The Impact of Economic Integration on Trade and Development

The economic integration of countries through trade agreements and policies has led to enhanced trade combined with economic development. The study highlights the importance of partial or full abolition of tariffs and non-tariff restrictions on trade practices among states, which can lead to both trade diversion and creation. The report also covers World Trade Organization rules and decisions applicable to different sectors, as well as the impact on countries like UK and Spain. Furthermore, it includes the rules, policies, and functions of international organizations such as the International Monetary Fund and World Bank that help developing countries manage their economies. Additionally, empirical data from more than one country is included in the context of UK and Spain.

TRADE AND REGIONAL
ECONOMIC
INTEGRATION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(A) ECONOMIC THEORY............................................................................................................1
(B) RULES AND REGULATIONS UNDER WTO.......................................................................1
Article XXIV of GATT...............................................................................................................1
Enabling Clause..........................................................................................................................2
Article V of GATS......................................................................................................................2
(C) RULES AND PRACTICES OF IMF/WB................................................................................2
(D) EMPIRICAL DATA FROM ....................................................................................................2
REFERENCES................................................................................................................................4

INTRODUCTION
Regional Integration is the medium through which the states, which are geographically
located close to each other, enter into an agreement with the objective of gaining mutually
acceptable economic benefits through free flow of trade amongst the member states. In
furtherance to this integration the member states unify the economic policies and regulations so
as to fully or partially abolition trade barriers. The United Kingdom and Spain are also a part of
an integration which is known by the name of European Union. All the member states of this
bloc have adopted policies to enhance the economic productivity of all the member states.
(A) ECONOMIC THEORY
The theory of economic integration is refers to the impact of the economic
diversion and trade creation as it is introduces for the changes in interregional flow of the goods
that are caused by the influence in custom tariffs as per the creation of the an European Union. In
context of UK and Spain it considered the flows of trade between the two states as comparing
them with the rest of the world(Baier, Bergstrand and Feng, 2014). The basis of the economic
theory is described as when there is increase in the economic integration so that the trade barriers
in the market is decreases. Further, the supranational markets with the free movement of the
economic factors across the national borders as it generate demands for the integration so that
economic communities evolve in the political union overtime. In addition to this, the analysis of
dynamic as a difference between the aggregate revenue if the investment and sectors so that it
proves that states gain from the economic unification as the states receive less growth of
productivity and GDP and concerning the benefit to the lesser states(Dauth, Findeisen and
Suedekum, 2014). There is important finding is a link between the dynamics of micro and macro
economic parameters such as evolution of the cluster of industry ad temporal GDP, so that this
approach describes main features of the competition.
In the economic theory, the theory of second best concerning the situation that one or
more conditions cannot be satisfied as it is a economic condition in the model of economic so
that it is possible that the next best solution includes the changing other variables away from the
values that otherwise be optimal and so that the theory implies that it is impossible to remove a
specific market distortion as introduction of more distortion may partially lead to more efficient
results(Balassa, 2013). There are some of the implications with irreplaceable market failure in
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the sector as the actions to correct market failures in the other sector with an intent of increase in
the economic efficiency which actually decrease in the economic efficiency. This theory is
applied to the partial equilibrium cases as it will provide an overview of the main outcomes and
consider different applications of the theory to the international trade issues of policy in context
of UK and Spain. In the model of economic these conditions arises out of the maximising
behaviour of the consumers and producers(Hill, Cronk and Wickramasekera, 2013). Thus, the
economic theory is the integration of economics and the impact of trade diversion and trade
creation which includes the changes in the flow of goods.
