ASSIGNMENT COVER SHEET
Personal Details:
Name:
Puneswaran A/L M Gobi
ID Number:
911111075185
Course Details:
Course Name:
Master of Business Administration
Course Code:
MIB505
Lecturer’s Name:
DR Affendy Abu Hassim
Assignment Details: Assignment 1 2 3 4 5
Literature Review
Literature Review On Economic Integration
Word count:
4,302
Due Date:
28 August 2021
Date Submitted:
22 August 2021
PLEASE NOTE
All assignments are the responsibility of the student.
Ensure you keep a copy of your assignment before submitting.
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Abstract
The impact of economic integration is contradictory and a sectoral analysis of the economy may be
necessary to understand the impact and impact of policies on the economy and consumer welfare.
Economic integration is expected to facilitate the distribution of goods, services and factors, and the
main objective is to promote economic growth and development. Before approving the agreement,
the departmental analysis of the impact of economic integration should be the main focus of
political leaders and the government.
Economic integration is an economic policy alliance between different countries through the limited
or complete elimination of tariff and non-tariff barriers between trade, services and factors of
production. The short-term benefits of integration can be affected by national or international trade
factors or external factors, while the long-term benefits can only be affected by the dynamics of the
national or international market (Joao, 2009).
The process of regional economic integration in Southeast Asia began with the establishment of the
Association of Southeast Asian Nations (ASEAN) in August 1964. Its responsibility is to accelerate
the economic growth, social progress and political security of various countries. Malaysia is
currently a partner in three regional economic integration agreements and six bilateral free trade
agreements. Two agreements are awaiting implementation, and more agreements are under
consideration. The country is a signatory and member of regional economic integration such as the
Association of Southeast Asian Nations (ASEAN), the ASEAN Free Trade Area (AFTA) and the
Asia-Pacific Economic Cooperation (APEC). Malaysia has established bilateral free trade relations
with Pakistan, New Zealand, Chile, Japan, Australia, and India, and ASEAN has established
regional trade relations with India, China, the European Union and South Korea (MITI, 2013).
Bilateral free trade agreements with the European Union and Turkey are awaiting implementation.
Turkey’s strategic proximity to markets in Europe and the Middle East can strengthen existing
markets and create new markets and consumers for Malaysian products. After four years of
negotiations, the bilateral free trade agreement (MTFTA) between Malaysia and Turkey was
concluded in April 2014. However, its implementation has yet to be announced. In theory, the
agreement is expected to promote the liberalization of bilateral trade, trade in goods and services,
reduce or eliminate tariffs on a large number of products, and promote economic relations between
the two countries. The 30% preferential tariff on Malaysian palm oil and MTFTA products has an
impact. As a result, the relative prices of palm oil and its products have changed, reducing Turkish
imports of palm oil and products from the rest of the world and increasing its share of the Malaysian
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market. Palm oil is the most traded vegetable oil in the world, followed by soybean oil, sunflower
oil and rapeseed oil. Indonesia and Malaysia dominate world palm oil production and trade, both
accounting for more than 85% of world production and exports. Malaysia has led palm oil exports
for four decades and the sector has contributed to job creation, agricultural and industrial added
value, income and economic growth. The industry created 610,000 jobs (Choo, 2012) and export
earnings were RM80.4 billion, representing 9.1% of GDP in 2011. In 2012 and 2013, export
earnings were 71 , 4 billion ringgit and 61.3 billion ringgit respectively, and their contribution to
GDP was 7.6% and 6.2% respectively. The main export destinations for Malaysian palm oil are
China, India, the Netherlands, the United States, Pakistan, Japan, Iran, Egypt, Singapore, Benin,
Bangladesh, the Philippines, Turkey and Russia. India became Malaysia’s largest palm oil importer
in 2014, with a market share of 19%, followed by China (16%), the Netherlands (9.3%), Pakistan
(4.7%) , The United States (4.5%) and other countries. countries (66.5%)).
The main objective of this study is to use the partial equilibrium model method to examine the
impact of the bilateral trade agreement between Turkey and Malaysia on the welfare and income of
the palm oil sector. The WITS model developed by the World Bank and the United Nations
Conference on Trade and Development (UNCTAD) is used to simulate three scenarios.The
structure of this report is as follows: Part 2 provides an overview of the literature review of the
region and bilateral trade agreements. Part 3 provides background information on the impact of
Malaysia’s former bilateral trade agreement on palm oil. Part 4 discusses the methodology and Part
5 presents the estimated results. Part 6 draws conclusions and points out the direction Malaysia
policymakers should take.
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Literature Review
According to (Yarbrough and Yarbrough, 2006), the protectionist element of economic integration is
called trade diversion, while the liberalization element is trade creation. When the tariff reduction of
a specific country on a certain product reduces the price of the product in the domestic market, trade
occurs (Villa et al., 2012). Due to the fall in domestic prices, the expansion of existing product
markets, the creation of new product markets, and the increase in external income of domestic
consumers due to lower import costs, these effects are increasing supply of the export products.
Trade diversion is the transfer of trade from non-members to members with the same total quantity
of imported goods. The concept of the influence of trade diversion and trade creation on regional
economic integration began with the pioneering work of (Viner, 1950) called Wiener’s Theory.
Viner defines trade diversion as a change in trade from a cheaper manufacturer to a more expensive
manufacturer, and trade creation is a trade from the most expensive manufacturer to the cheapest
manufacturer (Wadim, 2013). In addition, he believes that the increase in trade within the members
of the Customs Union may not translate into an improvement in welfare, but depends on the extent
to which the increase in trade develops in the direction of trade creation or trade transfer. When
trade increases due to trade creation, economic integration will increase the welfare of member
