Economic integration is the agreement between different countries or states to trade by the partial or full removal of customs tariffs on trade amongs the member states,it limits the prices of goods and services for both consumers and distributors since there is no custom duties in place which will then lead to increase trade , It allows free trade to some extent where there are still some barriers to free trade. It also facilitates trades between nations or states. different kind of trades are in place like the free trade which build relationships between the agreed nations, taking out trade barriers has a cost effective and benefits it all depend on the cooperatyionbetwenn the nation involve .
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Economies all over the world have attempted economic integration and some countries uses the free trade zones to reach a common market.while the NAFTA has signed a treaty of free trade amongs its nation (USA,MEXICA and CANADA ) , the Expanded European Union (EU) has use both economic and monetary integration to harmonise their agreement which is established.
Removing trade barriers saves cost that can be associated with the economic activities. taxes tariffs,fees e.t.c are some way that can encourage economic integration which will cause international trade to increase amongst the countries with this agreement. countries that are not in the agreement hardly compete with partners in the union.
If the economies are strong , the benefits of the integartion of all member countries can not be over emphasized but when there is a downturn the members will all bear the consequences. when a member in the trade agreement is having financial crisis it can spread if other member can not bail them, ther export products to the affected country will fall and even their investment will suffer like the UK trying to help IRELAND in the recent economic crisis Ireland are facing .Greece and Portugal both have similar stories in the 2000’scausing serious problems and concerns to the European union.
Heckscher-Ohlin model (H-O model) : This theory that is build upon the Ricardo’s comparative advantage module by predicting the patterns of production based on the individual factor endowment, A country will only produce products for export based on their factor endowment and import products that they do not have, The relative endowment factor of production are (capital, land and labour) which determine any country’s comparative advantage over the other. Countries produces good which their factor of production is relatively low this is as a result of materials or natural resources are relatively abundant locally. Thus the profit of a goods produce is determine by the input of cost.
For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little labour – grains. If capital and land are abundant, their prices will be low. As they are the main factors used in the production of grain, the price of grain will also be low-and thus attractive for both local consumption and export. labour intensive goods on the other hand will be very expensive to produce since labor is scarce and its price is high. Therefore, the country is better off importing those goods.
Movement Of Labour : Can increase the efficiency of a country and the world at large economy, it is often restricted by the government serving as what is seen as the protection of their national interest. immigration movement is strictly control by the government because of the pressure it can bring on the distribution of income. There several advantages and disadvantages of movement of labour from one country to the other.
â€¢ Prevention of shortage of labour : There are some skilled or unskilled kind of jobs that domestic workers would not like to do, the immigrants that are in that country will fill in the gap and ensure that there is no fall labour productivity as countries may sometimes witness shortage in labour.
â€¢ Can Prevent Wage Inflation. There can be pressures on wages if there is no adequate man power to work which inevitably leads to inflation as a result in rise in wages and as well attract immigrants movement to curtail wage inflation.
â€¢ Can Diminish the rise in unemployment. Where there is free labour movement, people can travel from abroad to a country where they can get temporary jobs in a stable economy and when the economy is no longer in the same booming state they tend to go back to their respective countries and this is usually seen in the construction markets where temporary jobs are often created as a matter of demand for labour. For example the movement of the eastern Europeans in the UK and Ireland before the economic financial crunch but since the recession most of them are now going back as a result of shortage of jobs thus reducing the unemployment rate in UK and Ireland respectively.
â€¢ Developing countries may lose best skilled labour. This is as a result of workers migrating to developed countries for better pay jobs which may affect the development of developing countries and lead to brain drain in this countries.
