Economic Integration Via External Markets and Factors
In a previous paper, I compared the definitions and concepts of economic integration of Tinbergen, Balassa and Myrdal . To Tinbergen, integration meant free trade, to Balassa, the absence of governmental discrimination, to Myrdal, factor-price equalisation.1 There is something to be said for each definition, and something against it. Free trade provides factor-price equalisation, of course, under certain assumptions regarding competition, absence of transport costs, numbers of goods and factors, etc. In the real world these conditions are seldom met, and freedom to trade cannot provide integration between two countries which are so distant from one another that they barely trade at all. The absence of governmental discrimination subsumes free trade, but goes beyond it to permit factor movements. With free trade under certain limited assumptions, or with free movement of all factors, or some combination of the two, factor-price equalisation could be achieved, and the Balassa definition would be covered by the Myrdal. But it need not be. If governments do not discriminate against factors by nationality, the factors may themselves do so.
KeywordsInterest Rate Free Trade Foreign Firm Economic Integration Factor Price
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