan / Yushkova 2013

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