Economic integration occurs when different aspects between countries are integrated. The basis of this theory was written by the Hungarian economist Bela Balassa in the 1960s. As economic integration occurs, the barriers of trade between markets decreases. One of the most significant integrated economies today between independent nations is the European Union.
The degree of economic integration can be categorized into six stages which are:
1. Preferential trading area: it is a trading bloc which gives preferential access to certain products from certain countries; this is done by reducing tariffs but does not abolish them completely. It can be said to be the weakest form of economic integration.
2. Free trade area: is a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most of the goods between them. This is the second stage of economic integration.
3. Customs union: it is a free trade area with a common external tariff. Included countries set up common external trade policy, but in some cases they use different import quotas. Purposes for establishing a customs union normally include increasing economic efficiency and increasing political/cultural ties between countries. It is the third stage of economic integration.
4. Common market: it is a customs union with common policies on product regulation, and freedom of movement of factors of production (land, labor & capital) and of the enterprise. The goal is that movement of capital, labor, goods, and services between the members is as easy as within them.
5. Economic and monetary union: it is a single market with a common currency. It is to be distinguished from a simple currency union which does not involve a single market. This is the fifth stage of economic integration.
6. Complete economic integration: it is the final stage of economic integration. After complete economic integration, the integrated units have no or negligible control of...