What is Regional Economic Integration?
The efforts of the countries in a
certain geographical area to increase the welfare in the region by removing the
barriers to foreign trade is called regional economic integration. This
process plays a crucial role in regional
economics by
fostering trade, investment, and economic cooperation. We can
define regional economic integration as the process in which
countries in a geographical region come together to form an economic alliance
that promotes free trade, economic policies, and mutual growth.
When countries see that it is
difficult to compete alone in the market, they try to create a single market in
their region by forming regional blocks and try to establish common legal and
social systems. Regional economic integration in
international business is
particularly important, as it allows firms to expand their markets and benefit
from larger trade opportunities.
Besides economic proximity, the proximity of socio-cultural ties is also an
important factor in economic integration.
Required Conditions for Integration
There must be five important affinities between countries in terms of
the conditions that provide integration and the availability of international economic
integration levels. These
are geographical proximity, political proximity, proximity in terms of
economic development levels or homogeneity in economic development, homogeneity
in the applied economic system and closeness of socio-cultural ties.
For geographical proximity,
to be permanent on a regional basis it is only possible by producing trade
policies for the countries in the region in which they are located and
following a foreign trade strategy based on neighboring countries and carried
out with healthy inter-institutional coordination. Nowadays,
when we look at the world in general, we witness that regional
economic integration types and
therefore trade with neighboring countries are developing rapidly and countries
are following a policy in this direction.
For political proximity, it is important to establish a "legal
infrastructure" in the development of bilateral economic relations between
states. The most important agreements that prepare the legal ground of the
relations can be listed as;
1. Trade Agreement
2. Double Taxation Prevention Agreement (DTPA)
3. Agreement on Mutual Promotion and Protection
of Investments (AMPPI)
Proximity in terms of economic development levels, the success of regional
economic integration levels varies
depending on the development level of the countries. While the integration to be established between
countries with similar economic structures will be more successful, the chances
of success of integrations established between countries with different
economic structures are more limited. E.g; Integration of developed countries
with developed countries and developing countries with developing countries
increases the chance of integration, while integration of developing countries
with developed countries limits the success of integration.
Homogeneity in the applied
economic system includes the integration of other instruments such as
money, finance and socio-economic policies beyond the common market. A single
monetary and banking system, common financial policies and a supranational body
that will determine and implement common economic policies throughout the union
must be established. Benefits of regional economic integration can be seen through
increased trade flows, better allocation of resources, and a stronger
collective bargaining position for member states.
TradeAtlas plays an important role in providing economic
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Goals of Regional Integration
In the
literature, we see that the three methods‐stages are applicable according to
the degree of integration at the point of achieving the main objectives of integration.
1. Ensuring the free movement of goods and services
2. Ensuring free movement of production factors
3. Harmonization of the economic policies of the member countries. These
methods can also be defined as stages of integration.
Free Movement of Goods and Services
This approach; It emphasizes the
thesis that the free exchange of goods and services will have a positive impact
on the well-being of all. Free foreign trade provides the consumer with the
opportunity to choose the cheapest one among a much larger number of goods,
thus contributing to the consumer's ability to consume cheap and high-quality
goods and services and, in this respect, to maximize their welfare. Regional
economic integration examples such
as the European Union showcase the positive effects of this approach.
Free Movement of Factors of Production
At this stage, which is another basic principle of economic integration,
free movement allows for the optimal distribution of labor and capital.
Accordingly, the shift of labor and capital to areas where they are more
productive plays a role in increasing efficiency and productivity in
production.
Harmonization of Member States' Economic Policies
The abolition of trade disputes between member states and their peaceful
resolution is the second main goal of economic integration, which is defined as
policy harmonization.
In the mixed economy, some transactions are carried out within the
framework of the market economy logic, and some are carried out by the public.
In a structure where the state's intervention in the economy is defined as
a mixed economic system, the policies followed by the individual states, which
are parts of the integration, may also differ. Therefore, if the policies
implemented by each state are not harmonized within the whole, full integration
cannot take place.
Examples of Integration Among Developed Countries
Today, the North American Free Trade Agreement with the European Union is
among the most suitable examples of integration agreements between DCs.
It is noteworthy that intra-industry trade rather than inter-industry trade
is common between DCs, while prices are above both marginal and average costs
as reflections of imperfect competition conditions, and there are conditions of
increasing returns to scale.
Examples of Integration Among Developing or Least Developed Countries
In Asia and Latin America, some countries have made significant strides in
planning, implementing, and developing regional trade cooperation agreements.
Among the most important purposes of adapting the customs union, free trade
area and other regional trade agreements are the initiation and examination of
bilateral trade relations between a kind of center (developed countries) and
the periphery (developing and/or less developed countries).
Within the framework of static comparative advantages, which is the main
objective of the economic integration theory, it is understood that the
substitution industrialization strategy based on full specialization and
expansion in trade should be aimed at realizing the industrialization and
economic development of the economic structure on a sectoral basis, rather than
providing an increase in welfare within the union.
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