contemporary

• Market Integration


  Refers to how easily 2 or more markets can trade with each other
• High Integration


  • Low barriers to trade - prices are similar in these markets
• Low Integration


  • High barriers to trade - prices fluctuate between these markets
• Example of market integration


  • China produces toys at a cheaper price than the US. If foreign trade increased between the two countries, toys could be sold to the US more easily, making them more available, thus reducing price.
• As foreign trade increases, the price of toys will continue going down until it matches (or almost matches) China's toy prices (which is the lower limit). Once the prices are similar for both markets, we can consider them integrated.
• Economic sectors


  • Primary sector - extracts raw materials from natural environments
  • Secondary sector - gains the raw materials and transforms them into manufactured goods
  • Tertiary sector - involves services rather than goods. It offers services by doing things rather than making things
• Economic systems vary from one society to another. But in any given economy, production typically splits into three sectors.
• World economies have been brought closer together by globalization. It is reflected in the phrase "When the American economy sneezes, the rest of the world catches a cold."
• The strength of a more powerful economy brings greater effect on other countries. In the same manner, crises on weaker economies have less effect on other countries.
• Although countries are heavily affected by the gains and crises in the world economy, the organizations that they consist also contribute to these events.
• Bretton Woods System


  A system established after WWII to restructure the world economy and ensure global financial stability
• Key elements of the Bretton Woods System


  • Expression of currency in terms of gold or gold value to establish a par value
  • "the official monetary authority in each country would agree to exchange its own currency for those of other countries at the established exchange rates, plus or minus a one-percent margin"
  • Establishment of an overseer for these exchange rates
  • Eliminating restrictions on the currencies of member states in the international trade
  • The US dollars became the global currency
• Global trade and finance was greatly affected by the Bretton Woods system.
• GATT


  A forum for the meeting of representatives from 23 member countries, focused on trade goods through multinational trade agreements conducted in many "rounds" of negotiation
• GATT's most important principle

  • Trade without discrimination - each member nation opened its markets equally to every other, and tariff cuts were automatically extended to every other GATT member
• Other general rules of GATT

  • Protection through tariffs rather than through import quotas or other quantitative trade restrictions
  • Uniform customs regulations
  • Obligation of each contracting nation to negotiate for tariff cuts upon the request of another
  • Escape clause allowed contracting countries to alter agreements if their domestic producers suffered excessive losses as a result of trade concessions
• WTO


  An independent multilateral organization that became responsible for trade in services, non-tariff-related barriers to trade, and other broader areas of trade liberalization
• The general idea where the WTO is based was that of neoliberalism - by reducing or eliminating barriers, all nations will benefit.
• There are significant criticisms to WTO, one being that trade barriers created by developed countries cannot be countered enough by WTO, especially in agriculture.
• Preferential Trade Area (PTA)


  A trading bloc that gives preferential access to certain products from the participating countries by reducing tariffs but not abolishing them completely
• Free Trade Area (FTA)

  A region encompassing a trade bloc whose member countries have signed a free trade agreement to reduce trade barriers, import quotas and tariffs, and increase trade of goods and services
• Customs Union


  A type of trade bloc which is composed of a free trade area with a common external tariff, and common competition policy
• Single Market


  A type of trade bloc in which most trade barriers have been removed for goods, with some common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise and services
• A single market allows for people, goods, services and capital to move around a union as freely as they do within a single country, instead of being obstructed by national borders and barriers.
• Several barriers remain in a single market such as differences in national tax systems, differences in parts of the services sector and different requirements for e-commerce.
• Common Market


  The first stage towards the creation of a single market, built upon a free trade area with no tariffs for goods and relatively free movement of capital and services, but large amounts of trade barriers remain
• Unified Market

  The last stage and ultimate goal of a single market, requiring the total free movement of goods, services, capital and people without regard to national boundaries
• Common Market


  The objective is most often economic convergence and the creation of an integrated single market. It is sometimes considered as the first stage of a single market.
• Unified Market


  The last stage and ultimate goal of a single market. It requires the total free movement of goods, services (including financial services), capital and people without regard to national boundaries.
• Unified Market


  A completed, unified market usually refers to the complete removal of barriers and integration of the remaining national markets.
• Complete economic integration


  Can be seen within many countries, whether in a single unitary state with a single set of economic rules, or among the members of a strong national federation.
• United States


  • The sovereign states do to some degree have different local economic regulations (e.g. licensing requirements for professionals, rules and pricing for utilities and insurance, consumer safety laws, environmental laws, minimum wage) and taxes, but are subordinate to the federal government on any matter of interstate commerce the national government chooses to assert itself. Movement of people and goods among the states is unrestricted and without tariffs.
• Economic Union


  A type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy. When an economic union involves unifying currency it becomes an economic and monetary union.
• Purposes for establishing an economic union

  Increasing economic efficiency and establishing closer political and cultural ties between the member countries.
• Economic Monetary Union (EMU)


  A type of trade bloc composed of an economic union (common market and customs union) and a monetary union. An EMU is established through a currency-related trade pact and is the sixth stage of economic integration. An EMU is distinguished from a monetary union (e.g. the Latin Monetary Union in the 19th century), as it does not involve a common market.
• Fiscal union


  An intermediate step between a pure EMU and complete economic integration.
• Autonomous and dependent territories


  Sometimes treated as separate customs territories from their mainland state; or have varying arrangements of formal or de facto customs union, common market and currency union (or combinations of) with the mainland and in regards to third world countries through the trade pacts signed by the mainland state.
• Complete Economic Integration


  The final stage of economic integration. After complete economic integration, the integrated units have no or negligible control of economic policy, including full monetary union and complete or near-complete fiscal policy harmonisation. Complete economic integration is most common within countries, rather than within supranational institutions.
• United States of America

  The original thirteen colonies can be viewed as a series of highly integrated quasi-autonomous nation states. In this example it is true that complete economic integration results in a federalist system of governance as it requires political union to function as, in effect, a single economy.
• IMF and the World Bank

  Founded after the World War II mainly because of peace advocacy after the war. These institutions aimed to help the economic stability of the world. Both are basically banks, but instead of being started by individuals like regular banks, they were started by countries. Most of the world's countries were members of the two institutions. But, of course, the richest countries were those who handled most of the financing and ultimately, those who had the greatest influence.