UNIT VIII - Regional Economic Integration

Learner Outcomes:
Upon successful completion of this unit, learners will be able to:
1. explain the term “regional economic integration”
Economic integration is an arrangement among nations that typically includes the reduction or
elimination of trade barriers and the coordination of monetary and fiscal policies. Economic
integration aims to reduce costs for both consumers and producers and to increase trade between
the countries involved in the agreement.
Regional economic integration occurs when countries come together to form free trade areas or
customs unions, offering members preferential trade access to each other’s markets.
Eg: The CARICOM Single Market and Economy (CSME) is the flagship of the regional
integration movement, aimed at creating a single economic space which will support competitive
production within CARICOM for both intra-regional and extra-regional markets.
2. identify the different stages or levels of economic integration
Stages of Economic Integration
Economic integration is expected to improve the outcomes for all economies by many
economists and policymakers. Within economics, there are seven stages that lead to complete
economic integration:
1. Preferential Trading Area
Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
reduce or eliminate tariff barriers on selected goods imported from other members of the area.
This is often the first small step towards the creation of a trading bloc. Agreements may be made
between two countries (bi-lateral), or several countries (multi-lateral).
2. Free Trade Area
Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members. The North Atlantic Free
Trade Agreement (NAFTA) is an example of such a free trade area, and includes the USA,
Canada, and Mexico.
3. Customs Union
A customs union involves the removal of tariff barriers between members, together with the
acceptance of a common (unified) external tariff against non-members.
Countries that export to the customs union only need to make a single payment (duty), once the
goods have passed through the border. Once inside the union goods can move freely without
additional tariffs. Tariff revenue is then shared between members, with the country that collects
the duty retaining a small share.
4. Common Market
A common (or single) market is the most significant step towards full economic integration. In
the case of Europe, the single market is officially referred to a the ‘internal market’. The key
feature of a common market is the extension of free trade from just tangible goods, to include all
economic resources. This means that all barriers are eliminated to allow the free movement of
goods, services, capital, and labour. In addition, as well as removing tariffs, non-tariff barriers
are also reduced and eliminated. For a common market to be successful there must also be a
significant level of harmonisation of micro-economic policies, and common rules regarding
product standards, monopoly power and other anti-competitive practices. There may also be
common policies affecting key industries, such as the Common Agricultural Policy (CAP)
and Common Fisheries Policy (CFP).
5. Economic Union
Economic union is a term applied to a trading bloc that has both a common market between
members, and a common trade policy towards non-members, although members are free to
pursue independent macro-economic policies.
The European Union (EU) is the best known Economic union, and came into force on November
1st 1993, following the signing of the Maastricht Treaty (formally called the Treaty on European
Union.)

6. Economic and Monetary Union

Economic and Monetary Union (EMU) is a key stage towards compete integration, and involves
a single economic market, a common trade policy, a single currency and a common monetary
policy.

7. Economic Integration
Complete economic integration involves a single economic market, a common trade policy, a
single currency, a common monetary policy, together with a single fiscal policy, including
common tax and benefit rates – in short, complete harmonisation of all policies, rates, and
economic trade rules.
3. appraise the benefits and costs of regional economic integration

Advantages of Economic Integration

The advantages of economic integration fall into three categories: trade creation, employment
opportunities, and consensus and cooperation
 More specifically, economic integration typically leads to a reduction in the cost of
trade, improved availability of goods and services and a wider selection of them, and gains in
efficiency that lead to greater purchasing power.

NB. Economic integration can reduce the costs of trade, improve the availability of goods and
services, and increase consumer purchasing power in member nations.
 Employment opportunities tend to improve because trade liberalization leads to market
expansion, technology sharing, and cross-border investment.
 Political cooperation among countries also can improve because of stronger economic ties,
which provide an incentive to resolve conflicts peacefully and lead to greater stability.
The Costs of Economic Integration
Despite the benefits, economic integration has costs. These fall into three categories:
 Diversion of trade. That is, trade can be diverted from nonmembers to members, even if it
is economically detrimental for the member state.
 Erosion of national sovereignty. Members of economic unions typically are required to
adhere to rules on trade, monetary policy, and fiscal policies established by an unelected
external policymaking body.
 Employment shifts and reductions. Economic integration can cause companies to move
their production operations to areas within the economic union that have cheaper labor
prices. Conversely, employees may move to areas with better wages and employment
opportunities.1
Because economists and policymakers believe economic integration leads to significant benefits,
many institutions attempt to measure the degree of economic integration across countries and
regions. The methodology for measuring economic integration typically involves multiple
economic indicators including trade in goods and services, cross-border capital flows, labor
migration, and others. Assessing economic integration also includes measures of institutional
conformity, such as membership in trade unions and the strength of institutions that protect
consumer and investor rights.

4. assess the historical evolution of the major Caribbean economic integration movement
from west indies federation to CARIFTA, to CARICOM to CSM to proposed CSME

The Caribbean Free Trade Association (CARIFTA) was organized on

1 May 1968, to provide a continued economic linkage between the
English-speaking countries of the Caribbean. The agreements
establishing it came following the dissolution of the West Indies
Federation which lasted from 1958 to 1962.

https://caricom.org/history-of-the-caribbean-community/
5. assess the various obstacles that prevent regional integration

Regional integration is the process of enhancing economic,

political, and social cooperation among countries in a specific
region. It can bring many benefits, such as increased trade,
investment, innovation, and security. However, it also poses
some challenges, such as adjusting to different regulations,
standards, and cultures, dealing with potential conflicts of
interest, and ensuring fair distribution of costs and benefits.
6. research the implications of globalization on regional economic integration

1. Meaning of economic integration

2. Regional economic integration models globally - EU,NAFTA

3. WI Federation between 1958-62

4. CARIFTA

5. CARICOM

6. Proposed CSME model

7. Weaknesses of current Caribbean regional economies model

8. Globalization effects on regional economies integration