1 / 12

POSSIBLE GAINS FROM THE FORMATION OF A CUSTOMS UNION

POSSIBLE GAINS FROM THE FORMATION OF A CUSTOMS UNION. Reasons for the formation of Customs Union. Static gains: Better allocation of resources Dynamic gains: Economies of scale etc. Protectionism Economic integration is a prerequisite for political integration. Static Gains.

meda
Télécharger la présentation

POSSIBLE GAINS FROM THE FORMATION OF A CUSTOMS UNION

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. POSSIBLE GAINS FROM THE FORMATION OF A CUSTOMS UNION

  2. Reasons for the formation of Customs Union • Static gains: Better allocation of resources • Dynamic gains: Economies of scale etc. • Protectionism • Economic integration is a prerequisite for political integration

  3. Static Gains • Trade creation - Trade diversion • Hard to measure: • Economic growth • Other factors affecting trade other than CU

  4. Static Gains: Measurement of TC and TD • Standart Approach Net TC = Total increase in imports by Home country – the fall in imports from non-members caused by integration • Difficulties: • Trade figures are expressed in money terms, so it also shows the effects of relative prices • Non-integration influences must be excluded • Choice of dates for comparison (must allow some time)

  5. Static Gains: Measurement of TC and TD • Another Approach TC= Change in total imports / consumption TD= Change in imports from non-members / consumption (Between two years before and after integration)

  6. Static Gains: Measurement of TC and TD • Balassa, 1967: • Income elasticities of import demand= M • M = Average annual change in imports Average annual change in GNP • If M from intra-area   Gross trade creation • If M from all sources   Trade creation • If M from extra-area   Trade diversion

  7. Dynamic Gains • Improved terms of trade with the rest of the world • If the formation of the CU does not affect the demand for imports from the rest of the world, the union’s TOT will be unaffected. Otherwise, there will be a tendency for TOT to improve. • Increased capital inflows and increased rate of technological change (increases in quantity and quality of factor inputs) • Reduced uncertainty

  8. Dynamic Gains • Increased competition among firms within the CU (which increases efficiency) • Economies external to the firm which may have a downward influence on both general and specific cost structures

  9. Dynamic Gains • Better allocation of economies of scale for both firms and industries operating below optimum capacity before the integration occurs • Assumptions: • Domestic price=cost of imports from W+tariff • Homogenous product • W produces and supplies to H and P a constant prices • H and P is capable of producing at declining average costs

  10. Dynamic Gains • Pre-union possibilities: • Production in both H and P • Production in one country • Production in neither

  11. RISKS • Possible responses by firms in third countries who lose market share as a result of the CU and may seek to fight back.

More Related