Question

What Is Regional Economic Integration? What are the Stages of Regional Integration? What are the Pros and Cons of Regional Integration? What Regional Integration Agreements is the United States in and how do they help the country and business?

Answer 1

The more integrated economies become, the fewer the trade barriers, and the more economic and political coordination there is between countries. There are seven stages of economic integration: preferential trading area, free trade area, customs union, common market, economic union, economic and monetary union, and complete economic integration. In the final stage, the integrated entities have little control over economic policy, a complete monetary union and fiscal policy harmonization.

The Pros and Cons of Economic Integration

There are potential costs and benefits of economic integration. The advantages of economic integration fall into three categories: trade benefits, employment and political cooperation. More specifically, economic integration typically leads to a reduction in the cost of trade, improved availability of and a wider selection of goods and services, and efficiency gains that lead to greater purchasing power. Employment opportunities tend to improve because trade liberalization leads to market expansion, technology sharing and cross-border investment flows. Political cooperation among countries can improve because of stronger economic ties, which can help resolve conflicts peacefully and lead to greater stability.

Despite the benefits, economic integration has costs. The disadvantages include trade diversion and the erosion of national sovereignty. For example, trade unions can divert trade away from non-members, even if it is economically detrimental for them to do so. Additionally, members of economic unions are typically required to adhere to rules on trade, monetary policy and fiscal policy, which are established by an unelected external policymaking body. Sovereignty, in fact, was one of the key debates in the United Kingdom's decision to leave the European Union in 2016.