Sample Economics Paper on International Economics: MERCOSUR

Globalization has made many countries to consider forming regional blocks for trading reasons. MERCOSUR is a regional trade that includes countries in South America. The member countries include brazil, Argentina, Paraguay, and Uruguay. Venezuela is also a member state, although its membership was suspended in 2016. The associate countries to the block include chile, Bolivia, Colombia, Guyana, Peru, Ecuador, and Suriname. Like the EU, MERCOSUR wants to adopt a common currency (Basnet, & Pradhan, 2017). However, the member countries must consider particular economic issues before accepting or rejecting the common currency. This paper discusses the economic issues that must be considered before the countries decide to adopt a common currency.

The common currency among the member states will encourage more economic activity and faster growth. This will happen because of the reduced exchange rate volatility due to a common currency. Exchange rate volatility often causes currency fluctuations that disrupt trade and market integration. Furthermore, it complicates price comparisons, making the exporters and importers pay extra costs of hedging and diminishes the volume of intra-regional trade (Reinert, 2020). Thus, MERCOSUR must consider such issues to accept a common currency or reject it. They will also consider whether the common currency will increase the depth of trading relations (Krugman, Melitz, & Obstfeld, 2018. Using the example of the EU, a common current promotes trading relationships among the countries, which is one factor that should encourage the MERCOSUR members to accept the common currency.

Besides, the countries should consider if the common currency will increase disputes and friction among the countries because of the increased international trade. There are high chances that countries will start competing due to trade growth, leading to cross-border disputes (Basnet, & Pradhan, 2017). These issues must be carefully examined because interstate conflict can greatly affect international trade relationships. The countries should also investigate if the common currency led to more synchronization of business among the countries. Increased synchronization across countries will lead to enhanced business ties among the members, leading to economic growth.

The common currency is supposed to lead to substantial extra gains for consumers within the common currency union. Thus, the MERCOSUR countries must evaluate if adopting the common currency will increase the consumer gains before accepting of rejecting common currency. Finally, the countries must consider if close economic integration can lead to political integration. Political stability and integration in the region will promote trade links. Thus, the member states will accept a common currency to bring political integration (Basnet, & Pradhan, 2017). One of the factors that will make the countries reject the common currency is the monetary policy loss. Monetary policy is essential in limiting inflation. Thus, if the countries realize that the common currency will not limit inflation, they may reject it. A common currency can lead to a situation where stronger countries bail a weaker one, like Germany bailed Greece in the EU (Basnet, & Pradhan, 2017).

The endeavor should include only the member states because they are the ones that enjoy free trade agreements. Making economic decisions among the regional blocks is a tedious exercise that needs to be considered carefully. Many trade agreements must be signed among the members while considers various economic and political aspects of each nation (Reinert, 2020). Thus, including the associate countries will complicate the process, which will lead to the possible collapse of the meetings among the member states concerning accepting the common currency. The associate nations should not be included in the common currency negotiations because a common currency is a serious and permanent commitment. This is manifested in situations trade is more inside the countries unlike between the countries. The member countries should only discuss common currency because they are completely integrated, unlike the associates that are loosely associated with the regional bloc (Krugman, Melitz, & Obstfeld, 2018). The associate should not take part in the common currency discussions because they cannot freely trade due to the protection the member countries of MERCOSUR have created to promote trade relationships. Finally, only the member states musts are included because they will share the common exchange rate and monetary policy and the interests and regulation of the quantity of money.

 

 

References

Basnet, H. C., & Pradhan, G. (2017). Regional economic integration in Mercosur: The role of real and financial sectors. Review of development finance7(2), 107-119.

Krugman, P. R., Melitz, M. J., & Obstfeld, M. (2018). International trade: theory and policy. Pearson.

Reinert, K. A. (2020). An introduction to international economics. Cambridge University Press.