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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: [email protected]
Phone number: 0202/439-3176
Room: M.12.12
Office Hours: Mo, 12:00 -13:00
2
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
3
Illustration
4
Border – Economic Perspective
• Documents
• Tariffs
• Non-Tariffs (NTB)
• etc
5
Documents
6
Source: World Development Indicators (WDI)
Tariff rate, applied, simple mean,
manufactured products (%)
7
Source: World Development Indicators (WDI)
The List of NTBs implemented
by ASEAN Member States
Irawan / Yushkova 2013
8
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
9
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
12
Types of Economic Integration
13
Source: Mikic (2007)
PTAs in the real world
Irawan / Yushkova 2013
14
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.
15
Advantages and Disadvantages of
Economic Integration
16
Country A
HP: $8
Import tariff:
$5/unit
Country B
HP: $6
Country C
HP: $4
Advantages and Disadvantages of
Economic Integration
17
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
18
Country A
HP: $8
Import tariff:
$3/unit
Country B
HP: $6
Country C
HP: $4
Advantages and Disadvantages of
Economic Integration
19
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
20
Evolution of Regional Trade Agreements
in the World, 1948-2013
21
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
22
Source: Mikic (2007)
Evolution of Preferential Trade Agreements
in Asia-Pacific
23
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
24
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
25
THANK YOU …………….
Irawan / Yushkova 2013
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