Economic integration

Economic integration

1. Definition

   • • Economica intgration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff ande non tariff barriers to the free flow of goods or services and factors of production among each others.
     • Integration as something static
       • Integration can be achived when certain criteria are fulfilled.
     • Integration as a dynamic process.
       • Represented by stanges of integration going from FTA to political integration.
   • • Any type of arrangement in which countries agree to coordinate their trade, fiscal, and/or monetary polices are referred to as economic integration.

2. Objective

   • The increase of trade between member states of economic unions is meant to lead to the increase of the GDP of its members, and hence, to better welfare.

3. Stanges of economic integration (These differ in the degree of unification of economic polices)

   • 1. Free trade area (FTA)
     • • Designated group of countries that have agreed to eliminate tariffs, quotas on most (if not all) goods traded between them.
       • • To avoid evasion (through re-exportation) the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods
         • • Examples of FTA: Central European Free Trade Agreement (CEFTA) North American Free Trade Agreement (NAFTA)
   • 5. Complete integration (political union)
     • • The integrated units have no or negligible control of economic policy, including full monetary union and complete or near complete fiscal policy harmonisation.
   • 2. Customs union
     • • Members of trade area do not have a common external tariff (with respect to non- members). meaning different quotas and customs.
       • • Introduces unified tariffs on the exterior borders of the union (common external tariffs).
         • • Is a type of trade bloc which is composed of a free area with a common external tarif. The participant countries set up common external trade policy.
   • 4. Economic and monetary union
     • • Is a type of trade bloc which is composed of a single market with a common currency.
       • • Example: Economic and Monetary Union of the European Union.
         • • Es the final stage of economic integration.
   • 3. Single market
     • • A common market add the unification of econoc policies Acommon market is a type of trade bloc which is composed of a customs union with common policies on product regulation, and freedom of momvement of the factors of production (capital and labour) and services between the members is as easy as within them.
       • • Consumers are benefited by the single market in the sense that the competitive environment brings them cheaper products.