â€¢ Labour cannot be Treated Like a Factor of Production. When the econmy is no longer stable or booming the foreign workers or temporary workers which tends to be immigrant labour force are the ones to bear the faith of the recessions in terms of redundancy . for instance the eastern European labour in the UK like the Polish workers may be returning to Poland, but there is a similar economic problem in eastern europe
The barriers to trade and capital movement has been the subject matter in policy discussion in recent years. obviously for any country to invest abroad is the desire to take advantage of the host country’s tariff wall, in recent years the evidence has been seen in the european common market. conversly, a reduction in trade barriers may attract business organisations to reduce their foreign production operations. it also look at portfolio : Foreign acquisitions plus U.S. divestitures of foreign securities. Strong net portfolio capital flows help to support a country’s currency. This is a statistic that tracks how much money is being invested in a country by foreigners and the extent to which domestic companies are selling their foreign holdings .though the capital portfolio is less considered this days. :Foreign direct investment (FDI) is the long term investment by a country with the resource to a host country the management, joint-venture, transfer of technology and expertise are all done by the both parties involve. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and “stock of foreign direct investment”, which is the cumulative number for a given period. Direct investment excludes.
CRITICAL EVALUATION : We know that much has been said about economic integration . If trade barriers are removed it will encourage more businesses in rotation, if there is high demand international trade will allow the distribution to be evenly spread across boundaries and boarders why know how and technolohy will as well increase frankel and Rose (1998) .Krugman (1993),on his on part says that if trade barriers is reduced it will cause countries to specialize on a particular goods and services bringing low the output fluactuation.
The free movement of labour was signed in 1957 and the single European Act (1986) in Rome to enable free movement of EU citizens to travel without any restriction to work within the EU states or zones, it is one of the foundamentals in creating a common market, increase effieciency, competion in the union and creating opportunities for all European workers at the same time . The union has expended and many has beging to question the ability to deal or carter for the high economic migration in the EU zones and if the benefits of free labour movement do not over shadow the the cost of cost of labour movement . As the expansion in the EU allows ten new member states from the Eastern and Central Europe in 2004, however most of the exeisting member states still place restrictions or cap in labour movement from the newly joined states although the restriction as finally been removed now but some measures of cap is on some the EU states like the Romania ,Polish and Bulgaria e.t.c which joined in 2007. Be it as it may the movement of labour freely is still normal within EU zones by it citizens even if there are still some restriction which i beleive will be totally lifted with time. there are some arguments on the advantages and disadvantages of free labour within the European union members as follows :
1. Free movement of labour gives equal opportunity for all member state citizens high and average earners get the same benefit with the facilities of services. If they have to get or pay for education when they travel abroad it will then be for the top earners to afford education for their children or medical care.
2. The completion of wages no doubt reduces inflation in any economy and it give allowance for organizations to expand their work force and employ more domestic workers. Statistics has shown that the EU states that has a high migrating labour force from the new entrants states has grown tremendously in terms of economic results.
1. The free movement of labour has more disadvantage than just the advantage of migrating to other countries without any barriers or required permission of entry in the EU for its citizens it is also has to provide in terms of providing free education,healthcare and child benefits to its members when they relocate for work. which tend to bring huge burden on the welfare services. no doubt the host country has to divert some of its resources away from the citizens in other to take care of the migrant workers thus creating poor social welfare services.
2. Free movement of labour brings about heavy cost on services, there are less jobs in the UK for domestic workers and the labour movement is putting pressure on the wages due to increase in potential workers coming into the country .
CAPITAL MOVEMENT ( PORTFOLIO AND FOREIGN DIRECT INVESTMENT)
PORTFOLIO CAPITAL : Transfer occur when two individuals or institutions purchase bondsor other liabilities issued by foreign government or acquire equity shares in foreign companies too small to give the purchaser voting control over the company.portfolio capital is not considered as much this day .
FOREIGN DIRECT INVESTMENT (FDI)
Foreign direct investment is a very unique way of international capital flow as is affects both the nations stock of productive factor and competitive conditions in its market. it uniqueness lies in (1) the lender transfers resources and takes charge of the project which passes through Multinational Enterprises (MNE’s) they are organisations that their businesses are in more than one country. (2) MNE’s invest abroad to increase their profits.
