REGIONAL ECONOMIC

INTEGRATION
 WHAT IS REGIONAL ECONOMIC
INTEGRATION?
Regional Economic Integration (regionalism): Process whereby
countries in a geographic region cooperate with one another to
reduce or eliminate barriers to the international flow of
products, people, or capital.
• It refers to agreements between countries in a geographic
region to reduce tariff and non-tariff barriers to the free
flow of goods, services, and factors of production between
each other.
• The agreements come with internal rules that member
countries follow among themselves and when dealing with
non-member countries.

2
 WHAT IS REGIONAL ECONOMIC
INTEGRATION?
• Levels of Regional Integration
– Preferential Trade Area
– Free- Trade Area
– Customs Union
– Common Market
– Economic Union
– Political Union

3
 Levels of Regional Integration
Gr
ea
te Free-Trade Area
r int
eg
rati Customs Union
o n
Common Market

Economic Union

Political Union

4
 Levels of Regional Integration
– Preferential trade Area: is a trading bloc that gives preferential access to certain
products from the participating countries. This is done by reducing tariffs but not by
abolishing them completely
– Free- Trade Area: Economic integration whereby countries seek to remove all barriers
to trade between themselves , but each country determines its own barriers against
non-members. NAFTA, ECOWAS, ASEAN
◦ Customs Union : Economic integration whereby countries remove all barriers to trade
between themselves but erect a common trade policy against nonmembers e.g.
Andean Pact (between Bolivia, Columbia, Ecuador, Venezuela, and Peru), SACU (South
Africa, Swaziland, Botswana, Lesotho)
– Common Market : Economic integration whereby countries remove all barriers to
trade and the movement of labor and capital between themselves but erect a common
trade policy against nonmembers. E.g. MERCOSUR (between Brazil, Argentina,
Paraguay, and Uruguay
– Economic Union : Economic integration whereby countries remove barriers to trade
and the movement of labor and capital, erect a common trade policy against
nonmembers, and coordinate their economic policies. E.g. European Union (EU)
– Political Union : Economic and political integration whereby countries coordinate
aspects of their economic and political systems.

5
Free trade area
🞂 All barriers to trade among members removed
🞂 Ideally, no discriminatory tariffs, quotas, subsidies, or
administrative difficulties are allowed to restrict trade between
members
🞂 Each country has its own trade policies toward non-members
🞂 This is the most popular form of integration
🞂 Examples include
◦ SADC, NAFTA, COMESA, ECOWAS, ASEAN
Customs union
🞂Eliminates trade barriers between member countries
and adopts a common external trade policy
🞂Establishment of a common external trade policy
requires a significant administrative system to
oversee trade relations with non-members
🞂Most countries that enter a customs union desire
further integration in the future
🞂Examples include
◦ the Andean Pact (between Bolivia, Columbia, Ecuador,
Venezuela, and Peru)
◦ SACU (South Africa, Swaziland, Botswana, Lesotho)
Common market
🞂 No trade barriers between members, a common external trade
policy and allows production factors to move freely among
members
🞂 Labor and capital are free to move because there are no
restrictions on immigration, emigration, or cross-border flows
of capital between member countries
🞂 This type of integration can be difficult to achieve and
requires significant harmony among members in fiscal,
monetary, and employment policies
🞂 Examples include
◦ MERCOSUR (between Brazil, Argentina, Paraguay, and
Uruguay) hope to achieve this status
Economic union
🞂 Involves the free flow of products and factors of production
between members, the adoption of a common external trade
policy, and in addition, a common currency, harmonization of
the member countries’ tax rates, and a common monetary and
fiscal policy
🞂 Such a high degree of integration
◦ demands a coordinating bureaucracy
◦ sacrifice of significant amounts of national sovereignty
🞂 Typical example is
◦ the European Union (EU)
Political union
🞂Independent states are combined into a single union
🞂Coordinating bureaucracy accountable to all citizens of
member nations
🞂Central political system that coordinates the economic,
social, and foreign policy of the member states
🞂This requires that a central political apparatus coordinate
economic, social, and foreign policy for member states
🞂The EU has achieved at least partial political union, and the
former Soviet Union (USSR) was a typical political union.
 Benefits of Regional Integration
✔ Trade Creation
Increase in the level of trade between nations that results from
regional economic integration.
✔ Greater Consensus
The Benefits of trying to eliminate trade barriers in smaller
groups of countries. It can be easier to gain consensus from
fewer members as opposed to the whole world.
✔ Political Cooperation
A group of nations can have significantly greater political
weight than each nation has individually.
✔ Employment Opportunities
Expand employment opportunities by enabling people to move
from one country to another, simply to earn a higher wage.

11
Drawbacks of Regional Integration
✔ Trade diversion
Diversion of trade away from nations not belonging to a trading
bloc and towards member nations
✔ Investment diversion;- foreign investors opting to invest outside
the region
✔ Shifts in Employment
Loss of labour to better-off countries in the grouping
✔ Loss of National Sovereignty
Successive levels of integration require that nations surrender
more of their national sovereignty
✔ Loss of cultural identity

12
Key Challenge
Question: Is regional economic integration a good thing?

🞂While regional trade agreements are designed to promote

free trade, there is some concern that the world is moving
towards a situation in which a number of regional trade
blocks compete against each other
🞂As this scenario materializes, the gains from free trade
within blocs could be offset by a decline in trade between
blocs