Thursday, August 27, 2009

Economic Integration

Economic Integration refers to decision or process where by two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers.

The Economic Integration is classified into:

1. Free Trade Area

2. Customs Union

3. Common Market

4. Economic Union

1. Free Trade Area:

In such type of economic integration the countries forming free trade area remove tarrif walls amongst each other. However each country has right to impose tarrif against non-member countries imports. In this respect the example of “European Free Trade Area (EFTA) is given which comprised of Austria, Denmark, Norway, Sweden and Switzerland. The EFTA was formed in 1960.

2. Custom Union:

Under this type of economic integration the member countries not only remove the trade barriers amongst each other but they also have to impose a common external tarrif against non-member countries. The best example of custom union was “Zollverein” which came into being in 1837 and it was consisted of all “German States”. The regional formation of European Union (EU) was also a customs union which was formed in 1958.

3. Common Market:

This type of economic integration has following properties:

1. The trade restrictions amongs member countries are removed.

2. The external tarrif against non-member countries is levied at uniform rate.

3. The capital and labour are mobile between the member countries without any restrictions.

The status of European Community (EC) was like a “Common Market” in 1970. It was given the name of “European Common Market” (ECM) at that time and it had 12 members like Belgium, France, Luxemburg, Holland, Germany, Italy, Ireland, Denmark, Britain, Spain, Portugal and Greece. But now Austria Finland have also joined.

4. Economic Union:

This is such a type of economic integration where in addition to above properties of common market the stress is laid upon uniformity or policies regarding currency credit, government expenditure and taxation. The best example of economic union was “Benelux” whose members were Belgium, Netherland and Luxemburg. Such economic union has nowadays been merged into EC. The EC has also assumed the form of economic union. Its present name is European Union (EU) which is having a common currency by name Euro. Again the members of EU have to unify their economic policies. The economic union is an extreme type of integration, it is not practically possible because it will have the effect of surrendering economic and political independence of member countries. All the above types of economic integration are temporary one. However the Customs Union is a representative of economic integration.

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