4.4 Economic Integration

Economic integration

Growing economic relations and cooperation between countries via trade agreements

Includes free trade areas, customs unions, and common markets

Preferential trade agreement

Agreement between countries to give preferential access to products

May involve tariffs, quotas, or other trade protections

Trading bloc

Group of countries agreeing to reduce or eliminate trade barriers

Encourages free trade among members

Bilateral trade agreement

Trade agreement between two countries

Aims to reduce trade barriers and encourage free trade

Regional trade agreement

Trade agreement between several countries in a region

Reduces trade barriers to promote regional free trade

Multilateral trade agreement

Agreement between many countries under the World Trade Organization

Aims to reduce global trade barriers

Free trade area

Group of countries reducing trade barriers among themselves

Each country sets its own policy toward non-members

Customs union

Free trade area with a common external trade policy

Members adopt same tariffs for non-members

Common market

Customs union with free movement of labor and capital

Highest level of economic integration before monetary union

Advantages of trading blocs

Increased economic growth, firms lower production costs due to competition and larger markets

Consumers benefit from lower prices, lower-cost imports replace higher-cost domestic production

Firms benefit from producing at larger scale, reduces average costs and increases investment

Disadvantages of trading blocs

Less developed members may not compete effectively, can worsen inequalities within the bloc

Blocs may bypass multilateral agreements

Weakens global trade governance

Monetary union

Group of countries adopting a common currency and central bank