Regional integration: concept, forms, factors and processes of development of economic integration

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:44

It's hard to survive alone in the modern world, all countries of the world understood this. Sustainable growth requires access to a large common market and participation in the international division of labor. At the same time, states seek to protect their economies. Various forms of regional integration are used to maintain a balance between protecting one's own markets and gaining access to others. These are objective processes, countries are participating in various integration projects in order to obtain maximum benefits for their economic agents.

Concept

Regional integration is the strengthening of interaction between a group of countries in various fields - military, economic, political, cultural. Countries create the most favored nation treatment for members of the association. Integration involves the creation of a new community that seeks to benefit from greater size, "scale effects". The combined resources allow us to solve issueswhich are beyond the power of individual countries. In the process of integration, the economies of countries interact, adapt to work together, merge.

Signs

Based on the definition of regional integration, the following main features are distinguished:

• it is beneficial to all countries included in the union, everyone gets benefits that would not be possible to get alone;
• integration is voluntary, based on partnerships, so forced unification as a result of wars is another case;
• as a result of integration, a certain isolation of a group of countries from the global world occurs, favorable conditions are created within the union for participants and barriers are put up for other states;
• countries pursue a coordinated domestic and foreign policy, an example of the deepest integration is the European Union, where there is a common economic space and an agreed position on the main foreign policy positions;
• there is a common regulatory framework and supranational bodies, for example, the Eurasian Economic Union has a single Customs Code and a common governing body - the Eurasian Commission, which deals with the functioning of the association;
• a shared vision of a shared future and destiny, often based on a shared history.

Of course, the degree and depth of integration compliance depends on the type, form and stage of development of the regional integration process.

Degree of integration

Depending on the level of association, the following forms of regional integration are distinguished:

• Free trade zones. They imply the removal of barriers to trade, usually removing most of the duties and quotas. They can be created both between countries and between integration associations and countries, for example, between the Eurasian Economic Union and Vietnam.
• Customs unions are the next level of integration. Countries, in addition to removing barriers to trade among themselves, adopt common customs rules, tariffs and conduct a common trade policy with respect to third countries: the customs union of Russia, Belarus and Kazakhstan.
• Common market countries. The free movement of capital, labor resources, goods and services is implied, and a common tax and trade policy is being pursued. An example is the Latin American MERCOSUR, which includes Argentina, Brazil, Paraguay and Uruguay.
• Economic unions. The most advanced form of regional economic integration, involves a common trade, tax, budgetary policy, a common currency is introduced, and third party policies are often agreed upon.

Sometimes another form of integration is introduced - a political union, but already at the stage of an economic union, effective work without political unification is impossible.

Tasks

The main tasks facing regional unions are to strengthen the position in the global market, strengthen stability and peace in the region and create economic growth. In the course of developmentregional economic integration, associations of countries begin to deal not only with economic, but also with political issues. For example, ASEAN deals not only with trade between countries, but also with economic relations with other countries, issues of peace and stability in the region. One of the goals of the organization is to create a nuclear-free zone in the region.

Goals

Countries, by creating regional associations, seek to provide favorable conditions for the development of their countries, hoping to increase the efficiency of the national economy by obtaining preferences from regional economic integration. The goals of the association include, but are not limited to, gaining economies of scale, reducing foreign trade costs, gaining access to regional markets, ensuring political stability, and improving the structure of the economy. Not all goals are always achieved, for example, Kyrgyzstan joined the Eurasian Economic Union in order to get incentives for economic growth and investment attraction. However, the effect is rather weak so far due to the influence of external factors.

Factors

The reasons why countries unite are very different, the processes of regional integration do not occur spontaneously. This is a conscious choice of countries that go a long way in the development of economic and political ties. Key factors contributing to the organization of regional integration:

• increase in the international division of labor;
• increasing globalization of the world economy;
• increaseopenness of national economies;
• increasing the degree of specialization of countries.

In general, all factors characterize the complication of economic life. Individual countries no longer always have time to restructure production in accordance with the pace of innovation. The globalization of the economy forces us to compete with the best goods.

