Economic integration is a process that results in the unification of the economic policies of various states due to the partial or complete removal of tariff and other restrictions on trade between them. This leads to a decrease in prices for producers and consumers, which allows increasing the welfare of the country and each individual citizen. The common market is one of the stages of integration. It involves not only the free movement of goods between the united countries, as happens when signing an association agreement, but also services, labor and capital.
Stages and their features
The theory of economic integration was first formulated in 1950 by Jacob Wiener. He looked at the flow of goods between states before and after unification and compared them with the rest of the world. However, in its modern form, the theory was developed by the Hungarian economist BelaBalassa in the 1960s. He believed that the supranational common market, which is characterized by the free movement of factors, creates a demand for further integration. Moreover, not only the economy of states is drawing closer, but also politics. There are the following stages of integration:
- Preferential trade zone. At this stage, there is a partial abolition of restrictions on the movement of goods, capital and services.
- Free Trade Zone. This stage involves the removal of tariff barriers to the movement of goods.
- Customs Union. At this stage, there is a removal of barriers to the movement of goods. A common external customs tariff is also formed.
- Common Market. This stage is characterized by free movement between the united states of goods, services, money and labor resources.
- Economic union. Everything is the same as in the previous stage, but partly a common foreign policy is added on barriers to the movement of goods and services, capital and labor resources to third countries.
- Economic and monetary union. It further increases the degree of unification between countries. This stage assumes, in addition to the features of the previous one, a common monetary policy between the united countries.
- Full economic integration. This is the last step. Its feature is the free movement within the union of all production factors, a single monetary and fiscal policy and the establishment of common external barriers for all factors in relation to other countries.
Common, single or unified market?
Within each of the stages of integration, several steps can be distinguished. The overall market is often viewed as a subtotal. Often it is created on the basis of a trade association with a relatively free movement of production factors, except for labor resources, to further remove tariff barriers. Then it is transformed into a single market. This stage within the fourth stage of integration involves the creation of a bloc in which most trade barriers for goods have been removed. Also, the single market provides for almost complete freedom of movement of other factors of production. Gradually, with the deepening of integration, goods, services, capital and labor resources begin to move within the union without regard to national borders. When this happens, we can talk about the creation of a unified market, the last stage of the fourth stage.
Advantages and disadvantages
Creating a single market has many benefits for the union of countries. Complete freedom of movement of factors of production allows them to be used more efficiently. Increasing competition in the market makes it possible to force out weak players, but not to allow monopolies to form. The remaining firms can fully benefit from economies of scale. Consumers enjoy low prices and a large selection of products. Common market countries may experience negative effects from the creation of an association during the transition period. Increased competition may put some national companies out of businessmanufacturers. If they fail to increase the efficiency of their work in a short time, they will have to stop their operation.
Common Economic Space
It was created in 2012. Initially, the single economic space included Belarus, Kazakhstan and Russia. However, since 2015, Armenia and Kyrgyzstan have joined the association. Now it functions within the framework of the Eurasian Customs Union. The formation of a single market between countries is considered as the ultimate goal of creating an association.
Andean Community
This is also a customs union. It includes such South American states as Bolivia, Colombia, Ecuador and Peru. The long-term goal of the merger was initially also the formation of a common market. However, now there is more talk about its merger with Mercosur and the creation of a free trade zone.
