Types of Economic Integration - SS3 Economics Lesson Note
Economic integration refers to the process of countries or regions coming together to remove trade barriers and increase economic cooperation. The types of economic integration differ in terms of the degree of economic and political integration between participating countries or regions. Free Trade Areas involve the least integration, while political unions involve the most integration. There are several types of economic integration, and they include:
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Free Trade Area (FTA): A free trade area is a group of countries that agree to remove tariffs and trade barriers between themselves while maintaining their own external trade policies. For example, the North American Free Trade Agreement (NAFTA) is an FTA between the United States, Canada, and Mexico.
Customs Union: A customs union is a group of countries that agree to remove trade barriers between themselves and also adopt a common external trade policy with other countries or regions. For example, the European Union (EU) is a customs union.
Common Market: A common market is a group of countries that agree to remove trade barriers, adopt a common external trade policy, and also allow for the free movement of goods, services, capital, and people between member countries. For example, the European Economic Area (EEA) is a common market.
Economic Union: An economic union is a group of countries that agree to remove trade barriers, adopt a common external trade policy, allow for the free movement of goods, services, capital, and people, and also coordinate economic policies such as taxation and social welfare. For example, the European Union (EU) is moving towards becoming an economic union.
Political Union: A political union is a group of countries that agree to form a single political entity, with a common government, legal system, and foreign policy. The European Union (EU) is moving towards becoming a political union.