Economic and Political

Integration
 Integration
• Integration occurs when separate people or things are
brought together, like the integration of students from all of
the district's elementary schools at the new college, or the
integration of all traders on “Ajuman-e-Tajran”. You may
know the word differentiate, meaning "set apart." Integrate
is its opposite.
• Economic integration, is a process in which two or more
countries in a broadly defined geographic area reduce a
range of trade barriers to protect a set of economic goals.
 Economic integration
• According to Hill, regional economic integration refers to "agreements
among countries in a geographic region to reduce, and ultimately
remove, tariff and nontariff barriers to the free flow of goods, services,
and factors of production between each other."
• Political integration means that a supranational government impose
taxes on all citizens in order to finance its expenditures.
• Supranational government means a multinational union or association in
which member countries cede their authority & sovereignty on certain
matters. The decisions of union are binding to all member countries. In
short, member countries share in collective decision making on certain
matters that will affect each country's citizens.
 Economic integration
• Economic Market: Where Firms produce a good and compete for
market share.
• Political Market: Where Firms compete for transfers of power from
government.
Levels of Economic Integration
• Free Trade Area (FTAs). Tariffs (a tax imposed on imported goods) among member
countries are significantly reduced, some abolished altogether. Each member country
keeps or maintain its own tariffs for the non-member countries. The general goal of
free trade agreements is to develop economies of scale and comparative advantages,
promoting economic efficiency. The North American Free Trade Agreement (NAFTA=
Mexico, US and Canada ); EFTA: European Free Trade Association consists of Norway,
Iceland, Switzerland are an example of free trade Area.
• Custom Union. Member countries sets common external tariffs to non-member
countries, a common trade regime is achieved. Custom unions are particularly useful
to level the competitive playing field and address the problem of re-exports (using
preferential tariffs in one country to enter another country). East African Community
(EAC), EU–Turkey Customs Union, Gulf Cooperation Council (GCC= Bahrain, Kuwait,
Oman, Qatar, Saudi Arabia, and the UAE)
Levels of Economic Integration
• Common Market. Services and capital are free to move within
member countries, expanding scale economies and comparative
advantages. However, each national market has its own regulations,
such as product standards. In a common market, (1) the members
eliminate internal trade barriers, adopt common external trade
barriers for non-member countries and (2) allow free movement of
resources, for example labor, among member countries move freely
to find jobs. Examples include East African Common Market (Burundi,
Kenya, Rwanda, Tanzania), and West African Common market (Mali,
Niger, Nigeria, Senegal, Sierra Leone).
Levels of Economic Integration
• Economic union (single market). All tariffs are removed for trade
between member countries, creating a uniform (single) market. There
are also free movements of labor, enabling workers in a member
country to move and work in another member country. Monetary and
fiscal policies between member countries are harmonized, which
implies a level of political integration. A further step concerns a
monetary union where a common currency is used, such as with the
European Union (Euro).
Levels of Economic Integration
• Political Union. Represents the potentially most advanced form of
integration with a common government and where the sovereignty of
a member country is significantly reduced. Only found within nation-
states, such as federations where there are a central government and
regions (provinces, states, etc.) having a level of autonomy (USA
states)
• Both political and economic integration are complementary
institutions for growth and incentives of firms. Economic and political
integration together improve economic performance.
Characteristics of Free Trade Area Customs Common Economic & Political Union
Cooperation Union Market Monetary
Union

Elimination of internal
duties
Yes Yes Yes Yes Probably

Establishment of common No
barriers
Yes Yes Yes Probably

Movement of factor of
production
No No Yes Yes Probably

Harmonization of national No
economic policies
No No Yes Probably

Harmonization of national No
political policies
No No No Yes