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Economic Integration: Types, Advantages, and Disadvantages

Explore the world of economic integration, including Preferential Trade Agreements, Trading Blocs, and Monetary Unions. Learn about the advantages such as increased competition and economic growth, as well as the disadvantages like obstacles to global free trade. Discover examples and key concepts to enhance your understanding of this crucial aspect of international economics.

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Economic Integration: Types, Advantages, and Disadvantages

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  1. Economic Integration

  2. Economic Integration • Economic Integration – economic cooperation between countries and coordination of their economic policies

  3. Kinds of Economic Integration • Preferential Trade Agreements • Trading Blocs • Monetary Unions

  4. Preferential Trade Agreements • An agreement between two or more countries to lower trade barriers between each other, on certain products. • Bilateral Trade Agreements – Between two countries • Multi-lateral Trade Agreements – Agreement between many countries

  5. Bilateral Trade Agreement Australia Thailand Agricultural Products

  6. Multilateral Trade Agreement Australia Thailand India Russia

  7. Trading Blocs • A group of countries that have agreed to reduce trade barriers to encourage free trade. • Free Trade Area • Customs Union • Common Market

  8. 1. Free Trade Area • Group of countries that agree to slowly eliminate trade barriers • Each country still has its own trade policies towards non-member countries • There may be free trade in some products and protection in others • Examples: NAFTA, ASEAN, SAARC

  9. Free Trade Area Thailand United States Laos Vietnam

  10. 2. Customs Union • Group of countries that do the same things as a free trade area BUT ALSO have common policies towards non-member countries. • Countries are not free to decide their own trade policies • Examples: CEFTA, SACU, PARTA

  11. Customs Union Thailand United States Laos Vietnam

  12. 3. Common Market • Group of countries that do the same things as a customs union BUT ALSO eliminate all restrictions on the movement of factors of production (labor, capital) • Examples: EEC

  13. Common Market Thailand United States Laos Vietnam

  14. Advantages of Trading Blocs • Increased competition • Larger Markets • Lower Prices • Increased Investment

  15. Advantages of Trading Blocs • Better use of Resources • Economic Growth • Friendship

  16. Disadvantages of Trading Blocs • Trading blocs may create obstacles to global free trade • Unequal distribution of gains and losses within a trading bloc

  17. Trade Blocs • ASEAN • UNASUR • ECOWAS • APTA • NAFTA • SAARC • SACU

  18. Monetary Union • Monetary Union – when member countries use the same currency and share a central bank

  19. Advantages • No more exchange rate changes • No more exchange costs • Greater investment from foreign countries

  20. Disadvantages • Individual countries can no longer control their own exchange rate • Individual countries lose their central bank and control of monetary policy • Less control of fiscal policy (government spending)

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