Economic Integration

Economic Integration

​This occurs where two or more countries enter into a mutual agreement to cooperate with each other for their own economic benefit. They may do this by allowing free trade or relaxing their existing trade barriers for the member countries.
Economic integration may occur in the following forms;

​Free Trade Area

​This is a case where the member countries agree to abolish or minimize tariffs and other trade restrictions but the individual countries are free to impose restrictions on non-member countries. They includes; Preferential Trade Area (P.T.A), European Free Trade Area (E.F.T.A), Latin America Free Trade Area (L.A.F.T.A), etc.

​Custom union

​This is where the members of the free trade area may agree not only to abolish or minimize their tariffs, but also establish a common tariff for the exchange of goods and services with the non member countries. They include; Economic Community of West Africa States (E.C.O.W.A.S), East Africa Custom Union (E.A.C.U), Central Africa Custom and Economic Union (C.A.C.E.U)

​Common Market

​This is where the member countries allow for free movement of factors of production across the boarders. People are free to move and establish their business in any member country. They include; East Africa Common Market (E.A.C.M), European Economic Community (E.E.C), Central American Common Market (C.A.C.M), Common Market for Eastern and Southern Africa (COMESA)

Economic Union

​This is where the members of the common market agree for put in place a common currency and a common central bank for the member countries. They even develop common infrastructures which includes railways, communication networks, common tariffs, etc

Importance of economic integration

Economic integration will ensure the following benefits for the member countries;

1. Availability of wider market for the goods and services produced by the member countries. This enables them to produce to their full capacity
2. It enables the country to specialize in the goods they produce best, making them to effectively utilize their resources
3. It leads to promotion of peace and understanding among the member countries through interaction
4. It leads to high quality of goods and services being produced in the country due to the competition they face
5. It allow members to get access to wider variety of goods and services which satisfy different consumer needs
6. It leads to creation of employment for individuals living within the region, as they can work in any of the member country
7. It increase the economic bargaining power in trading activities by the countries forming a trading bloc
8. Improvement of the infrastructure in the region due to increased economic activities.
9. It brings about co-ordination when developing industries, as the members will assign the industries to each other to create balance development and avoid unnecessary duplication

Free Trade Area

​This is a situation where there is unrestricted exchange of goods and services between the countries. It has benefits/advantages similar to those of economic integration.

​Disadvantages of free trade area

Some of the problems it is likely to bring include;

1. It may lead to importation of inferior goods and services to the country, as the member country may not be able to produce high quality as compare to other non-member countries
2. It may discourage the growth of the infant industries due to competition from well developed industries in other countries
3. It may lead to reduced government revenue because no tariff may be charged on the goods and services
4. A country may be tempted to adopt technology not suitable for its level of development.
5. If not controlled, it may lead to unfavourable balance of payment, where a country imports more than it export
6. It may lead to importation of harmful goods and services, that may affect the members health such as illegal drugs
7. It may lead to lack of employment opportunities especially where more qualified people have moved from their country to secure job opportunities in the country
8. It may expose the country to negative cultural practices in other countries, interfering with their morals. For example the exposure to the pornographic materials.
9. Compromising political ideologies especially where member countries with different ideologies wants to fit in to the bloc
10. It may lead to over exploitation of non-renewable economic resources such as minerals

Trade Restrictions

These are deliberate measures by the government to limit the imports and exports of a country.
They are also known as protectionism and include the following;

1. Tariffs which include taxes levied on both import and export. It can be used to increase or decrease the level of both import and export
2. Quotas which is the restriction on the quantity of goods to be either imported or exported. It can be increased or decreased to increase or decrease the level of import or export respectively.
3. Total ban (zero quota) where the government issues a direction illegalizing either the import or export of the products
4. Complicated import procedure in order to  discourage some importers from importing
5. Subsidies on locally produced goods to discourage imports
6. Legislation against importation of certain goods
7. Setting the standards of products to be imported

​Reasons for trade restrictions

1. To prevent the inflow of harmful goods into the country, that may be harmful to the lives of the citizens
2. To protect the local infant industries that may not be able to compete favourably with well established industry
3. To give a country a chance to exploit its natural resources in producing their goods
4. To protect strategic industry, since their collapse may make the country to suffer
5. To minimize dependency of the country to other countries for their stability
6. To create employment opportunity to its people by establishing the industries to produce the goods and services
7. To prevent dumping of goods in the country by the developed partners which may create unfair competition
8. To correct balance of payment deficit by limiting import
9. To protect good cultural and social values which may be influenced by unaccepted values they are likely to acquire from other country through interaction
10. To expand market for locally produced goods by restricting the number of foreign goods in the market.
11. To enable the country earn foreign exchange through imposing taxes and other tariffs

​Advantages of trade restrictions

1. It promotes self reliance as industries have an opportunity to engage in the production of goods and services that were previously imported
2. It protects the local industries from stiff competition that they may have faced from the well developed countries
3. It may help to correct the balance of payment deficit
4. It restrict the entry of harmful goods into the country as it controls the inflow of imports in to the country
5. It enables the country to conserve their valuable social and cultural values from the external influence
6. It help in creating more job opportunities through diversification in the production
7. It promotes the growth of local/infant industries in the country.

​Disadvantages of trade restriction

1. There will be availability of limited variety of goods in the country that will limit the consumer’s choices
2. May lead to production of low quality goods as there will be no competition for the producing firms
3. Other countries may also retaliate, leading to reduction in export from their country
4. There is likely to be high prices charged on the locally produced goods, since the small firms which produce them may not be enjoying the economies of scale
5. The country is likely to be exposed to small market, should all countries restrict which may lead to reduction in trade.
6. As a result of the continued protection, some industries may develop a tendency of remaining young to still enjoy the protection, which limits the level of development
7. It may lead to emergence of monopoly as the protected industry may end up remaining alone in the market, bringing about the problems of monopolies

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1. Introduction, Advantages And Disadvantages Of International Trade

2. Terms Of Trade, Balance Of Trade, Balance Of Payment

3. International Financial Institutions

4. Economic Integration

5. Trends In International Trade