LECTURE I.

Concepts

Economic integration
Microenomic vs. Macroeconomic
Static view vs. Dynamic view
Positive integration (pro active approach,
harmonization of policies etc.) vs. Negative
integration (liberalization, removal of barierrs
etc.). Both targeting freedoms of movements
and harmonization
Deeper integration vs. enlargement

Preferential Trading
Agreement
Two or more countries when they
reduce their respective duties on
imports of all goods (except services
of capital) from each other, retaining
their original tariffs against the outside
world

Free-trade area (FTA)

Two or more countries when they remove
import duties and quantitative restrictions
in their mutual trade in all goods (except
services of capital); maintaining country
based tarrifs against third parties

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Custom union:
Two or more countries remove import
duties on their mutual trade in all goods
and or/services (and, in addition, adopt a
common external against third parties

Common market:
Custom union + freedoms of
movements (goods, services, captials,
workforce/citizens)

Economic union:
Common market +common policies
If common monetary policies and/or
common/single currency added= monetary
union
If both monetary and economic policies
become common = economic and monetary
union
If all policies become common (monetary
policy included) = full economic union
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Purpose and progress of economic

integration
economic integration is mainfold:
refers to the absorption of a company in a
larger concern (e.g. Dacia - Renault)
refers to the integration of regional economies
in a national one (has a spatial aspect)
related to international economic relations, (to
indicate the combination of the economies of
several sovereign states in one entity (EU).

Purpose and progress of economic

integration (II)
Economic integration is not an objective in
itself, but serves higher objectives:
Economic, objective (immediate objective):
to raise the prosperity of all cooperating units.

Peace policy (farther-reaching objective):

to lessen the chance of armed conflicts among
partners.

Purpose and progress of economic

integration (III)

The static sense of economic integration:

a situation in which the national components of a larger economy are no
longer separated by economic frontiers but function together as an
entity.
the static meaning of the expression will apply in full once the integration
process has passed through its stages and reached its object.
elimination of economic frontiers at one moment for all member states

The dynamic sense of economic integration:

indicates the gradual elimination of economic frontiers among member
states (the abolition of national discrimination), with the formerly
separate national economic entities gradually merging into a larger
whole.
the dynamic interpretation is the more usual.
Gradual elimination of economic frontiers, and member states merge
step by step.

Objects of integration

Economic integration = the integration of markets.

Basic principle: Free movement of goods and services
The obvious welfare gains from the liberalisation of product markets are
a good economic reason to start integration with that object.
Free movement of production factors - another basic element of
economic integration (allows optimum allocation of labour and capital).

A second argument is that an enlarged market of production factors

favours new production possibilities which in turn permit new, more
modern or more efficient uses of production factors (new forms of
credit, new occupations, etc.).
Policy approximation: In an economy which leaves production and
distribution entirely to the market, the elimination of obstacles to the
movement of goods and production factors among countries would
suffice to achieve full economic integration.

Positive vs. Negative Integration

(identified by J. Tinbergen, 1954)

Negative Integration:

the elimination of obstacles

measures taken are often of the simple
Thou shalt not' type: they can be
clearly defined, and once negotiated
and laid down in treaties, they are
henceforth binding on governments,
companies and private persons.

There is no need for permanent

decision-making machinery.
Whether these measures are respected
is for the courts to check, to which
individuals may appeal if they consider
their interests damaged.

Positive Integration:

the creation of equal conditions for the

functioning of the integrated parts of
the economy
It may take the form of vaguely defined
obligations requiring public institutions
to take action, leaving room for
interpretation as to scope and timing.
May be reversed if the policy
environment changes; consequence:
uncertainty for private economic
agents (who cannot derive any legal
rights from them)
Is the domain of politics and
bureaucracy rather than law and it
doesnt present a built-in stimulus for
progress.
Politicians are more likely to opt for
positive rather than negative
integration - progress is slower, the
higher the stage of integration is.

Degrees of Policy Integration

IMPORTANT: all member states have to agree
upon the issues and measures taken for policy
integration!
For an efficient policy integration, common
institutions (international organisations) are
created.
For the higher forms of integration (common
market) the transfer of power from national to
union institutions is required.

Degrees of Policy Integration

All forms of integration diminish the
freedom of action of the member states'
policy-makers.
(the higher the form of integration, the greater
the restrictions and loss of national
competences).

Regional integration and policy making

autonomy of the member states
The higher the integration, the greater the
restrictions
Information (national competence unaltered)
Consultation (national competences affected)
Co-ordination (limitation of national
competence)
Unification (national competence abolished)

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Regional economic integration - theories

Realism states folllows own interest and
cooperation if it can give states possibilities to
better pursue interest
Intergovernamentalism states set up limits of
competences for regional institutions; pursuit of
common goals of security and economic
development, formalization in the treaties, principle
of conferral
Supranationalism transfer of decision making to
regional institutions
Functionalist/neofunctionalist view spillover
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effects