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Economic Integration as a Development Model

In: Social Issues

Submitted By stefan1
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ECONOMIC INTEGRATION
The process of Economic Integration arises when a group of nations in the same geographical area join together to form an economic union or a regional trading bloc by raising a common tariff wall against the products of non-member countries while freeing internal trade among members. Opposing tariffs can also differ among members when trading with external partners, this is called a customs union, but in a free trade zone among members is called a free-trade area. All this culminates in a common market, which includes also the free movement of labour and capital among the member states, forming the most advanced type of economic integration, the economic union. Examples of a complete economic and monetary union are the United States. Free trade leads to the most efficient utilization of world resources and thus maximizes world output and welfare, our goal is to increase welfare by practising free trade. A customs union can reduce and increase welfare, to insure that welfare is increased the customs union should be formed under the following conditions: 1. the higher the preunion trade barriers of member countries. There is then a greater probability that formation of the customs union will create trade among union members rather than divert trade from non-members to members. 2. The lower are the customs union’s barriers on trade with the rest of the world. This makes it less likely that formation of the customs union will lead to costly trade diversion. 3. The greater is the number of countries forming the customs union and the larger their size. Under these circumstances, there is a greater probability that low-cost producer’s fall within the union. 4. The more competitive rather than complementary are the economies of member nations. There are then greater opportunities for specialization in production and trade creation with the formation of...

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