Forms of Economic Integration
By Openbook Correspondent
Published 8 November 2011
Economic integration refers to the merging to various degrees of the economies and economic policies of two or more countries in a given region.
- Free Trade Area:
Exist when a number of countries agree to abolish tariffs, quotas and any other physical barriers to trade between them, while retaining the right to impose unilaterally their own level of customs duty, etc, on trade with the rest of the world.
- Customs Market
Exists where a number of countries decide to permit free trade among themselves without tariff or other trade barriers, while establishing a common external tariff against imports from the rest of the world.
- Common Market
Exists when the countries, in addition to forming a custom union, decide to permit factors of production full mobility between them, so that citizens of one country are free to take up employment in the other, and capitalist are free to invest and to move their capital from one country to another.
- Economic union
Is where the countries set up joint economic institutions, involving a degree of supranational economic decision-making.
- Common Monetary System
Is where countries share a common currency, or ensure that each national currency can be exchanged freely at a fixed rate of exchange, and agree to keep any separate monetary policies roughly in line, to make this possible.