International economic integration, Essence and basic forms of economic integration - International Economics

International economic integration

The term & quot; integration & quot; comes from the Latin word integrio, which means the uniting of any parts, individual elements. From an economic point of view, integration is the result of the mutual adaptation and integration of national economies of different countries into a single economic system. The main conditions, prerequisites for the creation and effective functioning of regional integration associations are:

- the proximity of the conditions of economic development and the degree of market maturity of integrating economic systems;

- the geographical proximity of the countries joining the integration union, the existence, as a rule, of a common border, as well as historically formed economic and political ties;

- the commonality of economic, social and other problems facing the countries in the field of development, financing, regulation of the economy, political cooperation, etc.

The main goals of functioning and newly created integration associations, as a rule, are:

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- creation and use of the effect of the scale of the common market;

- creating a stable and predictable environment for mutually beneficial trade;

- assistance in restructuring economic systems through the use of experience of partner countries with a higher level of development;

- strengthening of mutual understanding and cooperation of countries in political, social, cultural and other non-economic areas.

Key terms:

liberalization of world economic relations; preferential agreements; preferential trading club; Free trading zone; Customs Union; full economic union (common market); integration effects: static, trade deviations, trade creation, dynamic; the flow deflection effect model; model of flow-forming effect; integration associations: EU, NAFTA, ASEAN.

The essence and basic forms of economic integration

The development of integration processes in the world economy, observed in recent decades, is a logical result of the growth in the volume of international trade and the increase in the intensity of the international movement of factors of production, which required the creation of more reliable supply-and-demand links between countries, as well as the removal of obstacles still in the way international trade and the movement of factors of production between countries. It was possible to do this only within the framework of interstate integration associations (political and economic).

■ Economic integration - the process of economic interaction between countries, leading to the liberalization of international economic relations, which is reflected in the reduction and removal of restrictions on their implementation.

There are three main approaches to liberalizing world economic relations and, first of all, world trade: international, regional and transnational.

The international approach is implemented through international conferences (rounds) under the auspices of the World Trade Organization, whose goal is to reduce tariff and non-tariff barriers in international trade around the world.

The transnational approach is being actively implemented, most recently, through the production and economic activities of transnational companies (TNCs).

The regional approach involves reaching agreements between a small number of states whose purpose is to establish a free trade regime between these states while maintaining trade restrictions with the rest of the world. The European Community (EU) and the Agreement between the United States, Canada and Mexico (1994) are the most famous examples of such preferential trade relations.

Even if the signing of such agreements is conditioned more by political than by economic factors, such regional trade groups initiate a number of important economic problems and issues:

- is the formation of regional trade groups a movement towards free trade or is it an increase in protectionism

- whether preferential agreements increase the economic efficiency and welfare of the entire world economy as a whole;

- is the formation of regional economic unions profitable for all member countries?

Let's try to answer these questions.

First of all, we note that preferential trade agreements can be implemented in the form of such structural entities as:

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- preferential trading club

- free trade area

- the customs union;

- common market;

- an economic union (full economic union).

At the same time, the preferential trading club is the lowest level of economic integration, and the economic union is the highest.

Consider the listed forms of economic integration in more detail.

Preferential trading club (association). Two or more countries form a preferential trading club if they reduce duties on the import of all goods (excluding capital) for each of the club members, while retaining their initial tariffs for everything the rest of the world. An example of such a form of economic integration can be the Commonwealth System of Preferences, which was established in 1932 by the United Kingdom and 48 states, most of which were its own colonies.

Free Trade Zone. Two or more countries form a free trade area (free trade association) if they abolish all trade barriers (duties and quantitative restrictions), but retain each of their trade barriers to relation to third countries. In such a zone, customs control at the borders of the participating countries should be preserved. Its purpose in this case is to tax or ban imports from third countries that could enter the zone through the low customs barrier of the neighboring country. An example of a free trade area is the European Free Trade Association (EFTA), formed in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom.

Customs Union. Two or more countries form a customs union if they abolish all customs restrictions in the mutual trade of all goods (except servicing of capital) and also adopt (create) a single system of external trade barriers with third countries, thereby eliminating the need for customs service on internal borders. In relation to trade, the example of a customs union is the European Economic Community (EEC).

Common market. Two or more countries form a common market if they create a customs union and, in addition, allow free movement of all factors of production among themselves (migration of labor and capital). An example of a common market is the EEC, or the European Common Market, which has the official name - European Communities.

In principle, the free movement of factors of production within a certain grouping of countries should promote a more rational use of aggregate resources, the development of the division of labor and the specialization of production. However, the full implementation of this is hampered by differences in economic policy pursued by states that are part of a common market.

Economic Union. Two or more countries form an economic union if they create a common market and, in addition, unify their economic policies, including monetary, fiscal and social, as well as trade policy and movement of labor and capital. An example of an economic union was Benelux - an economic union formed by Belgium, the Netherlands and Luxembourg (the term Benelux is composed of the first letters of the names of the participating countries). These three countries formed a customs union in 1949, which in 1960 was turned into an economic union.

A vivid example of an economic union is the United States of America, where the 50 states are combined into a full economic union with the common currency and the single central bank (the Federal Reserve System). Trade between individual states is free, and capital and labor freely move in pursuit of maximum profit. Fiscal and monetary policies, as well as international relations, military expenditures, pensions, health programs, are unified and provided by a single federal government. Other programs, such as education, culture, ordering (police), are funded by the states, which allows the latter to assert their "identity" within the union.

The economic union is the highest form of economic integration, to which the European community is currently seeking.

In a generalized form, the characteristics of modern types of trade and economic unions are presented in Table. 14.1.

Table 14.1. Summary of Economic Unions

Integration Forms

Free trade within the union

Common tariffs and quotas to third countries

Free movement of factors of production within the union

Unified economic policy of the participating countries

Free Trade Zone





Customs Union





Common Market





Economic Union (full)





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