IB Global Economic Integration and Institutions PDF

WEEK 8: Global Economic Integration and The Global For example, consider a country that happens to possess Institutions an abundance of oil sands located within its borders. The coun...

WEEK 8: Global Economic Integration and The Global For example, consider a country that happens to possess Institutions an abundance of oil sands located within its borders. The country can extract the oil and trade it for other International Economic Integration refers to the process resources that it lacks, perhaps food such as corn or of reducing trade barriers and capital flow restrictions wheat. between countries, leading to greater cross-border capital mobility, freer movement of goods, and the Any type of arrangement in which countries agree to development of production processes that span national coordinate their trade, fiscal, or monetary policies is boundaries. referred to as economic integration. There are many The literature surveyed so far shows different situations different degrees of integration. in which reducing the exposure of the cultural sector to international competition seems to increase economic Types of Integration: welfare. Preferential Trade Agreement (PTA) Global Economic Integration - is perhaps the weakest form of economic integration. In Economic integration refers to the process of several a PTA, countries would offer tariff reductions, though countries forming a group to improve trade between perhaps not eliminations, to a set of partner countries in them. The group sets standards for trade, which then some product categories reduces or removes trade barriers as they conduct business. It is an agreement that consists of at least two Free Trade Area (FTA) countries focusing on economic policies and regulations - occurs when a group of countries agrees to eliminate set between the countries. It essentially blends the tariffs among themselves but maintain their own external different economies of these countries to create a much tariff on imports from the rest of the world. larger market. Customs Union Today, there is no economy that functions completely isolated from other economies. There is a simple reason - occurs when a group of countries agrees to eliminate for such an occurrence – trade benefits all economies in tariffs among themselves and set a common external most cases. tariff on imports from the rest of the world. Page 1  Common Market  Trade costs are reduced, and goods and services are more widely available, which leads to a more - establishes free trade in goods and services, sets efficient economy. An efficient economy common external tariffs among members, and also distributes capital, goods, and services into the allows for the free mobility of capital and labor across areas that demand them the most. countries. Economic Union Drawbacks of Economic Integration - typically maintain free trade in goods and services, set  Nationalists, or people who believe that their common external tariffs among members, allow the free country is superior to others, are critical of mobility of capital and labor, and also relegate some economic integration. In order to appeal to fiscal spending responsibilities to a supranational nationalists, some countries employ forms of agency. protectionism, which leads to higher tariffs and less free trade between other countries. Monetary Union  The notable feature of economic integration is the - establishes a common currency among a group of loss of individual central banks who control countries. This involves the formation of a central monetary policy. It leads to less national monetary authority that will determine monetary policy sovereignty, and the responsibilities of central for the entire group. banks are delegated to an external body instead. The external control becomes troublesome in Category of Integration Both benefits and drawbacks terms of managing a cohesive fiscal and monetary policy among many different countries. Benefits of Economic Integration  Economic integration is beneficial in many ways, The Global Institutions as it allows countries to specialize and trade without government interference, which can The International Monetary Fund (IMF), the World benefit all economies. It results in a reduction of Bank, and the World Trade Organization (WTO) are costs and ultimately an increase in overall wealth. highlighted in the financial press or on television nearly Page 2 every day. From loans to Greece to trade deals in Asia, growth among other objectives. these organizations make headlines across the globe.  It was created in 1944, while World War II was still Understanding these entities and their missions will raging, as part of the Bretton Woods Agreement. provide greater insight into how these organizations The agreement sought to create a monetary and help to shape the global economy. exchange rate management system that might prevent a repeat of the currency devaluations that WTO contributed to the economic challenges of that  The World Trade Organization (WTO is also a period. global association with 164 member countries. The organization's purpose is to promote fair trade World Bank between nations.  The World Bank is also an international  The World Trade Organization (WTO) claims to be organization and has a goal to reduce poverty “the only global international organization dealing through financial assistance.The group is self- with the rules of trade between nations.” This funded and has its home office in Washington, includes setting up the agreements, interpreting D.C. the agreements, and facilitating dispute settlement.  The World Bank Group, like the IMF, was created at Bretton Woods in 1944. It consists of five  Officially founded in 1995, the WTO traces its underlying institutions, the first two; International roots back to Bretton Woods where the General Bank for Reconstruction and Development (IBRD) Agreement on Trade and Tariffs (GATT) was and International Development Association (IDA) crafted in an effort to encourage and support trade of which are collectively referred to as The World between nations. Bank. IMF  The International Monetary Fund (IMF) is a global organization with 190 member countries currently based in Washington, D.C. The fund's purpose is to promote financial stability and economic Page 3