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Common Markets

Jul 1, 2010 • Demand, Supply, and Markets, Developing Economies, Economic History, Economic Thinkers, International Trade and Finance • 189 Views    No Comments

Kenyan coffee exporters have a problem at the Tanzanian border. “On the Kenyan side they operate 24 hours a day, but on the Tanzanian side it’s 12 …We have had drivers standing at the border for 4 days. These things make the final price of our coffee up to 3 times that of the local product.” The solution? 5 East African nations are creating a common market. 

In his America and the New Global Economy Teaching Company course, Professor Timothy Taylor explains why the Europeans wanted a common market. Assume for a moment that you own a factory and start exporting goods to a nearby country. You have to wait at the border and have your trucks approved by customs. You have to be sure that you comply with their product safety laws. You need to use their currency. 

Dr. Taylor says that with a common market you could enjoy the benefits of the 4 freedoms: 1) People, 2) Goods and services, 3) Labor, 4) Capital. The benefits of a European common market initially included one set of regulations instead of 15, labor that could move more freely, and capital that was more accessible.

It is amazing that our founding fathers created our “common market” when they replaced the Articles of Confederation with the Constitution. The European process was accelerated with the Single Market Act in 1986. And now, Burundi, Kenya, Rwanda, Tanzania and Uganda are trying to move in a similar economic direction.

The Economic Lesson

In an Econtalk lecture, Professor Russ Roberts talks about the connection between Adam Smith, David Ricardo, and trade. Starting with Smith and then moving to Ricardo, he points out that the optimal potential of markets is realized when they grow larger. “The more people we trade with, the greater the opportunity to specialize and innovate…” and grow.

This returns us to the benefits of the East African Common Market, the EU and the United States. 

At another time we will look at NAFTA.

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