Regional Economic Integration - Assignment Example

Running Head: Regional Economic Integration     Your name   Course name             Professors’ name Date Introduction The process of regional economic integration has led to the development of geographical concentrations of firms and people. It is a process that encompasses all the facets (political, economic or even cultural) of the states that are within the region. Apart from established and countries in the developed world, most regional cooperation are still at their infancy stage. Agreements are formulated between countries for various purposes of trade and other social interactions. Factors that act as barriers to trade between the member states are abolished and a free trade agreement is reached amongst them (Fratianni 206). Benefits that the member states may accrue include receiving foreign aid from other member countries. Regional integration does not only benefit the member countries but also benefit other countries. With the world becoming one small village it is becoming more and more transparent that when one country benefits, there are others who also benefit. An example of this is when the economy of one country flourishes, it tends to import more from another and hence leading to growth of GDP in both countries. Some of these cooperations have been at this stage due to the numerous challenges that continue to plague them. The phenomenon integration of economic markets has been forced and brought about by competition of the once isolated markets. All regional International bodies seek to bring about the strengthening of integration of trade within the region. The body should facilitate an environment whereby the private sector is developed (Fratianni 206). Propagation of Infrastructure and other related programs are part of the responsibility of any integration body as this leads to the sector wide development. It is also the responsibility of the body to ensure that peace and harmony within member states is upheld. The emergence and rise of newer forms of competitions has culminated to Governments that were once enemies to unite as policymakers grapple with challenges that may hinder the successful operations of economic markets. This has necessitated trade reforms and coming up with an open door policy by all countries that are included in the union. Regional economic integration has led to the acceleration of central economies to become market economies. On evaluating these regional markets, it is evident that trade restrictions among the countries have over time been removed and trade relations among the countries have also been strengthened. There are regional integration agencies that are currently active but the most successful has been the EU. The European Union has been able to create an environment that fosters a single market. The same environment has also led to the free flow of capital both human and monetary capital. Countries within the EU are able to benefit from foreign investment inflows that are part of EU policy. This has led to the balancing out of companies and markets and thus introduced a level playing field for firms to grow. In the past, it was more difficult to penetrate new markets without the construction of distribution networks. These days competition among member states is based more on the relative advantages that they may offer to companies. The European Union has been able to create policies that have led to the sustenance of markets that are both integrated and competitive at the same time. The same policies have encouraged businesses and companies to come up with strategies that have led to healthy competition among firms. The EU has promoted member countries through the introduction of incentives and funds that promote research and development (Pinder 298). Regional Integration has led to the clustering of firms so as to take advantage of the economies of scale. There is also the emergence of industrial and economic districts among within the member states. These clusters come in the form of where producers who make the same or similar product congregate around the same locality. There is also the concept where a local network that supports industries within the same locality. Brief History of the European Union The European Union was formed after the signing of the Rome Treaty in 1957. It currently has 27 member countries. Count Richard Nikolaus von Coudenhove-Kalergi had meditated about a collection of European countries. He published his ideas through a manifesto named the Pan-Europa manifesto. It is after the devastation of World War II that saw the realization of unity within the European continent. In 1957, the signatory members of the European Union were Belgium, France, Germany Italy, Luxemburg and Netherlands. This was seen as a symbol of reconciliation among once enemy countries. This was later followed by membership of countries such as Denmark, Ireland and UK in 1973. One must note that United Kingdom is the only country within the EU that has an opt-out clause. Greece joined the union in 1986 followed by Portugal and Spain. The fall of the Berlin Wall was single most sign that countries in Europe were ready for integration. The simultaneous membership of Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia in 2004 was a manifestation of this spirit. There are EU Candidate countries, these countries strive to be members. Such countries are like Croatia, Turkey among