Economic Integration

Definition

Economic integration refers to the process of eliminating trade barriers and coordinating economic policies between countries or regions to create a more unified and interdependent economic system. It involves the removal of tariffs, quotas, and other restrictions on the flow of goods, services, capital, and labor across national borders, leading to increased economic cooperation and interdependence.

5 Must Know Facts For Your Next Test

1. Economic integration can occur at different levels, ranging from a free trade area to a full economic and monetary union.
2. The European Union is a prime example of a highly integrated economic region, with the free movement of goods, services, capital, and labor among its member states.
3. Economic integration can lead to increased competition, economies of scale, and specialization, which can result in lower prices and greater consumer choice.
4. Harmonizing regulations and standards across integrated economies can reduce transaction costs and facilitate trade and investment.
5. Economic integration can also lead to the convergence of living standards and economic development levels among participating countries.

Review Questions

• Explain how economic integration can impact immigration patterns between participating countries.
  • Economic integration, such as the creation of a common market, can facilitate the free movement of labor between participating countries. This can lead to increased migration as workers seek better job opportunities and higher wages in other integrated economies. The elimination of barriers to the movement of people can also encourage the relocation of businesses and individuals to take advantage of the larger, more unified market.
• Describe how economic integration can contribute to economic convergence between participating countries.
  • Economic integration can promote convergence in economic development levels and living standards among participating countries. By eliminating trade barriers and facilitating the flow of goods, services, capital, and labor, integrated economies can experience increased competition, technology transfer, and specialization. This can lead to a narrowing of income gaps and a more equitable distribution of economic benefits, as less developed countries can leverage their comparative advantages and catch up to their more prosperous neighbors.
• Analyze how governments can enact trade policies to support economic integration at the global, regional, and national levels.
  • Governments can use a variety of trade policy tools to promote economic integration. At the global level, they can negotiate and participate in multilateral trade agreements, such as the World Trade Organization, to establish common rules and reduce barriers to international trade and investment. At the regional level, they can form free trade agreements or customs unions to eliminate tariffs and harmonize regulations among a group of neighboring countries. At the national level, governments can unilaterally lower trade barriers, streamline regulations, and invest in infrastructure to facilitate cross-border economic activity and integration with the global economy.

Related terms

Free Trade Agreement:

A trade pact that reduces or eliminates barriers to trade and investment between participating countries, often involving the elimination of tariffs and quotas.

Customs Union: An economic arrangement where a group of countries agree to eliminate tariffs and quotas on trade between them, while maintaining a common external tariff on imports from non-member countries.

Common Market: A type of economic integration where countries eliminate barriers to the free movement of goods, services, capital, and labor, and adopt common policies on matters such as agriculture, transport, and social welfare.