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Stages and forms of economic integration

 Stages and forms of economic integration in detail

There are many stages and forms of economic integration, to reach, according to specialists, to five different and varied stages, arranged according to the extent of their depth and impact.

  • The first stage is free trade

Free trade, where customs duties (a tax levied on imported goods ) between member states are significantly reduced, and some have been eliminated entirely.  

Each member state maintains its own tariffs with respect to countries including its economic policy. The general objective of free trade agreements is to develop economies of scale and comparative advantages, and to enhance economic efficiency.  

One challenge relates to dispute resolution, as free trade agreements tend to offer limited dispute resolution arrangements and mechanisms.  

Therefore, they are subject to the specific influence and influence of the respective countries which can lead to different outcomes depending on their economic size.  

A large, complex economy that has a free trade agreement with smaller economies is in a better position to negotiate beneficial terms.

  • The second stage of the customs union

 The Customs Union, sets common external tariffs among the member countries, which implies the application of the same tariffs to third countries, a common trading system is achieved. Customs unions are particularly useful for leveling the playing field and tackling the problem of re-export (using one country's preferential tariffs for entry into another), but capital and labor movements are still restricted.

  • The third stage of the common market

 Common market services and capital are free to move within member countries, expanding economies of scale and comparative advantages, however, each national market has its own regulations, such as product standards.

  • The fourth stage is the single market

Economic union (single market), all tariffs for trade between member countries are removed, creating a single market, there are also free labor movements, enabling workers in one member country to move and work in another member country.  

Harmonization of monetary and fiscal policies among member countries, implying a level of political integration. Another step is related to monetary union where a common currency is used, as is the case with the European Union (Euro).

  • Fifth stage political union

 Political union, representing the most advanced form of integration with a joint government in which the sovereignty of a member state is greatly reduced, found only within nation states, such as federations in which there is a central government and regions (provinces, states, etc.) that have a level of autonomy in matters well defined as education.

 As the level of economic integration increases, so does the complexity of its regulations. This includes a set of regulations, enforcement, and arbitration mechanisms to ensure compliance of importers and exporters. The complexity comes at a cost that may undermine the competitiveness of regions subject to economic integration.

Because it allows for less flexibility for national policies and a loss of autonomy, a shift in responsibility for economic integration can occur if the complexity and the limitations it creates are no longer seen as acceptable to its members, including the loss of sovereignty. [1]

The importance of economic integration

Through studies, it is clear that economic theory and international experience stress the importance of economic integration in the following:

  1. Small countries get richer when they are deeply integrated into the global economy.
  2.  Economic integration can facilitate access to a larger consumer base, a larger pool of qualified workers, additional sources of financing, and new technologies.  
  3. A larger market can emerge, with an equal playing field in which all companies can compete.
  4. To shake up rigid industries controlled by closely related domestic political and business elites and encourage innovation.
  5. Economic integration can create an environment for existing firms to grow, become more productive, or exit the market, and for new firms to emerge and succeed or fail quickly and cheaply.

A realistic example of economic integration

 The European Union (EU) was created in 1993 and included 28 member states in 2019, and since 2002, 19 countries have adopted the euro as a common currency. According to the International Monetary Fund (IMF), the EU accounts for 16.04% of global GDP.

 The United Kingdom voted in 2016 to leave the European Union In January 2020, British lawmakers and the European Parliament voted to accept the United Kingdom's withdrawal. The goal is to finish exiting by January 2021

Advantages of Economic Integration

  • economies of scale

 For individual countries, which have a small and internal market, there is a limited ability to expand production, with the help of economic integration, there is an offer of unrestricted access to the various products produced by the member country.

  • International Specialization

 With the help of economic integration, the member states will be able to get a greater degree when it comes to specializing in the processes and products that are produced in the country.

 Specialization is entirely dependent on the various advantages of cost comparison and that also by a particular geographic location , so, in a way, it can lead to significant production for the member countries.

  • Quality improvement in production

This is one of the most important benefits that may come from economic achievement,

 There is regional cooperation in the economies of different countries which can actually lead to many rapid changes in technological aspects and this also on a larger and more efficient scale as well.

  • Employment expansion

 There are many different countries in the process of economic integration, and while these countries organize themselves into regional economic groups, there will be an unrestricted flow when it comes to employment in the country and the region as well, with different countries practicing economic integration in the best way, it will undoubtedly increase some opportunities work due to the increase in its labor requirements.

  • improve trade

 This is another important benefit that may come from economic integration, and it is certainly one of the best benefits for sure, with the help of this process, there will be an increase in the bargaining power that the member states may have with the world.

  • Economic efficiency

 There will be a lot and more competition within the various member countries that fall into the region, all thanks to the economic integration that is taking place between the countries.

With the help of this process, there will be an improvement in economic efficiency that takes place in a particular group, which is certainly very beneficial for the member states as well.

Terms of Economic Integration

1- One of the conditions of economic integration is that there should be geographical convergence, and this condition is important for the success of integration and its role in facilitating and facilitating the movement of labor, services and goods within the region that includes the integration process.

2- Political will Because the absence of political will necessarily follows the failure of economic integration, so it is necessary for the government that tries to create institutions until regional integration takes place. 

3- Economic homogeneity that can be integrated, where integration is between more than one economy that has structures that have similar homogeneity that can be integrated. 

4- That the means of transportation and communication are available, and that the lack of means of transportation and communication between the economies of the countries among which they are complementary, as it reduces the possibility of productive specialization and commercial expansion among the integrated countries. [3]


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