Economic Integration Explained - UP Video

Economic integration reduces or eliminates trade barriers among nations, and coordinates monetary and fiscal policies.
The aim is to reduce costs for consumers and producers, as well as to increase trade between the countries participating in the agreement. The more integrated economies become, the fewer trade barriers exist, and the more politically coordinated they are.
Countries can agree to different levels of economic integration:

There are six levels of economic integration

1. PREFERENTIAL TRADE AREAS ; A Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc. Agreements may be made between two countries (bi-lateral), or several countries (multi-lateral).

2. FREE TRADE AREA :A free trade area is a bloc in which countries reduce or remove tariffs on all goods among member nations. An example is the North American Free Trade Agreement between Mexico, USA and Canada.

3. CUSTOMS UNION ; In a customs union, member countries reduce or remove tariffs among themselves and impose a common tariff against non-member countries.

4. COMMON MARKET; A common market is the first significant step towards full economic integration, and occurs when member countries trade freely in all economic resources – not just tangible goods. This means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as removing tariffs, non-tariff barriers are also reduced and eliminated.

5 (number five). ECONOMIC UNION; An economic union is a common markets bloc among members that also share one trade policy with non-members.

6 (number six) . MONETARY UNION; And in a monetary union, nations share a single currency, such as the euro.
The good thing about economic integration is its members pay smaller expenses to trade, which can spur economic growth.

But one member of a bloc can bring others down if its economy or growth slows. The more integrated the economies become, the less flexibility the governments of member nations have to make adjustments that would benefit themselves.