Ec4333 Lecture3 2007 Slide Share
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The document summarizes key points from a lecture on EU economic integration: 1. There have been three major increases in EU economic integration - the formation of the customs union from 1958-1986, the single market program from 1986-1992, and the European Economic and Monetary Union from 1992 to present. 2. Economic integration reduces trade barriers and transaction costs for firms while increasing macroeconomic costs from loss of policy autonomy. 3. Trade creation occurs when trade increases with more efficient partners, while trade diversion occurs when less efficient partners are chosen due to trade barriers being removed between members.
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Ec4333 Lecture3 2007 Slide Share
- 1. EC433 Lecture 2 Stephen Kinsella History Budget CU Theory
- 2. Last Week EU is an economic solution to a political Problem
- 3. Today’s Main Message “History affects current spending priorities and affects the path of economic integration”
- 4. 3 big increases in EU economic integration 4
- 5. 3 big increases in EU economic integration 4
- 6. 3 big increases in EU economic integration 1. Formation of the Customs Union, 1958- 1986 4
- 7. 3 big increases in EU economic integration 1. Formation of the Customs Union, 1958- 1986 2. Single Market program, 1986-1992 4
- 8. 3 big increases in EU economic integration 1. Formation of the Customs Union, 1958- 1986 2. Single Market program, 1986-1992 3. European Economic and Monetary Union, 1992- present 4
- 9. Stage of No Common Factor Common Common Integratio Internal External +Asset Currency Ec. Policy n Barriers Tarrif Mobility FTA X CU X X Single Mkt X X X Monetary X X X X Union Economic X X X X X Union
- 12. Budget Priorities Research Admin Other Aid Regional CAP
- 13. 1.27% of GDP
- 14. Transaction Cost Ecs For the Firm Costs of compliance with contracts, social conventions, supply-chain problems.
- 15. Phases of Ec. Integration EMU Integration Common Mkt Economic Union Customs Union Free Trade Area
- 16. Phases of Ec. Integration EMU Integration Common Mkt Economic Union Customs Union Free Trade Area
- 17. Source: McDonald & Dearden, pg. 44
- 18. Costs from Fragmented Markets Legal, Regulatory Macro Costs Costs Source: McDonald & Dearden, pg. 44
- 19. Costs from Fragmented Markets Legal, Regulatory Macro Costs Costs Source: McDonald & Dearden, pg. 44
- 20. Why is Trade good?
- 22. What is FreeTrade? Absence of tariffs, quotas, or other governmental impediments to international trade
- 23. What is FreeTrade? Absence of tariffs, quotas, or other governmental impediments to international trade SO?
- 24. What is FreeTrade? Absence of tariffs, quotas, or other governmental impediments to international trade allows each country to SO? that it can produce specialize in the goods cheaply and efficiently relative to other countries.
- 25. Trade Creation
- 26. But first...
- 30. Price, €
- 31. Price, € Quantity, (Items)
- 32. Price, € Quantity, (Items)
- 33. Price, € Demand Schedule Quantity, (Items)
- 34. Price, € Demand Schedule Quantity, (Items)
- 35. Price, € Supply Schedule Demand Schedule Quantity, (Items)
- 36. Price, € Supply Schedule Demand Schedule Quantity, (Items)
- 37. Price, € Supply Schedule Demand Schedule Quantity, (Items)
- 38. Price, € Supply Schedule Eq. Price, P* Demand Schedule Quantity, (Items)
- 39. Price, € Supply Schedule Eq. Price, P* Demand Schedule Quantity, Eq. Quantity, Q* (Items)
- 40. Price, € Supply CS Schedule Eq. Price, P* Demand Schedule Quantity, Eq. Quantity, Q* (Items)
- 41. Trade Creation is “The increase in trade volume caused by union with a lower cost (more efficient) supplier within the trade bloc” ––Viner, 1950
- 42. Trade Creation (High Cost to Low Cost) B D
- 43. Trade Creation (High Cost to Low Cost) B D
- 44. Trade Creation (High Cost to Low Cost) B D
- 45. Trade Creation (High Cost to Low Cost) B D
- 46. Trade Creation (High Cost to Low Cost) B D
- 47. Trade Creation (High Cost to Low Cost) Supply Home B D
- 48. Trade Creation (High Cost to Low Cost) Supply Home Demand Home B D
- 49. Trade Creation (High Cost to Low Cost) P Supply Home Demand Home B D
- 50. Trade Creation (High Cost to Low Cost) P Supply Home Demand Home Q B D
- 51. Trade Creation (High Cost to Low Cost) P Supply Home Demand Home Q B D
- 52. Trade Creation (High Cost to Low Cost) P Supply Home Demand Home Q B D
