International trade and investment patterns Essay

International trade and investment patterns - Essay Example What is the significance of a single European Market for EU-based companies? What are international trade and investment theories involved in the economic integration of Europe? Given emerging economies like China and Russia, what is the significance of a single European Market for both the emerging economy and the EU-based companies? What strategies can EU companies adopt to benefit from the rise of the emerging economies? These are among the questions that will be addressed by this report. The primary objective for the report is to illustrate the importance of economic integration both for European business companies and the emerging economies. II. Main Purposes of the European Union and Forms of Economic Integration The official webpage of the European Union emphasised that one of the key goals of the European Union is to â€Å"foster economic cooperation† (Economic Union paragraph 20). However, â€Å"what began as a purely economic union also evolved into an organisation spanning all policy areas, from development aid to environment† and the name change from the European Economic Community (EEC) into the European Union or the EU in 1993 â€Å"reflected this change† (European Union paragraph 3). ... The forms of economic integration or regional integration are a regional trading arrangement, free trade area, a customs union, common market and the economic union (Carbaugh 271-273). A regional trade arrangement is an agreement whereby participating countries agree to reduce international trade tariffs among themselves (Carbaugh 271). In a free trade area, countries maintain lower tariff among them but maintain variable trade policies with other countries (Carbaugh 273). In a customs union, countries impose lower tariffs among member countries and harmonises a common trade policies with non-member countries (Carbaugh 273). A common market integrates the economies of member countries by calling for features similar to a customs union while allowing unhampered factor flows (labour and capital) at the same time (Carbaugh 273). In contrast, an economic union as represented by the European Union, has the features of a common market but, in addition, it calls for the fiscal and monetary integration (Carbaugh 273). Monetary integration in the EU shields Europe from the potentially harmful effects of a flexible exchange rate (Krugman & Obstfeld 617). Other than having a basis in trade theory, economic integration has a sound basis in investment theory. III. Investment Theory and the European Union Economic integration or economic unionism promotes a united Europe but what does it do for business and investments? At least two investment theories support the view that the economic integration of Europe is a step forward. One of the investment theories pertain to the theory of economy of scale (Denisia 57). Economic theory holds that scale influences returns from