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What is Economic Integration?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 27 September 2016
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Economic integration is a process where barriers to trade are reduced or eliminated to facilitate trade between regions or nations. There are varying degrees of economic integration ranging from theoretically completely free trade to the use of preferential trade agreements to stimulate relationships between specific trade partners. Removing trade barriers comes with costs and benefits, depending on the degree of integration and the level of cooperation between member regions or nations.

Many economies have attempted some degree of economic integration. Some nations use free trade zones, for example, to stimulate trade with partners. Others sign free trade agreements like the North American Free Trade Agreement (NAFTA). In the European Union (EU), a high degree of economic and monetary integration has been accomplished between member nations. Various EU nations may also have trade agreements with nations outside the union.

Reducing barriers to trade has the tendency to cut costs associated with economic activities. Not having to pay taxes, tariffs, fees, and other expenses can be beneficial for trading partners. This causes the volume of trade to increase, as trading partners actively seek out deals in regions where some degree of economic integration has been achieved. For nations outside integration agreements, however, barriers to trade can be created as they may not be able to compete with preferred trading partners.

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When economies are strong, economic integration has benefits for all members, and every member of an agreement, union, or treaty can experience economic growth. The same holds true of economic downturns. When individual members of a trade agreement start to be dragged down, their economic problems can spread. This was notably seen in the European Union during the economic crises of the early 2000s, when bad debt in nations like Greece and Portugal caused problems across the EU, including in nations with relatively strong economies, like Germany.

As regions and nations embark on economic integration programs, they weigh the costs and benefits of integration carefully to see if it is the right choice for their needs. Some nations may prefer to avoid the risks, even though barriers to trade may pose a problem. Others may be willing to take on the risks in exchange for increased trade and foreign exchange. Growing nations are often particularly eager to engage in economic integration, as trade with foreign nations can contribute to rapid economic growth. They may use incentive programs to attract foreign trade and investment.

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burcinc
Post 3

I wonder if globalization resulted in economic integration or the other way around?

Of course, there were economic agreements and trade long before globalization. I read that there was European economic integration before the European Union as well. But I can't imagine that it was as extensive as today. The technology, means of communication and movement of goods were still pretty limited.

At the same time, I'm sure that economic integration has helped the world globalize too. Do you remember being taught about the Silk Road and the Spice Road in school? Different cultures had learned new technologies from one another with the help of trade. So economic integration today must obviously help spread new technologies.

I guess both globalization and economic integration go hand in hand. They help and improve one another. Do you agree?

fify
Post 2

Not just countries, but the business sector grows much faster with economic integration. There is an article in a magazine talking about corporations like Walmart and General Motors. They couldn't have grown the way they have if it weren't for economic integration.

Corporations are able to profit when they attain raw goods and other services from other countries for cheaper. Consumers benefit too because they can buy quality for less. So all in all, economic integration is impacting so many different things. It makes our country wealthier but also improves our quality of life. Sweet!

ddljohn
Post 1

I think that economic integration has a strong political and ideological factor as well. Countries who make trade with one another easier are generally similar in terms of development, wealth and ideology.

I say this because of growing economic integration initiatives among countries of the South- countries in Asia, Africa and Latin America. These countries are developing countries and many claim that they feel left out of trade agreements among the more developed countries.

So they don't just have shared interests but also feel close to one another politically.

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