1. GOVT. R.C COLLEGE OF COMMERCE AND
MANAGEMENT
Presentation on Economic Integration
Presented by
Nandini B.V
Rashmi R
Pavithra B.R

2. Meaning 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.

3. Levels of Integration:
 Preferential trading agreement
 Free trade area
 Customs union
 Common union
 Economic union
 Political union

4. Levels of economic integration

5. Preferential Trading Agreement
• A preferential trading agreement is the loosest
form of economic integration .Under this a group
of countries have a formal agreement to allow each
other’s goods and services to be traded on
preferential terms. This requires that the tariffs are
reduce between the countries or that special quotas
allow preferential access for their products.

6. Free Trade Area:
In a free trade area all barriers to the trade of goods
and services among member countries are removed.
In the theoretically ideal free trade area, no
discriminatory tariffs, quotas, subsidies, or
administrative impediments are allowed to determine
its own trade policies with regard to nonmembers.
Ex: EFTA and NAFTA
Customs Union:
eliminates trade barriers between member-countries
and adopts a common external trade policy.
Ex: Andean Pact

7. Common Market:
• The theoretically ideal common market has no
barriers to trade between member-countries and a
common external trade policy. Unlike in a customs
union, in a common market factors of production
also are allowed to move freely between member-
countries. Thus, labour and capital are free to
move, as there are no restrictions on
immigration, emigration, or cross-border flows of
capital between member-countries.

8. Economic Union :
An Economic Union involves the free flow of
products and factors of production between
member-countries and the adoption of a common
external trade policy. A full economic union also
requires a common currency, harmonization of the
member-countries tax rates and a common
monetary and fiscal policy.

9. Political Union
• While some degree of political integration often
accompanies economic integration, political union
implies more formal political links between
countries. A limited form of political union may
exist where two or more countries share common
decision making bodies and have common polices .
In its fullest sense, it involves the unification of
previously separate nations.

10. Examples for Levels of Integration:
Type Example Membership Principal features
(Level)
Free Trade North American Free Trade United States No internal tariffs.
Area Agreement (NAFTA) Canada ,Mexico Each country determines its own trade
Closer Economic Relations Australia policies toward non-members.
(CER) New Zealand
Customs Andean Pact Bolivia ,Colombia As for FTA above.
Union Ecuador Common external tariff on goods imported
Peru from outside.
Common European Community (EC) 12 European As for customs union above.
Market before January 1994. There countries. Labour and capital free to move.
has not been another. No restrictions on migration.
Economic European Union (EU) as from 25 European As for common market above.
Union January 1999. countries. Common currency - European Monetary
Unit (called the 'Euro')
Harmonisation of tax rates.
Common monetary and fiscal policies.
Political EU has some elements; see 25 European European parliament, directly elected by
Union previous level. The ultimate countries, but may citizens of EU countries.
aim is a United States of include 28 countries Council of Ministers: government
Europe. by 2007. ministers for each EU country.
An administrative bureaucracy.
Court of Justice: the official interpreter of
EU law.

11. Impacts of economic integration
• Short-term effects (shift of production)
• Trade creation: production shifts to more efficient member
countries from inefficient domestic or outside countries.
• Trade diversion: production shift to inefficient member
countries from more efficient outsiders.
• Dynamic effects: Long-term effects
• Cost reduction due to economies of scale
• Cost reduction due to increased competition.

12. Impact on business
Creation of single markets
• Protected markets, now open
• Lower costs doing business in single market
• Differences in culture and competitive practices
make realizing economies of scale difficult
• More price competition
• Outside firms shut out of market