Background

In most cases, the main stimulus for the development of regional integration is the territorial neighborhood. In many cases, these are countries that have a common history, for example, the Eurasian Economic Union emerged as an association of post-Soviet countries. Important for successful regional economic integration is the similarity of levels of economic development. Many integration projects in developing countries do not work effectively due to too large differences in the level of economies. On the other hand, the European Union began as a project of the most developed countries in Europe. The Union of Coal and Steel brought together countries that had common economic and political problems: increased trade and the elimination of the possibility of war between Germany and France. Successful examples of international regional integration cause other countries to seek to enter into such alliances.

Principles

There are about thirty integration associations in the world. The countries participating in them have gone through different paths. From the Pacific Partnership, formed in 2016 and never launched, to the European Union, the most advanced integration project. So,starting a project of international economic integration, regional actors understand that they cannot solve all their problems at once. Graduality is one of the principles of the unification process. The second principle is a community of interests, integration is a common project, in the process of which it is necessary to build a system of complex economic ties. It is possible, in some areas, to agree to conditions that are not entirely favorable for the country in order to contribute to the achievement of a common goal. In order for there to be sustainable regional development, integration needs an adequate decision-making model. Usually all major decisions are made by consensus.

Economics of scale and increased competition

Countries, initiating a regional integration project, seek to get the maximum effect from working in a common economic space. A larger market makes it possible to increase production volumes, increase competition and stimulate an increase in production efficiency, and reduce the influence of monopolies. The companies included in the association can increase production and sales volumes, because they will get access to the markets of the countries included in the integration project. There are cost savings due to increased production volumes and savings in trade due to the removal of customs barriers and duties. In addition, working on a common free market allows you to reduce costs through access to cheaper labor and advanced technologies. Economies of scale are especially important in smaller countries where large local companies quickly monopolize localmarket. When a country opens up, the intensity of competition increases. Enterprises, competing with a large number of economic entities, are forced to reduce costs and compete on price. The negative consequences may be the washing out of entire industries in small countries that cannot compete. For example, after joining the European Union, the B altic countries were left without most industries.

Expansion and reorientation of trade

Removal of trade restrictions and tariffs may help change the geographical structure of trade. A common free market makes goods from the countries of association competitive in local markets, including by lowering tariff barriers. As a result, there is a substitution of local and imported goods. Having gained access to regional markets, producers focus their efforts on the production and sale of goods in which they have a comparative advantage, for example, through the removal of duties and quotas. Trade is expanding. More efficient producers are crowding out products from other countries because they can take advantage of regional integration.

Countries receive their specialization within the integration association. The consolidation of markets leads to a geographical reorientation of trade. Receiving preferences in trade within the association stimulates an increase in domestic trade by reducing trade with third countries. Especially if the removal of restrictions within the integration association is accompanied bytightening terms of trade for other countries. Expansion and reorientation lead to a change in the country where production activities are located. Moreover, this is often unbalanced, some countries gaining advantages, while others wash out entire industries.

Major projects

The globalization of the economy forces countries to strive to join one or another association. All major regions of the world have their own economic associations. The most successful integration unions: the European Union, the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations, the Common Market of Latin American Countries (MERCOSUR). The largest and most advanced integration project, the EU brings together 27 countries. Comparable economic power has NAFTA, which includes the US, Canada and Mexico, where the dominant role is played by one country. However, the weakest economy in this alliance also benefits.

For example, in Mexico there is a significant number of automotive companies that work for the US market. The largest Asian project, ASEAN, developed as a production base for the world economy. The largest association in the post-Soviet space, the EAEU, has existed since 2014.

European Union

The history of the EU is an example of the successful development of an integration project that has gone through all the stages from a free trade zone to a full-fledged economic and political union. United by a common history and territory, the countries began the process of integration to solve the common problems of the post-warEurope. A significant advantage of the EU is that several developed states with a similar culture and level of economic development took part in the integration at once. The countries of the union have delegated a significant part of their sovereignty to pan-European bodies.