What is the ultimate goal of regional economic integration? Identify three potential benefits of regional economic integration and three potential drawbacks

What is the ultimate goal of regional economic integration? Identify three potential benefits of regional economic integration and three potential drawbacks.

The ultimate goal of regional economic integration is to establish common economic space and coordinate economic policy in a number of fields.

Potential Benefits

1. The regional integration would promote active economic exchange within a region, and might benefit the region by the scale of economies and a more effective utilization of resources that could not previously be attained by a single country.
2. 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.
3. Regional trade agreements may attract FDI both from within and outside the region as a result of market enlargement.

Potential Drawbacks

1. Any resulting rise in imports from parties to the agreement may displace either domestic production or imports from other countries, resulting in trade diversion and welfare loss.
2. Regarding security, it could also create tensions among member countries should it result in more divergence than convergence by accelerating the trend of concentration of industry in one or a few countries.

3. It is the incentive for foreign investors to engage in "tariff-jumping".

2. What is foreign direct investment? Identify at least three motivations behind a company's decision to engage in FDI.

Foreign direct investment is the investment made by a foreign individual or company in productive capacity of another country. For example, the foreign direct investment could be the purchase or construction of a factory. The motivations behind a company's decision to engage in FDI are

1. direct investment in new facilities or the expansion of existing facilities.
2. reduce production costs
3. there are policies attracting FDI such as tax exemption in foreign countries

3. What types of policies might a country have in place to be called neo-mercantilist? Provide examples.

Neomercantilism is a term used to refer economic policies designed to protect one nation's economic and political integrity. The type of policies a country might have in place to be called neo-mercantilist is high tariffs, import restriction, and government intervention to promote industrial growth. For example, Japan has imposed high tariff rate on agricultural products especially rice in order to protect their farmers. China also gives subsidized for exported goods in order to promote their export in the world market as well as increase their competitiveness.

4. Define and provide specific country examples of a centrally planned economy, mixed economy and a market economy.

A centrally planned economy is an economic system that is under comprehensive control and regulation by a government in accordance with a plan of economic development. The government will be fully responsible and put them into rules and regulations. The planned economies still exist in some countries such as Cuba and North Korea.

A mixed economy is an economy that contains both private and public or state owned enterprises. The United States is a country example for "mixed economy" in which government bestows favors and imposes restrictions.

A market economy is an economic system in which the production and distribution of goods and services takes place through the mechanism of free markets guided by a free price system rather than by the government or state. There is currently no country where all markets within its borders are absolutely free.