Economic integration | Definition | Benefits | Forms

The post second world war period witnessed a growing interest in integrating national economies at regional levels. The need for

  • Realization of limitations imposed by national frontiers,
  • Benefits of wider market,
  • Increased trade,
  • Investment and
  • Economic efficiency motivates formation of regional economic groupings, also known as economic integration.

Definitions of economic integration

The following are some of the important definitions of economic integration.

1. “The creation of the most desirable structure of international economy, removing artificial hindrances to the optimum operation and introducing deliberately all desirable elements of coordination and unification”— Tinberger

2. Belassa defines economic integration as

“a process and as a state of affairs”. Process connotes abolishing discrimination between different nations, and state of affairs may mean the absence of various forms of discrimination between nations”.

Benefits of economic integration

The benefits of integration may be as follows:

1. Economies of scale: Economic integration offers economies of scale. When markets are limited, there will be no scope for expanding production. Economic integration consists of many countries which have come together for common purpose. So, it enables access of the products produced by any member country. Thus, expanded production is possible which offers economies of scale to the manufacturers of export products.

2. Employment prospects: Regional economic cooperation allows adoptions of technological changes and easier capital movement. This will facilitate qualitative improvement in production. Large expansion of production at lower cost of production extends the market for the products. Simultaneously, there is an increasing need for labor to cope with expanded production. Ultimately, there will be free flow of labor taking advantage of employment opportunities.

3. Improvement in terms of trade: Regional groupings give member countries better bargaining power with the world markets. Better bargaining power improves the trade prospects of the member countries.

Major Regional Economic Groupings or Forms of Economic Integration

The basis of cooperation and the degree of integration among the willing countries gave rise to several forms of integration. The important ones include:

  1. European Union (EU)
  2. European Free Trade.area (EFTA)
  3. North American Free
  4. Southern common market Trade Agreement (NAFTA)
  5. The Andean Community
  6. Caribbean Community; and Common Market (CARICOM)
  7. The Global System of Trade Preferences among Developing countries
  8. Countries Bangkok Agreement
  9. Central American Common Market (CACM)
  10. Association of South East Asian Nations (ASEAN)
  11. South Asean Preferential Trading Agreement (SAPTA)
  12. Asea Pacific Economic Cooperation (APEC).