In the context of globalization,
economic integration is characterized by open international trade, investment and capital flow.
There are three important dimensions to
economic integration: human migration; trade in goods and services; and movements of capital and integration of financial markets.
(adapted from Mussa, M.,
Factors Driving Global Economic Integration, International Monetary Fund, 2000, visited 2009-06-18)
Historical Background
Global economic integration is not a new phenomenon. Since the travels of Marco Polo seven centuries ago,
global economic integration — through trade, factor movements, and communication of economically useful knowledge and technology — has been a generally rising trend. Indeed, during the past half century, the pace of economic globalization (including the reversal of the interwar decline) has been particularly rapid. Moreover, with the exception of human migration,
global economic integration today is greater than it has ever been and is likely to progress further.
In North America, the level of
economic integration achieved will become increasingly important in light of expansion projects of the Free Trade Area of the Americas.
(adapted from Mussa, M.,
Factors Driving Global Economic Integration, International Monetary Fund, 2000, visited 2009-06-18)
"The world we see around us — a world of growing
economic integration, widening circles of development, and unprecedented prosperity — is in many ways the fulfilment of an idea which arose out of the destruction of the Second World War. Certainly, inequalities and poverty are still present on an unacceptably wide scale. But over the past 50 years, trade has been a powerful engine for growth."
(World Trade Organization (WTO),
From Vision to Reality: the Multilateral Trading System at Fifty, 1998, visited 2009-06-18)
Levels of Integration
"The classic schema of
economic integration ranks integration arrangements according to the depth of integration achieved along a continuum starting with a preferential trade area, and evolving through a free trade area, customs union, common market, economic union, economic and monetary union to ultimately achieve a state of total
economic integration."
"In preferential trade areas countries lower tariffs on trade with each other while retaining autonomy in setting tariffs on trade with third countries. In free trade areas, countries eliminate tariffs on trade with each other while retaining autonomy in trade policy with third countries. Customs unions remove tariffs on trade with other members and apply a common trade policy towards third countries. A common market aims at removing restrictions on factor mobility (capital, labor) between members as well as freeing trade in goods and services. In an economic union, members pursue some degree of harmonization of national economic policies in order to remove discrimination due to disparities in these policies. Monetary union adds the adoption of a common currency and a common monetary policy, while the stage of total
economic integration involves the unification of monetary, fiscal and social policies under the auspices of a supranational authority."
(Matthews, A.,
Regional Integration and Food Security in Developing Countries, Food and Agriculture Organization of the United Nations (FAO), 2003, visited 2009-06-18)
One of the most integrated economies today is the European Union.
"It is usual to distinguish between market-led integration (spontaneous integration without the formal involvement of governments) and policy-led integration (integration through intergovernmental frameworks). Another distinction is that between shallow and deep integration. The former is confined, for example, to the formation of a free-trade area in which each member retains autonomy in economic policies. The latter implies cooperation or harmonization of matters such as competition laws, monetary and financial policies, standards and other regulations, etc., as would be the case in a common market."
(Goode, W.,
Dictionary of Trade Policy Terms, Fourth Edition, Cambridge (UK): Cambridge University Press, 2003, pp. 113-114)
Debate
"International
economic integration is not yet leading to the sustainable growth and investment needed to give working women and men a fair chance of a decent job."
(International Labour Organization (ILO),
7th ILO European Regional Meeting, 2005, visited 2009-06-18)
"There is a growing recognition that unless questions of fairness and equality are systematically addressed by the world community, the process of international integration itself may be rejected by increasing numbers of countries and people."
(International Labour Organization (ILO),
Why an ILO declaration now?, 2000, visited 2009-06-18)