Question

1. (Graded) Describe different forms of economic integration.

2. What dynamic benefits are the nations forming a customs union likely to receive?

Answer 1

1. Different forms of economic integrations:

Economic integration is the cooperation and coordination of economic policies for mutual benefits. There are various degrees of integration depending on the type of agreement made between the countries.

Following are the different levels of economic integration:

PTA: Full form is preferential trade agreement. In this type of agreement two or more countries decide to reduce trade barriers on specified goods. Members get easy access to these markets and for rest of non members the trade barriers will exist. These can be bilateral(between two countries), regional (within a geographic area ) and multilateral (like WTO). Example- SAPTA- South Asian preferential trade agreement.

FTA: In this type of agreement countries agree to gradually eliminate trade barriers and this is a most common type of trade agreement. Each country retains right to follow its individual trade policy to other countries. Example- ASEAN- Association of South East Asian Nations.

Customs union: This is free trade are plus common trade policy to all non member countries too. Member countries are not free to follow individual trade polices to non member countries. Example- SACU- Southy African customs union.

Common market: It is customs union plus elimination of all restrictions on movements of any factors of production in the common market area. Labor and capital is freely movable. Example - Caribbean community.

Economic union: Common market plus common currency and a common central bank that determines monetary policy for all member countries. Example- European Union.

Political union: When countries will merge with each other politically.