Chapter 12

The Degree of Global Integration and National Economies’ Policy Options and Limitations


The degree of integration leads to two extreme country descriptions. One we call the fully integrated economy, where there are no broadly defined transportation costs. Second, at the other end of the spectrum, we have the autarkic economy with no international trade whatsoever. These two extreme cases lead to vast scenarios regarding the effect of a country’s economic policy. Under the autarkic conditions, the local policy changes have the largest impact on the local economy, while the foreign policy shocks have the least impact whatsoever. An integrated economy facing no transportation costs represents the other end of the spectrum. The ...

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