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Ecnomic Intergration

Economic integration involves the harmonization of economic policies among countries by removing trade barriers and fostering regional cooperation. It progresses through stages: free trade area, customs union, common market, and economic union, each with increasing levels of economic collaboration and policy unification. Examples include CARIFTA for free trade areas and the European Union for economic unions.

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13 views1 page

Ecnomic Intergration

Economic integration involves the harmonization of economic policies among countries by removing trade barriers and fostering regional cooperation. It progresses through stages: free trade area, customs union, common market, and economic union, each with increasing levels of economic collaboration and policy unification. Examples include CARIFTA for free trade areas and the European Union for economic unions.

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gabriellestewart334
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Economic integration

This is defined as the harmonization and unification of economic policies among countries or
regional blocs by the total or partial removal of trade barriers such as tariffs and quotas and the
fostering of regional cooperation among nations.

The different stages of economic integration


1. Free trade area – is formed when a group of countries come together to form a regional
trading bloc by removing all tariffs and quotas among member countries, but each
country is free to impose whatever tariff it chooses against third countries. This creates a
problem in that the country with the lowest tariff rate can import a product from outside
the region and resell it to the other member countries at a profit. To solve this problem,
member countries are encouraged to establish a common external tariff. An example of a
free trade area is Caribbean Free trade Area (CARIFTA)

2. Customs union – once the members of a free trade area establish the common external
tariff, the free trade area is converted to a customs union.

3. Common market – a common market is formed when the members of a customs union
establish common laws relating to production and distribution. They also establish a
similar rate of taxation. There is free movement of labour and capital among member
countries. There is a harmonization of macroeconomic policy through a program known
as convergence. These macroeconomic indicators would include the rate of inflation, the
rate of unemployment, the nominal interest rate and balance of payment figures.

4. Economic union – is formed when the members of a common market establish a single
currency. There is also a single central bank and countries establish a common rate of
taxation, For example, European union and the organization of Eastern Caribbean
countries.

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