- 53. Trade Creation (High Cost to Low Cost) P Supply Home P* Demand Home Q B D
- 54. Trade Creation (High Cost to Low Cost) P Supply Home P* Demand Home Q B C* D
- 55. Trade Creation (High Cost to Low Cost) P Supply Home P* Demand Home Q B C* D
- 56. Trade Creation (High Cost to Low Cost) P Supply Home P* Demand Home Q B C* D
- 57. Trade Creation (High Cost to Low Cost) P Supply Home P* Pworld pre tax Demand Home Q B C* D
- 58. Trade Creation (High Cost to Low Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 59. Trade Creation (High Cost to Low Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 60. Trade Creation (High Cost to Low Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 61. Trade Creation (High Cost to Low Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 62. Trade Creation (High Cost to Low Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 63. Trade Creation (High Cost to Low Cost) P Supply Home Punion post tax P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 64. Trade Creation (High Cost to Low Cost) P Supply Home Punion post tax Pworld post tax P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 65. Trade Creation (High Cost to Low Cost) P Supply Home Punion post tax Pworld post tax P* Punion pre tax E Pworld pre tax Demand Home Q B C* D
- 66. Trade Creation (High Cost to Low Cost) P Supply Home Punion post tax Pworld post tax P* Punion pre tax E F Pworld pre tax Demand Home Q B C* D
- 67. Trade Creation (High Cost to Low Cost) P Supply Home Punion post tax Pworld post tax P* Punion pre tax E F G Pworld pre tax Demand Home Q B C* D
- 68. Trade Diversion (Low Cost to High Cost) B D
- 69. Trade Diversion (Low Cost to High Cost) B D
- 70. Trade Diversion (Low Cost to High Cost) B D
- 71. Trade Diversion (Low Cost to High Cost) B D
- 72. Trade Diversion (Low Cost to High Cost) B D
- 73. Trade Diversion (Low Cost to High Cost) Supply Home B D
- 74. Trade Diversion (Low Cost to High Cost) Supply Home Demand Home B D
- 75. Trade Diversion (Low Cost to High Cost) P Supply Home Demand Home B D
- 76. Trade Diversion (Low Cost to High Cost) P Supply Home Demand Home Q B D
- 77. Trade Diversion (Low Cost to High Cost) P Supply Home Demand Home Q B D
- 78. Trade Diversion (Low Cost to High Cost) P Supply Home Demand Home Q B D
- 79. Trade Diversion (Low Cost to High Cost) P Supply Home P* Demand Home Q B D
- 80. Trade Diversion (Low Cost to High Cost) P Supply Home P* Demand Home Q B C* D
- 81. Trade Diversion (Low Cost to High Cost) P Supply Home P* Demand Home Q B C* D
- 82. Trade Diversion (Low Cost to High Cost) P Supply Home P* Demand Home Q B C* D
- 83. Trade Diversion (Low Cost to High Cost) P Supply Home P* Pworld pre tax Demand Home Q B C* D
- 84. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 85. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 86. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 87. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 88. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion pre tax Pworld pre tax Demand Home Q B C* D
- 89. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 90. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Pworld post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 91. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Pworld post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 92. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Pworld post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 93. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Pworld post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 94. Trade Diversion (Low Cost to High Cost) P Supply Home P* Punion post tax Pworld post tax Punion pre tax Pworld pre tax Demand Home Q B C* D
- 95. CU Good iff • TC > TD
- 96. € (bn) % GDP (a) (b) (a) (b) Barriers to 8 9 0.2 0.3 trade Technical Regs 57 71 2.0 2.4 Ecs. of Scale 60 61 2.0 2.4 X-inefficiency 46 46 1.6 1.6 Total 171 187 5.8 6.4 At 1985 Prices Source: Cecchini Report, Emerson et al, 1988.
- 97. Effects of Economic Union 1. Location Effects 2. Accumulation Effects 3. Allocation Effects
- 98. Price Dispersion (coefficient of variation) 1985 1993 1996 % % % 21.9 15.9 15.9 Private Final Consumption 25.4 25.9 27.2 Government final cons. 12.8 14.5 13.5 Gross fixed capital formation 19.2 23.6 22.0 Construction 9.1 6.7 7.7 Machinery 20.1 16.2 16.3 GDP
- 100. If you only read one thing... El-Agraa, A.M., (2002), The European Union: Economics and Policies, 6th ed., pgs. 149–164, 337.142 AGR.
- 101. Thanks