UNIT 2: MODULE 3
Topic 4: Economic Integration
ECONOMIC INTEGRATION Economic integration is defined as the
coming together of countries with the goal of increasing economic linkages among the group vis-a-vis the rest of the world.
Types of Economic Integration
Free trade area
Customs Union
Common Market
Economic Union
Free Trade Area This is a regional agreement that allows
for the elimination of tariffs (tariff free trade) among member countries, while allowing each member the freedom to levy its own trade restrictions on imports from other countries, that is, each country maintains its own tariff arrangements with other countries.
Examples of free trade areas: FTAA, NAFTA, LAFTA.
Customs Union This is a free trade area plus an agreement to
establish common barriers to trade with the rest of the world.
A customs union is formed when the countries in a free trade area implement a common external tariff (CET) for its members. This means that all good from non member countries coming into the region will command the same tariff rate as to which member country it comes in.
Examples of customs union: ASEAN
Common Market A common market is formed when the
members of a customs union agree to free labour and capital mobility.
A common market is a customs union that also has free movement of labour and capital among its members.
Examples: CARICOM, CSME
Economic Unions This type of union involves the
harmonisation and coordination of macroeconomic policy.
There may be the subsequent loss of economic sovereignty (centralised control of economic policy).
In its strongest form, there is a single currency and exchange rate as in the case of the eurozone.
Benefits of Economic Integration
Free trade within the group
Lower or no barriers within the group
Welfare gains – trade creation
Higher economic growth
Costs/Disadvantages of Economic Integration
Loss of sovereignty
Brain Drain
Loss of jobs
Welfare loss – trade diversion
Objectives of Caribbean Integration
Improved standards of living and work
Accelerated, coordinated and sustained economic development and convergence.
Removal of differences and restrictions/barriers to trade among CARICOM countries
Free movement of regional services, goods, capital and people
Full employment of labour and other factors of production
Enhanced levels of international competitiveness
Expansion of trade and economic relations with third states
Organization for increased production and productivity.
