Economic integration - the merging together of national economies and the blurring of
boundaries that separate economic activity in one nation state from another.
Types of integration
• Market integration: consumer and producer behaviour in different regions become
geared to supply and demand condition in the whole geographical area covered by
economic integration. As integration deepens, price disparities between markets in
individual countries are reduced as a result of increased trade and competition. Price
disparities for the same good between countries disappear i.e. market integration results
in single market with an identical price for, say, a car in all member countries.
• Policy integration: the laws and regulations influencing consumer and producer
behaviour in different regions become harmonised. This involves member states pooling
of decision making within EU institutions on issues affecting all countries and results in a
common EU wide policies on environment, transport, employment, etc. E.g. employee
rights become the same in France and the UK
• Negative integration: removal of all barriers to free movement of goods and
production factors among member states e.g. abolition of custom duties, tariffs, non tariff
• Positive integration: The coordination (harmonisation) or – in its strongest form -
unification of economic and social policies
The stages or levels of economic integration
Economic integration is a dynamic process.
Each stage represents deepening integration and greater loss of national
1. Free Trade Area:
1) removal of tariffs and quotas on trade between member countries.
2) each member sets its own external tariffs on imports from non FTA nations. There is
minimal policy integration.
2. Customs Union: the features of a Free Trade Area plus common external
tariffs on imports from non members
3. Common Market the features of a Customs Union plus no internal barriers
to factor mobility allowing the free movement of labour and capital
4. Economic Union: the features of a Common Market plus harmonisation of
policies across member countries eg social policy and coordination of
5. Monetary Union: the features of a Economic Union plus - in its strongest form - a
single currency with a common monetary policy set centrally rather than individual
6. Political Union: member countries have a shared government with individual states
within the union largely responsible for their own administration e.g. USA.
Deep economic integration requires some degree of political integration, which also
requires shared aims and values between nations