Economic Integration

Economic integration is a process in which two or more countries remove or limit trade barriers and coordinate fiscal and monetary policy. The main purposes of such an integration are to advance trade between countries, help customers and producers and abolish tariff restriction on trade (fully or partially). Economic integration may be a regional integration as well, in case members of economic integration have common borders.

Economic integration goes gradually, there are six defined stages of it:

1. free trade zone;
2. customs union;
3. common market;
4. economic union;
5. economic and monetary union;
6. complete economic integration.

Benefits of Economic Integration

There are three main advantages of economic integration for all members of the union. The first is trade formation, because of reduction or removal of tariffs, for customers purchase becomes cheaper. The second advantage is more employment options appear, with borders disappear, restrictions on labor movement disappear as well. Trade liberalization results in market growth and transboundary investment. The third advantage is easier consensus and cooperation, as it’s always easier to agree within a smaller number of countries. Also, political cooperation becomes easier as economic relations become closer.

Potential disadvantages of economic integration

Although economic integration has a wide range of pros, there are cons of the union as well. It may be noticed in several points:

• Trade diversion. For sure trade becomes much more diverse. It means that countries trade more within the union, even if some of them want otherwise. In general, such unions may simultaneously remove trade barriers and form new ones.
• Loss of national sovereignty. Often after entering the union a country starts to lose its original economic and political rights in order to have the same system as all union countries have.
• Employment shifts and reductions. There are two main points. The first is that producers are prone to move their manufacturing to places, where the manufacturing takes less expenses, thus, people lose their job. The second is that people are prone to move to the places with higher salaries and better life conditions, thus, countries with lower development are prone to lose promising workers.

Since economic integration is considered as a positive thing, which definitely results in many notable advantages, there are numerous institutions that attempt to estimate the degree of economic integration in different regions. The range of estimated economic indicators is wide and comprises such indicators as cross-border capital flows, trade in goods and services, etc. Also, estimating includes factors as consumer and investor rights protection.

Example of Economic Integration

In 1961 an Association of Southeast Asia (ASA) was created as a prototype of a future Association of Southeast Asia (ASEAN), which was formed in 1967 and comprised 5 countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand). By 2022 ASEAN includes 10 members, to the 5 mentioned above countries is added Brunei, Cambodia, Laos, Myanmar, Vietnam). ASEAN facilitates political, educational, and educational integration between its parts and countries in Asia-Pacific. Its main purposes are economic growth and cultural development.