(B) RULES AND REGULATIONS UNDER WTO
Any state entering into an economic integration directly implies imposing of a favourable
treatment in respect to other states, and therefore acting in violation of the principle of non-
discrimination or the concept of most favoured nation. This is a clear departure from the said
rules, as the concerned state would be treating parties to the arrangement on a preferential basis
in comparison to other WTO member states. Article I of GATT as well as Article II of GATS
provide for the guiding principle of acting in a non-discriminatory manner, and treating all the
members states equally (Marel and Shepherd, 2013). In pursuance to the same UK and Spain
have been acting in accordance to the rules laid down under GATT, and have aided economic
development and growth in their respective nations. However, WTO rules provide for the liberty
to depart from the integral principles or guiding rules, which have been provided under the
following rules:
Article XXIV of GATT
The article in essence provides an exception to the principle of MFN by allowing the
states to discriminate against the other states, in place of combating it. The liberty to undertake
discriminatory treatment against states is not extended to adopt a complete discriminatory
behaviour. The discriminatory preferences under this article can be exercised only in favour of
the members of the arrangement. The content of this article is an outright exception to the MFN
principle, in accordance to which advantage or privilege granted to any of the member states
shall compulsorily be provided to all the other members or contracting parties. However, in order
to facilitate the formation of trade agreements, this effort of not raising barrier in trade has been
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inserted in the provisions of GATT. The case of Turkey, in the year 1996 emerged the concept of
providing an exception to the MFN principle in the event of parties entering into regional trade
agreements.
Enabling Clause
This clause has been incorporated within the rules as a decision on the differential and
MFN treatment, fuller participation of the developing nations and reciprocity. In pursuance to
this provision the the developed countries are required to provide a differential as well as more
favourable treatment to the nations, which are still in developing stage (Rouis and Tabor, 2012).
This clause in essence is the legal basis for WTO's Generalized System of Preferences (GSP),
which imposes the an obligation on the developed nations to offer non-reciprocal treatment to the
developing nations which can be in the form of nil or lower import duties on the products which
have originated in developing countries. This forms the fundamental of development of regional
arrangement in legal terms, and in pursuance to the same the developing nations offer
concessions in trade to other states.
Article V of GATS
This article governs formation of regional trade arrangements in relation to trade
specifically in services. Trade in both developed as well as developing nations shall be governed
by this article and promote the formation of such economic integration. In pursuance to this
article all the contracting states have the liberty to enter into economic integration in relation to
trade liberalization specifically in the field of services (Sannwald and Stohler, 2015). In light of
this provision the contracting states are under the liberty to deviate from the principles of most
favoured nation as well as non-discrimination, in the case of trade in services.
(C) RULES AND PRACTICES OF IMF/WB
International Monetary Fund and the World Bank both were created at an international
conference in Bretton woods, US it is a cooperation which provides policy advice and technical
assistance in order to help countries maintain and build the strong economies. On the other side
World bank promotes long term development of economy as the reduction in poverty by
providing financial support to the countries or implement particular projects such as health
centres, building schools and providing water and electricity(Breslin and Hook, 2016). There are
some of the functions and policies of International monetary fund which includes that it is the
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generalist institution which deals with the macro economic issues as its areas of concern is
developing the countries. One of the proposed reform is to movement towards the close
partnership with the other agencies such as UNICEF and the United nations development
program. There is application of membership in IMF which includes the substitution of security
for the currency, exchange control, currency practices, agreements and information. The board
meeting is done as per the agenda of the meeting and with the voting rights of different
shareholders after deciding the minutes. IMF has the brightest economists and to advise the poor
countries to break the poverty as the problem is development economics(Hill, Cronk and
Wickramasekera, 2013). The decision at IMF are not technocratic but they are guided by the
economic and political concerns. There is also impact on the environment of UK and Spain have
been criticised for making difficult for the countries so that they say no to the environmentally
projects which are harmful and which not generate revenues such as forest destroying and
agricultural projects.
World Bank is an international financial institution which provides loan to the countries
which are developing for the capital programs. There are various rules and policies of World
Bank which covers the improvement in the performance of the justice sector institutions in order
to manage the agencies at all levels of the system such as budgeting, supply chain
management(Wild., Wild and Han, 2014). The security of citizen and advising on criminal
justice reform as ffective delivery of the services in the criminal justice is an essential part of
prevention of crime and enforcement chain. To promote the justice in the development of the
sectors such as land, extractive and the development of the urban areas. There is reforming the
sector of justice for the better investment climate and business.
