MGNM578

International Business Environment

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Poll

Q. In addition to protection, tariffs serve to ________.

a) Generate revenue

b) Subsidize exports

c) Subsidize imports

d) Increase consumption

2
Learning
Outcome

• After this Lecture, you will be able to

• outline major types of international economic

integration.
Question Need to be Addressed

How do nations and regions combine forces to give and gain the
assistance they need to prosper together?
Economic Integration

It is a term used to describe the political and monetary agreements among

nations and world regions in which preference is given to member countries.
Forms of Economic Integration

• Global Integration
• Bilateral Integration
• Regional Integration
Global Integration

Countries from all over the world decide to cooperate through

the World Trade Organization.
News Article

Source- https://economictimes.indiatimes.com/small-biz/sme-sector/post-crisis-india-should-increase-
its-integration-with-the-global-economy/articleshow/76477807.cms
Benefits of Global Integration to an Economy Like China

• China, the world’s largest exporter, exported $2.5 trillion of goods and services
in 2019. But, the country also imported $2.1 trillion worth of goods and $500
billion worth of services.
• Integration into global supply chains implies both imports and exports.
The Ways Indian Economy Can be Benefitted from Global Integration

• Globalization is not just trade of goods and services – the second pillar of
globalization is cross border investment.
• India does not have the domestic savings pool to support the massive
investment needed for physical and social (i.e, health and education)
infrastructure.
The Ways Indian Economy Can be Benefitted from Global Integration

• While India needs stable long-term investment, North America and Europe
want decent investment returns to support their aging populations.
• A stable and predictable policy regime will go a long way in facilitating stable
and long-term capital flows into India.
News Article

Source-https://www.financialexpress.com/economy/labor-reform-push-may-remove-key-hurdle-for-
investors-improve-ease-of-doing-business/1775343/
News Article

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• Sparked by economic necessities, India broke its decade-long Free Trade
Agreement (FTA) non-participation by signing a series of FTAs.
• Agreements have been signed with the United Arab Emirates and Australia, and are
being negotiated with Canada and the United Kingdom.
• In addition, India set an ambitious annual goods export target of $400 billion, which
the country reached in March 2022.

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Bilateral Integration

• Two countries decide to cooperate more closely together, usually in the

form of tariff reductions.
• It can be between two individual countries or may involve one country
dealing with a group of other countries.
News Article
News Article
News Article
News Article

https://www.livemint.com/news/india/indiacanada-free-trade-agreement-negotiations-halted-over-
political-concerns-khalistan-issue-remains-unresolved-11694800223521.html
News Article

• https://www.thehindu.com/opinion/editorial/serious-allegations-on-canadian-prime-minister-justin-trudeaus-charges-against-
20
india/article67323180.ece
Regional Integration

• A group of countries located in the same geographic proximity decide to

cooperate.
• Regional integration is confined to a region and involving more than two
countries.
Regional Trade Agreements

• European Union (EU)

• The North American Free Trade Agreement (NAFTA)
• Association of Southeast Asian Nations (ASEAN)
Regional Trade Agreements

• Most trade groups contain countries in the same area of the world.
• Neighbouring nations tend to ally for several reasons:
–The distance that goods need to travel are short
–Consumer’s tastes are likely to be similar, and distribution channels can
easily be established.
Regional Organization Map
Evolution of Regional Trade Agreements
in the World
Types of Regional Trade Agreements

• Free Trade Area = Removal of all barriers from trade among members
• Custom Union = FTA + Common External Trade Policy
• Common Market = CU + Free Flow of Factors of Production
• Economic Union = CM + Common Currency and Financial Policies
• Political Union = EU + Central Political Apparatus
Impact of Free Trade Agreements

Trade Impact Investment Impact

Trade barriers drop Investment shifts

for member from less efficient to
Trade
countries more efficient firms,
Creation
(static effect) possibly leading to
foreign direct
investment (FDI)
Trade barriers
remain higher for FDI increases from
nonmember Trade Diversion firms outside the free
countries trade agreement to
(static effect) avoid barriers

Home-country firms
Market size increases FDI to
increases Trade Creation
achieve economies
(dynamic effect) of scale
THANK YOU

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