ECONOMIC INTEGRATION

Topics: European Union, International trade, World Trade Organization Pages: 23 (7596 words) Published: June 14, 2014
Economic Integration

Definition of 'Economic Integration'
An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement.

Investopedia explains 'Economic Integration'
There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets and economic and monetary unions. The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. 

By integrating the economies of more than one country, the short-term benefits from the use of tariffs and other trade barriers is diminished. At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse.

Approaches to economic integration include:
Global integration via the World Trade Organization
Bilateral integration between two countries
Regional integration via an economic bloc

Arguments Surrounding Economic Integration

A number of arguments surround economic integration. They center on (1) trade creation and diversion, (2) the effects of integration on import prices, competition, economics of scale, and factor productivity, and (3) the benefits of regionalism versus nationalism. European Integration

1. Formation of a free trade area: the gradual elimination of tariffs, and other barriers to trade among members. 2. Formation of customs union: the creation of uniform tariff schedule applicable to imports from the rest of world. 3. Formation of common market: the removal of barriers to the movement of labor, capital, and business enterprises. 4. The adoptional of common agricultural policies.

5. The creation of an investment fud to channel capital from the more advanced to the less developed regions of community.  The deterrent effects of economic integration

Economic interdependence and international conflict studies have traditionally focused on the role of bilateral trade on direct deterrence, mostly omitting its indirect effects on third-party states. While scholars in the extended deterrence literature have examined the role of defender–target trade in deterring aggressors, most empirical research has remained limited to immediate deterrence and neglected general deterrence. This article synthesizes these literatures and goes beyond the dyad-level analysis in trade–conflict studies by focusing on the deterrent effects of trade. I claim that trade ties between the defender and target are not sufficient for extended general deterrence. This is mainly because international trade by itself is a poor indicator of the extent to which the target is an economically important friend of the defender, worth defending against aggressors. Empirical analysis of militarized disputes between rival states in the post-1945 period supports this point and shows that extended deterrence success is most likely in cases where the defender and target are economically integrated through regional trade institutions as well as conducting heavy trade. Economically minded defenders can successfully generate credible signals of resolve if they have institutional ties with their important trade partners.

EC became a full customs union in 1968, when tariffs and quotas were all removed on trade among its original member countries, and a common tariff system was adopted vis-a-vis non member countries. (1) Free Trade in Industrial Products: there are no longer tariffs...
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