others. To gain membership to the EU is not easy as most countries have to meet the stringent requirements that have been set by the Union (Pinder 302). Just like any other regional integration economic agencies, The EU has set out policies that ensure that the citizens within the member countries enjoy the full benefits of being members. These policies are the evidence of a single market that ensures that the price goods and services are fair and equal in all countries. The establishments of one currency, the founding of an anti trust policy that seeks to ensure monopolization of certain sectors of the economy does not take place. Policy makers also came up with different policies that touched on matters regarding the environment, agriculture, International trade, immigration, and foreign security policy. Requirements of joining the EU For any country to be a member of the EU there is a step that is followed and normally involves several steps. The country wanting to join must first show that it has a firm control over inflation. The economy must portray that it can sustain itself. This is through avoiding excess borrowing and deficit. The national exchange rate should be sound and display little deviation from exchange rate mechanism for a period of two years. There are other set criteria that are not associated with the economy such as democracy and the advocating of human rights by the government. When all these requirements have been met, a conversion rate between the country’s foreign exchange and the Euro is agreed and coins and notes are issued to this effect. Benefits of Regional Economic Integration Countries joining regional economic blocs stand to benefit from a range of benefits that are economic, social and cultural. A good example of benefits that may be accrued is that citizens of member countries tend to enjoy more job opportunities. This is because of the present single market. There is also the presence of increased training programs and technical and knowledge exchange between the countries this leads to more research and development programs. Integration also leads to lower cost of living as the free flow of goods and services ensures that prices of remain stable. There is an overall alleviation and reduction of poverty levels across all member states. All countries that are member states of the European Union have enjoyed all the above said benefits. Statistics have shown that there has been increased growth in the development of all sectors of the economy. Following the enacting of Common agricultural Policy, price controls have been put in place and this has led to better regulation in price and also price certainty has been ensured. Farmers have also benefited from subsidies hence ensuring better quality life for the farmers. There has also been development in the energy sector following the enactment of energy policy. This has led to the increase in investments in this sector. The level of competition has been leveled as one of the goals of this policy is to boost competition in markets that are within the member states. The policy also provides for the more research and development in the field of greener sources of energy. The European Union has facilitated infrastructure construction within member countries. All rail, road and marine infrastructure. It is estimated that by this year there will be an addition of 75,200 kilometers of road added to the existing road network and also an additional 210 harbors. It is also through the infrastructure project that the Galileo project was envisioned. Case Study Benefits accrued by Hungary and Austria. As noted by researchers and other scholars, these countries of Hungary have been at the forefront in adapting a free market economic policy. Manifestation of this policy has been through the creation of CEE stock exchange Group. This exchange group comprises of the Vienna, Budapest, Prague and Ljubljana stock exchanges. The CEESEG is the largest group relative to other stock exchanges around the European region, by market capitalization. The main role of the exchange is to increase the amount of liquidity in both local and International markets. Of particular interest is the collaboration of the Vienna stock exchange with others in provision of services such as data vending which is the sale of data to persons of organizations. There is also the joint involvement in projects that will foster better returns for citizens. When the Vienna stock exchange is noted at a glance we cannot help but see how sophisticated it is. There are 92 trading members and out of these 51 are International. There is also the existence of 3 types of electronic systems namely, Cash, derivative and commodities. This is just a tip of the iceberg as there is the presence of 22 ETFs and 3673 bonds. Issues affecting Regional Economic Integration The recent economic downturn has proved to be a litmus test for the European Union. The credit crunch following, the sub prime mortgage debacle in The United States showed how vulnerable the countries in the Union are. Countries most affected were Portugal, Ireland, Greece and Spain. Most of these countries were found to have budget crises that were due to overspending and lack of financing. Due to laws that were set out by the union a bail out of all these member countries was out of question and as we have seen recently this has put the citizens of the country at war path with the European Union. When it comes