Economic integration refers to the unification of economic policies between different countries, which typically involves reducing or eliminating trade barriers. There are several forms of economic integration, each representing a different level of integration:
- Free Trade Area (FTA): In an FTA, member countries remove tariffs and other trade barriers between each other but maintain their own trade policies with non-member countries. Example: North American Free Trade Agreement (NAFTA).
- Customs Union: A customs union goes beyond a free trade area by adopting a common external tariff. This means member countries not only eliminate tariffs amongst themselves but also adopt a unified stance on trade policies with non-members. Example: Southern Common Market (MERCOSUR).
- Common Market: A common market allows free movement of goods, services, capital, and labor among member countries. It builds upon a customs union by allowing factors of production (like labor and capital) to move freely across borders. Example: European Economic Area (EEA).
- Economic Union: An economic union combines a common market with harmonized economic policies across member countries. This may involve unified fiscal policies, monetary policies, and regulations. Example: European Union (EU).
- Political Union: In a political union, countries not only merge their economies but also unify under a single government or adopt coordinated governance. This is the highest form of integration. Example: The United States of America began as independent states but gradually unified under a federal government.
These forms of integration progressively involve deeper cooperation and coordination among countries, from simple tariff removal to full political unification.
