Economic integration / its benefits
Economic Integration
Economic integration is an arrangement between different regions that often includes the reduction or elimination of trade barriers, and the co ordination of monetary and fiscal policies. Economic integration aims to reduce costs for both consumers and producers and to increase trade between the countries involved in the agreement. As economies become integrated, there is a lessening of trade barriers and economic and political coordination between countries increases. There are seven stages of economic integration: preferential trading area, free trade area, customs union, common market, economic union, economic and monetary union, and complete economic integration. The final stage represents a complete monetary union and fiscal policy harmonization. In other words, Economic integration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non tariff barriers to the free flow of goods or services and factors of production among each others; any type of arrangement in which countries agree to co-ordinate their trade, fiscal, and/or monetary policies are referred to as economic integration. Benefits of Economic Integration
The economic integration between two or more countries brings the following main benefits
(i) Economies of Scale: The individual countries, having small internal market, have limited capacity to expand production. The economic integration. provides an unrestricted access of the products produced by any member country. This gives strong inducement to expand production and exploit fully the economies of scale.
(ii) International Specialisation: The economic integration enables the member countries to attain a greater degree of specialisation in both products and processes. Specialisation based on comparative cost advantage by a specific geographical region can cause considerably large expansion in production.
(iii) Qualitative Improvement in Output: The regional economic cooperation among a number of countries leads to rapid technological changes and larger and easier capital movements. The member countries, in such favourable conditions can bring about qualitative improvement in. production.
(iv) Expansion of Employment: As some countries organise themselves into regional economic groups and allow unrestricted flow of labour within the region, there can be maximisation of employment and income.
(V) Improvement in Terms of Trade: The economic integration greatly increases the bargaining power of the member countries vis-a-vis the rest of the world. That brings about a significant improvement in their terms of trade.
(vi) Increase in Economic Efficiency: The economic integration results in increased competition within the region. That helps in maintaining a higher 1 vel of economic efficiency of the group as a whole.
(vii) Improvement in Living Standard: As some countries organise themselves into regional groups, there is easier availability of superior varieties of goods at competitive prices. The increase in employment opportunities and the purchasing power too contributes in improving the living standards of the people.
(viii) Increase in Factor Mobility: The economic integration leads to dismantling of barriers upon the movement of labour and other factors among the member countries. Increased factor mobility enlarges employment; lowers factor costs; and promotes productive activity in all the member countries.
