Economic Integration

Economic Integration

1. Describes a process wherby countries coordinate and link their economic policies

2. As the degree of economic integration increases, the trade barriers between countries decreases

3. Trading blocs

   • It is defined as a group of counties that join together in some form of agreement in order to increase trafe between themselves
   • Preferential trading areas (PTA)
     • Bloc type that grants preferential acces to a certain type of product
   • Free trade areas
     • is an agreement made between countries, where the countries agree to trade freely among themselves, but are able to trade with countries outside of the agreement
   • Custom unions
     • agreement made between countries, where the countries agree to trade freely among themselves, and they also agree to adopt common external barriers against other countries
   • Common markets
     • customs union with common policies on product regulation, and free movement of goods, services, capital, and labour
   • Economic and monetary union
     • common market with a common currency and a common central bank.
   • Complete economic integration
     • final stage of economic integration, at which point the individual countries involved would have no control of economic policy

4. Trade creation and trade diversion

   • Creation
     • occurs when the entry of a country into a customs union leads to the production of a good or service transferring from a high-cost producer to a low-cost producer
   • Diversion
     • occurs when the entry of a country into a customs union leads to the production of a good or service transferring from a low-cost producer to a high-cost producer.