EXPANDED EUROPEAN UNION
In expanded European union i will like to use Poland as an example how the FDI has affected it positively.the foreign direct investment carter for Poland’s stock at 130 billion at the end of 2008 though there has been fluctuation in 2000,in 2003 FID was slow which was due to economic crisis in the world economy in 2001it had a very big effect on some trade partners like Russia and germany ever since ther has been increase in FDI of 16.6 billion per annum.Poland experience another blow during the late 2008 by the credit crunch.
Mpst of the FDI’s in poland comes from the member states in the EU zones while some percentage are scattred amongst the USA,Asia e.t.c it has brough a lot of opportunities like the MNE’s building factories ,creating employment and Innovations to the economy.the major investment is in the manufacturing industry,macheneries,automotive banking.
Poland has got the labour market endowed with many skilled labourers that is why it is a centre for investor.
FDI’S IMPACT ON NAFTA
Foreign diect investment has change the productivity sytem in Canada and Mexico,the srtucture of FDI’s is foundamentally ddetermined by movent of capital .the MNE’S transactions in NAFTA has been in line in the following direction : (1) changes in assets ownership (2) sectors of investment (3) the exports countries destinations (e.g foreighn vs domestic market) it has made improve the regions of North American States for example the north of mexico and south of the united states.
NAFTA is a good example of this kind of integration, as it has been the main
field of experimentation for Neoliberal globalization, whose operating rules are
established by US financial capital with the support of dominating groups and
the Canadian and Mexican governments. In the trade agreement between
Canada and the United States, and subsequently, NAFTA, a series of rules were
approved for foreign investors granting unlimited freedom, as well as a series of
privileges. For the United States, the trading area of North America is
transcendent, not only in outlining the rules of future continental integration in
the context of the Free Trade Area of the Americas, but also in the size of its
investment is in these two countries and a total of 65 percent of its investments
in the American continent.
FDI IMPACT ON CHINA
China has grown since foreign direct investors came in 1978 and mostly in the 1990’s.early 1980’s to late 1990’s capital inflow in china was through the contaction of FDI which has grown US $ 1.5 BILLION TO US $ 40 billion per annum.
They have been the wolrd largest receiver of FDI amongst other devloping countries in the world, where the ratio 1/4 and 1/3 of capital foreign investment to other developing countries.
Foreign investment is a major source for China.s investment in fixed assets. Its share in total annual investment in fixed assets grew from 3.8% in 1981 to its peak level of 12% in 1996. After the Asian financial crisis in 1997, FDI inflow fell and its contribution to fixed assets investment has also decreased to about 9% and 7% in 1998 and 1999, respectively.
FDI ON THE BALANCE OF PAYMENT
Balance of payment is the income that goods and services brings into a country from capital movement including foreign direct investment and some other factor of export and imports.export of goods and services brings positive balance to a country’s economy and reverse will be the case if the export goods and services are negative with the capital movement. so MNE plays a major role in any developed and developing country’s, the rise of FDI many country is now attracting MNE as it contribution towards growth is immense in an economy.Vestas Company in Denmark is the world’s largest wind energy company and it mainly produces wind power equipment. The company entered China in 1999 and opened branches in Mongolia and Xuzhou in 2009. Now it has five air blower manufacturing plants in China, investing a total of 5.3 billion yuan in China by the end of 2009.
FDI ON TRADE EMPLOYMENT
One of the significant impact of FDI is the increase it brings in the labour market. the difference in wage (inequaliy) and skilled labour in the domestic organisation will be highly needed, whis is is as a result of the entry of MNE’swanting to recruit more of skilled labourers and innovation of technology to domestic company’s.As a result of these spill overs there will be increase demand in skilled worke which widens the gap of wage inequality.
Having looked at international trade or economic integration from all perspective that has been metioned above I can say that factor movement is a substitute for commodity trade or international immigration . the effects has led to a great turn around for less developed countries , developing countries and even the developed countries has benefited so much from it it terms of economical growth over the last decade.