Quiz 9: Regional Economic Integration


The potential of the economic benefits of the trucking provisions of the NAFTA would have been of great competitive advantage to both US and Mexico. It would have enabled 1) US and Mexican companies to reduce their transportation costs and increase the efficiency of the logistics. 2) Generated employment for the Mexican trucking industry. This would raise the economic development of Mexico. 3) This would generate a greater demand for US made goods. 4) Reduce the cost of goods coming from Mexico. 5) Would have resulted in improving the quality of the trucks being used by the Mexican truckers, thus improving their overall trucking standards. 6) Since these trucks would most probably have to be bought from the US, they would have generated additional business for the US truck manufacturers. The losers would be: 1) The US truckers who would be losing their business of transporting Mexican goods from the US-Mexico border to other destinations in the US. 2) The US consumer who would be paying a higher prices for its products due to the higher logistical costs. 3) The Mexican trucking industry due to lose of long-distance trucking contracts. 4) The Mexican economy due to less job creation. 5) The US economy due to loss of demand for its goods in Mexico, including additional trucks.

NAFTA has resulted in massive increases in labor productivity in the US, Canada, and Mexico. Trade between the three nations has increased significantly. The most negative analysis of job losses shows that the US job losses possibly attributable to NAFTA have been a drop in the bucket compared to US jobs created each year and nowhere near the catastrophic job losses predicted by opponents of NAFTA. Mexico has become a prosperous and stable democracy, a boon to both the US and Mexico due to the US's long border with Mexico. Overall, NAFTA has resulted in significant net benefits for all three nations involved.

Regional economic integration creates a lot of opportunities for the various businesses in the entire area. These are: 1) It opens up the entire area as a single market. The major advantage is economies of scale. However the cultural differences have to be taken into consideration. These may cause one to have different models for different countries. 2) It allows a firm to distribute its production facilities to take benefit of the comparative advantage offered by various countries in the area for the various stages of the production process as well as the various factors of production. The firm can base its decisions on the basis of an optimal mix of factors of production and skills. 3) Some markets that were traditionally difficult to enter are now open. 4) It may be beneficial to locate manufacturing within the area to benefits from the unified market, harmonized product standards and simplified tax regimes. These are some of the major benefits of regional integration. As mentioned earlier the cultural differences must be taken into consideration. For example a Dutch manufacturer thought he could sell one range of cooktops throughout the EU. To his chagrin he found out that this was not the case. The German like their cook tops white, while the French prefer them black. The British want them in pastel shades. The Belgians want large burners for their big pots, the German oval burners for their oval pots while the French like small burners for their delicate sauces. The Germans want the knobs on top but the French want them in the front. Also, earlier where one may have had to establish a presence in 28 countries now a single presence can serve the entire market. One can locate one's manufacturing facilities in one or two most suitable locations to get both economies of scale and a logistical advantage.