to Hungary, budgetary deficits are attributed to lack of enough revenue collection. Apart from the economic barriers there are also democratic barriers that affect countries in the European Union. Unless a referendum is held in the member countries regarding new laws and reforms no reforms can take place. This increases chances of delay and the enacting of new laws in the union (Fratianni 206). Business Reforms Businesses have been forced to come up with all manners of solutions including using more technology and outsourcing of non core activities. As companies encountered more and more difficulty in acquiring credit from banks, many of them laid off some of their staff and even countries had to negotiate with banks on how to restructure their loans. Companies had to get rid of bonus packages that they awarded their bosses and employees. Benefits given to the employees like staff retreats have been cut back. Although the challenges facing businesses within the European Union are numerous, governments are taking adequate steps in ensuring that the health of the economy remains stable. A good example would be the Austrian government which is trying to diversify the economy by introducing and exploiting untapped potential such as its skilled workers who can work within the Union. The presence of firms such as General Electric, TriGanit Company in Hungary is evidence of the availability of skilled workers in Hungary. Businesses in the manufacturing sector, although hit hard by the recession, are being granted funds in order to ensure that they stay on course. A decline in the manufacturing sector tends to impact greatly on the economy of the E.U. Governments are also partnering with the private sector in ensuring that they come up with a solution to solve the crisis brought on by the recession. The Basic method being followed by the Austrian government includes establishing facts and implementing the recommendations brought on by committees set up by them. Many economies within the European Union are moving away from a centrally regulated economy to a free market economy. The challenge of integrating their economies with the rest of the World has not been easy but the Union in conjunction with member governments have come up with effective standards to ensure that all countries produce goods and services that follow strict standards. Both the Austrian and Hungarian firms are striving to produce high quality goods that can compete with the rest of the goods from other parts of the World. This was seen through the consumer goods being produced by GE consumer goods. Also through the local stock exchange, firms are now getting access to capital markets which were not in existence during the communist period. Organizations in the two countries can now be cross listed as the Budapest and Vienna stock exchange are members of the wider CEE stock exchange group. Supported by government initiatives, Businesses in the two countries are benefiting from easy access to credit through new and better financial institutions. A good example of this would be the Erste Bank in Austria which offers credit facilities to Businesses and entrepreneurs. Labor in Austria, Hungary and a greater part of Eastern Europe is cheap and this is one of the greatest advantages that the region holds. Governments all across the European Unions are researching into ways that they can reduce the cost spent on energy. “MOL Group” is present in Hungary and is involved- in the supply of energy to local industries in Hungary. Green initiatives are being initiated by all countries in the EU, this aims in attractive foreign investments which have been eluding the region. The European Union is implementing reforms in the capital markets sector. Legislations by policy makers are leading to the creation of pension funds that have been accelerated by institutional investors. This has seen the region emerge from the jaws of the economic crisis that impacted greatly on the economy of member countries. Why Vienna is more developed than Bucharest Vienna is viewed to be more developed than Bucharest as both underwent the ravages of war. Austria was able to escape from the reins of communism much earlier than Hungary. Post war Europe demanded n environment of change and Austria first seized the opportunity by inculcating capitalism. Communism at the time had gained a foothold and countries that followed this path were subject to a mode of central economic governance (King 181). Over time the fruits of capitalism continued to be seen and it is at this point that Hungary decided to adopt capitalism. However capitalism has come under criticism for having failed Hungary and this is due to the fact that they have acquired loan from the IMF that they are finding difficult to service. There is also the aspect that the economy is collapsing under all the weight (King 100). Another difference of why Hungary is less developed is that it went about privatizing national assets the wrong way. Wages have been shown to have fallen and are far worse than the communist days. Works Cited Fratianni, Michele. Regional Economic Integration. San Diego: Emerald Group Publishing, 2006. King, Lawrence. The basic features of postcommunist capitalism in Eastern Europe: firms in Hungary, the Czech Republic, and Slovakia. New York: Greenwood Publishing Group, 2001. Pinder, John. The European Union: a very short introduction. London: Oxford University Press, 2008. Read More