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Economic Integration

Definition

Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the level of welfare, while leading to an increase of economic productivity of the states.

What is 'Economic Integration'

Economic integration is an economic arrangement between different regions, marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, and to increase trade between the countries taking part in the agreement.

Explaining 'Economic Integration'

There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets, economic and monetary unions, and political unions. The more integrated the economies become, the fewer trade barriers exist, and the more economic and political coordination there is between the member countries.

Pros and Cons of Economic Integration

As with most things in economics, there are potential benefits and costs of economic integration. The advantages of economic integration tend to fall into three categories: (1) trade benefits, (2) employment, and (3) political cooperation. More specifically, economic integration typically leads to a reduction in the cost of trade; improved availability and wider selection of goods and services; and efficiency gains that lead to greater purchasing power. Employment opportunities tend to improve as trade liberalization leads to market expansion, sharing of technology, and cross-border flows of investment. Political cooperation can also improve with stronger economic ties, which can help resolve conflicts peacefully and lead to more stability.

Measuring Economic Integration

Because economists and policymakers believe economic integration leads to significant benefits for society, there are many institutions that attempt to measure the degree of economic integration across countries and regions. The methodology for measuring economic integration typically involves the combination of multiple economic indicators, including trade in goods and services, cross-border capital flows, labor migration and others. It also includes measures of institutional conformity, such as membership in trade unions and the strength of institutions that protect consumer and investor rights. A standardized ranking of European Union countries shows that Finland, Austria, Spain and France are the most integrated into the EU.


Further Reading


Measuring financial and economic integration with equity prices in emerging markets
www.sciencedirect.com [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

How far will international economic integration go?How far will international economic integration go?
www.aeaweb.org [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

Models of economic integration and localized growthModels of economic integration and localized growth
ideas.repec.org [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

Economic integration and the comovement of stock returnsEconomic integration and the comovement of stock returns
www.sciencedirect.com [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

North American Economic IntegrationNorth American Economic Integration
ideas.repec.org [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

ASEAN economic integration: trade, foreign direct investment, and financeASEAN economic integration: trade, foreign direct investment, and finance
papers.ssrn.com [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …

European economic integration in times of crisis: a case of neofunctionalism?European economic integration in times of crisis: a case of neofunctionalism?
www.tandfonline.com [PDF]
The objectives of the paper are to review the trends and highlight the prospects for enhancing economic integration in East Asia. In the past, political differences, separate economic interests, multiplicity of the culture and different ideological disagreements have …



Q&A About Economic Integration


Where does one measure the degree of economic integration across countries?

One measures this at institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF), European Union (EU), North American Free Trade Agreement (NAFTA), Association for Southeast Asian Nations (ASEAN).

What are some common indicators used when measuring degrees of economic integration?

Some common indicators include trade in goods/services/capital flows/labor migration/institutional conformity among others. It includes measures on institutional conformity such as membership in international organizations like WTO or IMF or regional ones like EU or NAFTA or ASEAN etc., labor mobility through bilateral agreements on work visas etc., capital mobility through free flow rules for FDI etc., consumer protection rights through harmonized product standards etc., intellectual property rights through patent law harmonization etc..

Are there any disadvantages to complete economic integration?

Yes, there are several disadvantages including a loss of national sovereignty and increased risk from global markets.

What are some examples of countries that have completed economic integration?

The United States, Canada, Australia and New Zealand are examples of countries that have completed economic integration.

What are three advantages of economic integration?

The advantages of economic integration tend to fall into three categories

What is economic integration?

Economic integration is an economic arrangement between different regions, marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.

What is complete economic integration?

Complete economic integration is the final stage of economic integration.

How does political union affect an economy?

Political union is required because for an economy to be most effective it is necessary for all provinces to be at the same stage of the economy.