1. MGT361 INTRODUCTION TO INTERNATIONAL BUSINESS
CHAPTER 2:
REGIONAL ECONOMIC INTEGRATION
Prepared by: Dr. Nuraini Abdullah

2. Level of economic integration
01
Reason for economic integration
02
Implication of regional economic integration
03
CHAPTER OUTLINE

3. Section Break
Insert the Sub Title of Your Presentation
WHAT IS REGIONAL INTEGRATION?
- is the process by which two or more nation-states agree to
co-operate and work closely together to achieve peace,
stability and wealth.

4. Three common features of Economic Structures:
• POLITICAL SYSTEM
• The political system is the way a country govern their country
• Changes of government mean changing in system practice.
• ECONOMIC SYSTEM
• Refer to system on how monetary and fiscal policies which include currency system,
banking and taxation policies, government spending, trade and investment policies.
• GEOGRAPHY
• Refer to locations, size and distance of the market.

5. Level of Economic Integration (Forms of economic integration)
Free
Trade
Political
Union
Customs
Union
Economic
Union
Main Text
• This is of utmost importance because it
affects exporting and investment
opportunities available to firms from
member and nonmember countries.
• There are five different forms of regional
economic integration: free trade area,
customs union, common market,
economic union, and political union.

6. FREE TRADE
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• Tariffs (i.e tax imposed on imported goods) are assumed
abolished or significantly reduced among members
• However, tariffs on third parties are still maintained by each
individual country
• Aims to develop economies of scale and comparative
advantage for its members
• Most popular form of regional economic integration
• Example; NAFTA between US, Canada & Mexico

7. CUSTOM UNION
• Sets common external tariffs among members
• The same tariffs are also applied to the third parties
• This is to avoid the problems of re-exportation where
members charge lower tariffs to third parties nations
to win trade and re-export the same products within
the union tariff-free
• Example: MERCOSUR between Argentina, Brazil,
Paraguay, Uruguay and Venezuela
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8. COMMON MARKET
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• No restrictions on the movement of factors of production within the
member countries
• No restrictions bon immigration, emigration, getting higher
economies of scale and comparative advantages
• Example: European Union

9. ECONOMIC UNION
• Monetary and fiscal policies are synchronized
• A common currency is used among member countries
• For example: Euro
• There are also exists certain degree of political integration
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10. POLITICAL UNION
• Denotes a common government where central political
machinery integrates the economic, social and foreign
policies of the member countries under one big umbrella
• Most common example is the United States
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11. Features of Economic Integration on 5 levels of economic integration
TYPE (LEVEL) EXAMPLE MEMBERS FEATURES
Free Trade Area North American Free Trade
Agreement (NAFTA)
Closer Economic Relations (CER)
United States
Canada
Mexico
Australia
New Zealand
No internal tariffs
Each country determines its own trade policies toward
nonmembers
Customs Union Andean Pact Bolivia
Colombia
Ecuador
Peru
No internal tariffs
Common external tariff is placed on goods imported from
outside
Common Market European Community (EC) before
January 1994. There has not been
another.
12 European
countries
No internal tariffs
Labor & capital are free to move across border within member
countries
No restrictions on migration
Economic Union European Union (EU) from January
1999
27 European
countries
No internal tariffs.
Adopt common currency, European Monetary Unit (called the
Euro) Harmonization of tax rates.
Common monetary & fiscal policies.
Political Union EU has some elements.
The ultimate aim is a United States of
Europe similar like United States of
America.
27 European
countries
European parliament, directly elected by citizens of EU
countries.
Council of Ministers: government ministers for each EU country.
An administrative bureaucracy.
Court of Justice: the official interpreter of EU law.
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13. Reason for Economic Integration
To reduce & remove
tariff & non tariff barriers
Allows free flow of
goods & services
Allows free flow of
factors of production
Create larger regional
market & investment
Encourage greater
efficiency, productivity, &
competitiveness by
lowering border barriers,
reducing other costs &
risks of trade
As a process to support
economic growth,
greater social equality &
democratization

14. Implication of Regional Economic Integration
• Advantages / Opportunities:
I)Lowering tariffs within the regional trading bloc opens the markets
of member countries to all member country firms.
II)Firms can lower their average production and distribution costs by
capturing economies of scale as they expand their customer base
within the trading bloc.
III)The lower cost structure will also help the firms compete
internationally outside the trading bloc.
IV)The creation of single market offers significant opportunities.
Create bigger market area and this may motivate firm’s desire to
exploits from free trade.

15. Continue…
v) Allow free movements of products across national borders thus harmonized
product.
vi) Standard and simplified tax regimes.
vii) Firms can serve whole market of the country from a single location
viii) Create positive climate for FDI
x) By practicing free trade each members of trading block will stimulate economic
growth.
xi) Through integration nations will increasingly dependent on each other thus will
reduce conflict between nations.

16.  Disadvantages / Threats
I) Elimination of trade barriers may expose a firm’s home market to competition from
firms located in other member countries, thus threatening less efficient firms.
II) A regional trading bloc may attract FDI from nonmember countries as firms outside
the bloc seek the benefits of insider status by establishing manufacturing facilities
within the bloc.
III) Threat to other non member countries in the long run as a result from long term
improvement in the competitive position of member countries.
IV) Provide further threat to non member countries as being “shut up” from entering
into powerful economic integration nation.

17. Among the famous endeavor at regional integrations are:
ASEAN NAFTA MERCOSUR
EU EC EFTA
APEC
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18. Thank You