Lecture 4 Economic Integration - 2025

1. Contemporary Issues in Global Economy

WIUT
Date: October 08, 2025
Module Leader: Dr. Bilol Buzurukov
Economics
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2.

Topics
① Globalization: winners and losers
② Poverty and Global Inequality
③ International Trade Issues
④ Economic Integration
⑤ International Labor Migration
⑥ Climate Change
⑦ Foreign Direct Investment
⑧ Global Value Chains
⑨ Global Financial Crisis
⑩ Artificial Intelligence and the Global Economy
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3.

Integration
INTEGRATION
Social Integration
Political Integration
Economic Integration
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4.

The Aim of Economic Integration
Economic
Integration
Reduce costs for
consumers
Reduce costs for
producers
Increase trade
between the countries
taking part in the
agreement
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5.

The Theory of Trade Blocs
Regional Trade Area:
• A group of national economies that eliminates barriers to
the flow of goods and services between them but
maintains restrictions on trade with other countries that
are not members of the group.
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6.

The levels of Integration: 1
Preferential Trading Arrangement
• Member states agree to maintain lower
barriers to trade within the group than to trade
with nonmember group. (British Commonwealth Preference
Scheme, established in 1932 by UK.)
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7.

Preferential Trading Arrangement
t = 10%
t = 10%
A
t = 5%
B
C
t = 20%
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8.

The levels of Integration: 2
Free-trade area
• Eliminating barriers to intra-group
trade while allowing each country
to maintain its own nationally
determined barriers to trade with
nonmembers.
• E.g.: North American Free Trade
Area (NAFTA)
No Tariff
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9.

Free-Trade Area
t = 10%
Disadvantage of FTA
t = 0%
A
t = 0%
B
C
t = 20%
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10.

The levels of Integration: 3
Customs Union
• Intra-group trade faces no barriers and
members maintain a common external tariff
on trade with nonmembers.
European CU
Eurasian CU
GCC CU
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11.

Customs Union
CET = 15%
t = 0%
A
t = 0%
T=100%
B
C
CET = 15%
Note: CET – common external tariff
T=50%
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12.

The levels of Integration: 4
1993
Common Market
• Extending free trade among
members to factors of production
(labor migration and capital flow)
as well as to goods and services.
• Members typically maintain fixed
exchange rates among their
national currencies.
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13.

The levels of Integration: 5
Economic Union (Common Union)
• Group-determined economic policies as well
as a common currency or money.
• Exp: USSR, US.
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14.

The levels of Integration
Preferential Trading
Arrangement
Reduction
of intragroup tariffs
Free Trade Area
Removal of intragroup tariffs
Customs Union
Common external tariff
Common Market
Intra-group capital and labor mobility
Economic Union
Common economic policies and common currency
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15.

Intra-group Trade
Foreign
production with
FDI played an
important role,
too.
Intra-group Trade as Percent of Total Merchandise Trade, 2000
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16.

NAFTA Merchandise Exports
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17.

Trade Creation
versus
Trade Diversion
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18.

Trade creation
Occurs when as a result of a customs union some domestic
production is replaced by lower cost imports from another
member.
This leads to an increase in welfare amongst members- due to
specialisation based on comparative advantage and to lower
prices.
Non-members benefit as higher income also draws in higher
imports from rest of world.
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19.

Trade creating customs union
P
Uzbek market