(D) EMPIRICAL DATA FROM
In light of the above laid down laws and facts, it can be said that UK has been acting in
adherence to all the rules and regulations under GATT, and has realized great benefits or positive
effects on its economy and the process of development of trade. It is important to note that the
economic benefits arising out of the EU membership in favour of UK are much larger than the
budgetary costs of transfers and regulations. Since 1973, when the UK joined European
Economic Community (EEC), its relative growth performance has been one of the strongest and
has shown some favourable effects. Generally, an average growth level of 6.4% in income gain
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can be witnessed from EU membership over a period of 10 years. However, the UK has shown
an impressive income gain of 8.6% (Shrestha and Chongvilaivan, 2013). On application of the
gravity model to understand the implication of EU membership on volume of trade and
quantification of the precise effect of expanded trade, it can be concluded that by the year 1988
UK had realized a raise of 21.1% in the field of trade. This in turn led to a raise in the income
level by 8 to 10 %, which then made a fall in the average effective rate of protection. This then
influenced by making a contribution in the welfare gain equivalent by percentage of 2.1 of Gross
Domestic Product. Further, a significant impact was imposed on the foreign direct investment
realized by the nation, which in combination with the increasing GDP, benefited the nation in
manifolds (Wild, Wild and Han, 2014). Therefore, it can be concluded that EU membership has
benefited the nation of UK in various aspects, and has led to an enhanced trade combined with
economic development of the country.
CONCLUSION
From the above study it can be concluded that the economic integration is he collection
of the economic policies between the various states by partial or full abolition of full tariff and
non tariff restriction of the trade practices among them. In this report the economic growth which
involves the trade diversion and trad creation and impact of the changes in the flow of the goods.
Further it also covers the World trade organisation rule ad decisions which are applicable to the
different sectors and impact on the UK and Spain. In addition to this, the rules, policies and
functions of the International Monetary Fund and World Bank which helps to the various
developing countries in order to manage the economy of the countries. It also includes the
empirical data of more than one country in context of UK and Spain.
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REFERENCES
Books and journals
Baier, S. L., Bergstrand, J. H. and Feng, M., 2014. Economic integration agreements and the
margins of international trade. Journal of International Economics. 93(2). pp.339-350.
Balassa, B., 2013. The Theory of Economic Integration (Routledge Revivals). Routledge.
Breslin, S. and Hook, G. Eds., 2016. Microregionalism and world order. Springer.
Cavusgil, S. T. and et.al., 2014. International business. Pearson Australia.
Das, S. B. and et.al., 2013. The ASEAN economic community: A work in progress (Vol. 14).
Institute of Southeast Asian Studies.
Dauth, W., Findeisen, S. and Suedekum, J., 2014. The rise of the East and the Far East: German
labor markets and trade integration. Journal of the European Economic Association. (6).
pp.1643-1675.
Fingleton, B. ed., 2013. European regional growth. Springer Science & Business Media.
Hill, C. W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill
Education (Australia).
Kawai, M. and Naknoi, K., 2015. ASEAN Economic Integration through Trade and Foreign
Direct Investment: Long-Term Challenges.
Marel, E. and Shepherd, B., 2013. Services trade, regulation and regional integration: evidence
from sectoral data. The World Economy. 36(11). pp.1393-1405.
Rouis, M. and Tabor, S.R., 2012. Regional Economic Integration in the Middle East and North
Africa: Beyond Trade Reform. World Bank Publications.
Sannwald, R. and Stohler, J., 2015. Economic integration. Princeton University Press.
Shrestha, O. L. and Chongvilaivan, A. Eds., 2013. Greater Mekong Subregion: From
Geographical to Socio-Economic Integration. Institute of Southeast Asian Studies.
Wild, J., Wild, K.L. and Han, J. C., 2014. International business. Pearson Education Limited.
Online
Justice and Rule of Law. 2016 [Online] Available
through:<http://www.worldbank.org/en/topic/governance/brief/justice-rights-and-public-
safety> [Accessed on 28th November,2016]
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