Economic Integration

In the previous chapter, we discussed trade policy in terms of a country using various instruments against all trade partners uniformly. Economic integration essentially implies differential treatment of different countries with respect to trade policy. If countries A and B have achieved economic integration, then these two countries will treat each other’s imports differentially from imports from other countries. Economic integration represents a movement towards freer trade at least among the members of the trade bloc. More fundamentally economic integration is a process of fusion of economies which were once independent. There are various forms of economic integration depending on the chosen ‘degree’ of integration. During the last four decades, there has been a proliferation of groups of countries forming economically integrated blocs 1 in various parts of the world, e.g., ASEAN (Association of South-East Asian Nations) CARICOM (Caribbean Community and Common Market), ECOWAS (Economic Community of West African States), EU (European Union), LAIA (Latin American Integration Association) and NAFTA (North American Free Trade Area), among other blocs. This chapter attempts to discuss the various forms of economic integration and to analyse the trade and welfare consequences of economic integration.