• thinkigcse.com

What is economic integration?

Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state.

This is meant in turn to lead to lower prices for distributors and consumers (as no customs duties are paid within the integrated area) and the goal is to increase trade.

economic integration stages

integration stages

 

What is a trade agreement?

A trade agreement is a contract/agreement/pact between two or more nations that outlines how they will work together to ensure mutual benefit in the field of trade and investment. 

Trade agreements are often regional, involving only a relatively small number of countries.

Trade agreements are either bilateral, involving only two countries, or multilateral, involving more than two countries.

What is a trade bloc?

A trade bloc is a type of intergovernmental agreement, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.

popular trade blocs

Types of trade blocs

Prefrential Trade agreement

A  preferential trade agreement,  is a trading bloc that gives preferential access to certain products from the participating countries.

This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration.

Free Trade Areas

A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.

However they are free to trade with countries outside of the free trade area

Examples NAFTA, ASEAN, SAARC

free trade areas

Customs Union

An agreement among countries to have free trade among themselves and to adopt common external barriers against any other country interested in exporting to these countries

customs union

Example

  • European Union 
  • East African Community (Kenya, Uganda, Tanzania]
  •  Mercosur [ Brazil, Argentina, Uruguay, Paraguay and Venezuela]

Common Market

A type of custom union where there are common policies on product regulation, and free movement of goods and services, capital and labour.

Best known example is EU

All common markets and economic and monetary unions are also customs unions

Economic & Monetary Unions

A common market with common currency

Where more than two countries use the same currency.

Example Euro

Advantages of single currency

  • Reduces the level of transaction cost.
  • When trading among each other the countries need not worry about possible exchange rate fluctuations.
  • It is easier to make price comparisons between countries.
  • Greater FDI is attracted because of reduced transactions costs, reduced uncertainty and the large size of single currency market.

Disadvantages of single currency

  • Individual countries lose the ability to set interest rates.
  • Individual countries cannot depreciate or devalue its currency value.
  • Huge cost involved such as physical changing, reprogramming computers, producing new price lists etc.

Complete Economic Integration

Individual countries have no control of economic policy, full monetary union and complete harmonization of fiscal policy.

economic integration continum

Evaluation of Economic integration

  • Greater size of the market
  • Potential for exports
  • Greater efficiency
  • More choice
  • Lower prices for consumers
  • Increased foreign investment
  • Greater political stability
  • Free trade among members but discriminatory policies against non-members which might not lead to global economic integration.

 

Further reading

http://www.exporthelp.co.za/marketing/agreements.html

http://www.farmfoundation.org/news/articlefiles/816-vsmith.pdf

Watch a Video

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

WHO'S ONLINE

We have 312 guests and no members online

Crosswords

PDF FILE

Download

MindMaps

PDF FILE

Download

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline