Regional Economic Integration
Regional economic integration is the process by which countries in a geographic region remove barriers to trade and investment among themselves and coordinate their economic policies, typically through formal agreements. Integration can take several forms, ranging from loose cooperation to full economic union.[1]
Forms of integration
Regional economic integration is often described as a progression through stages of increasing depth:
| Stage | Description |
|---|---|
| Free trade area | Members eliminate tariffs among themselves but retain their own external tariffs. |
| Customs union | A free trade area plus a common external tariff. |
| Common market | A customs union plus the free movement of factors of production. |
| Economic union | A common market plus coordinated economic policies. |
| Political union | Full integration of economic and political institutions. |
Examples
Prominent examples of regional economic integration include the European Union, the largest and most integrated bloc; the North American Free Trade Agreement (NAFTA), later replaced by the United States–Mexico–Canada Agreement (USMCA); Mercosur in South America; the Association of Southeast Asian Nations (ASEAN); and the Regional Comprehensive Economic Partnership (RCEP) in Asia-Pacific.[1]
Effects
Regional integration can generate both trade creation—shifting production to more efficient members—and trade diversion—shifting production from more efficient non-members to less efficient members. Whether integration raises overall welfare depends on the balance between these effects. Integration also involves the pooling of sovereignty, which is politically contentious.[1]