What are the pros and cons of regional economic integration? How has NAFTA affected your business?© BrainMass Inc. brainmass.com June 20, 2018, 12:07 am ad1c9bdddf
Let us first see the role of regional integration such as NAFTA or EU in promoting global business or in other words, its core advantages.
Trade gains: If goods are sufficiently strong substitutes, regional trade agreements will cause the demand for third party goods to decrease, which will drive down prices. In addition, more acute competition in the trade zone may induce outside firms to cut prices to maintain exports to the region. This will create a positive terms of trade effect for member countries.
Increased returns and increased competition: Within a tiny market, there may be a trade-off between economies of scale and competition. Market enlargement removes this trade-off and makes possible the existence of (i) larger firms with greater productive efficiency for any industry with economies of scale and (ii) increased competition that induces firms to cut prices, expand sales and reduce internal inefficiencies.
Investment: Regional trade agreements may attract FDI both from within and outside the regional integration arrangement (RIA) as a result of (i) market enlargement (particularly for "lumpy" investment that might only be viable above a certain size), and (ii) production ...
What are the pros and cons of regional economic integration?