1. Types of groupings(5 types and examples)
• 1. Regional Cooperation Groups- A group of countries that have agreed to participate in basic industries beneficial to each or jointly develop joint ventures that benefit both countries, e.g., Colombia and Venezuela built a hydroelectric dam on the Orinico river which both share
• 2. Free Trade Areas-A group of countries that have agreed to reduce drastically (but not eliminate) all trade barriers such as customs duties and non-tariff barriers (standards). Member countries can have different trade policies for other external countries. Examples of Free Trade Areas: NAFTA, and European Free Trade Area (EFTA) between Iceland, Liechtenstein, Norway, and Switzerland
• 3.Customs Unions-In addition to drastically reducing trade barriers from FTA identified previously, a group of countries that have agreed to eliminate customs duties levied among member countries. Also establishes common external barriers like imposing a common tariff on goods imported from countries out of the association. Examples of Customs Unions: East African Customs Union between Ethiopia, Kenya, Sudan, Tanzania, Uganda, and Zambia
• 4. Common Markets and Economic Unions-In addition to drastically reducing trade barriers, and eliminating customs duties levied from FTA and Customs Unions identified previously, a common market is a group of countries that allow:
▪ the free flow of capital and labor (engineers, doctors, and lawyers can work without recertification) among members
▪ a common currency
▪ a common central bank; and
▪ common policies on transportation, agriculture, social services, welfare, and taxes
Latin America boasts three common markets: the Central American Common Market (CACM), the Andean Common Market, and the Southern Cone Common Market (MERCOSUR).
• 5. Political Unions-The highest level of cooperation among member countries. A group of countries that have agreed to complete political and economic integration and cooperation among members. Examples of Political Unions: COMECON (Council for Mutual Economic Assistance), and U.S.S.R., but it no longer exists
2. Stages of economic development- Walt Rostow classified countries by different stages of economic development
Each stage is a function of the cost of labor, the technical capability of the buyers, the scale of operations, interest rates, and the level of product sophistication.
Stage 1: The traditional society
Stage 2: The preconditions for take-off
Stage 3: The take-off
Stage 4: The drive to maturity
Stage 5: The age of high mass consumption
United Nations classifies a country’s stage of economic development based on its level of industrialization into three categories: MDCs (more-developed countries), e.g., Canada, England, France, Germany, Japan, and the United States. LDCs (less-developed countries), e.g., countries in Asia and Latin America. LLDCs (least-developed countries), e.g., countries in Central Africa.
• Some factors that contributed to economic growth of NICs are:
1. Political stability in policies affecting their development
2. Economic and legal reforms
5. Outward orientation
6. Factors of production
7. Privatization of state-owned enterprises (SOEs)
3. Porter’s 5 Forces (from Wikipedia, no more information on PPT)
Threat of new competition Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition). • The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low....
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