Process of Economic Integration in the World Today - Essay Example

?Individual Research Report On Economic Integration Table of Contents Table of Contents 2 Introduction 3 Process of Economic Integration 3 Purposes of Economic Integration 4 Resulting Types of Economic Groupings (Levels of Economic Integration) 5 Procedures of the Firms Seeking to Internationalise Their Operations 7 Conclusion 8 References 9 Bibliography 12 Introduction Economic integration is often viewed to be an economic arrangement between two or more different regions spotted by the eradication in trade barriers among the countries and the synchronization between monetary and fiscal policies. The prime purpose involved in the process of economic integration process is reducing costs both for the producers and the consumers as well (Sledziewska, n.d.). It ensures the elimination of tariff or non-tariff barriers and guarantees the flow of goods, services and other factors of production between a group or diverse parts of a nation (WHO, 2013). It can be affirmed that the implementation of economic integration lessens the short-term profits due to the imposition of tariffs. Economic integration reduces the other trade barriers as well. It gives less power to the government of the member nations to make necessary adjustments that might deliver significant benefits to them. A proper economic integration in a better economy paves the way towards long-term economic benefits, whereas economic integration in a poor economy can only make the things worst (Jovanovic, 2002). With this concern, this paper intends to present a research report especially on the aspect of economic integration. Process of Economic Integration The process of economic integration in the context of European Union generally includes four main features. One of the features is that economic integration reflects increase in intra-euro area trade at large. This can be justified with reference to the fact that the intra-euro exports and imports of service have increased from 5% of GDP in the year 1998 to 7% of GDP in the year 2006. On the other hand, it can be apparently observed that extra-euro area exports along with imports of goods have increased from 24% of GDP in the year 1998 to around 33% in the year 2006 and an increase from 8% of GDP to almost 10% has been viewed in extra-euro area exports and imports of services. These figures reflect the creation of strong Europe (European Central Bank, 2007). The second facet of economic integration can be identified to be making smooth and free flow of capital and also contributing towards developing the aspect of financial integration. Financial integration strengthens the economic mechanism, raises the competition and increases the potential for stronger economic growth. Along with economic integration, financial integration plays an imperative role in determining effective monetary policies and ensuring free along with effective transmission of single monetary policy. However, the actual need of financial integration is being observed in retail banking sector (EUbusiness Ltd, 2013). The third feature of economic integration relating to its process is constituted by labour mobility. As the labour market begins to tighten itself in developing economies, absence of openness may result in generating the risks of wage pressure. In most part of the European Union, it can be viewed that cross border labour mobility is still limited, restricting in developing the economy by a certain degree through the emergence of regulatory barriers. The other facet of economic integration in relation to its process can be viewed as synchronizing and coordinating different cyclical positions across the Euro areas (Kuroiwa, 2012). Purposes of Economic Integration In order to determine the purposes of economic integration, it can be apparently observed that economic integration has increased among the countries in the European Union, but deeper integration is needed for the creation of developed economy in this increased level of globalisation along with internationalisation. In this similar context, the prime purpose of economic integration is to make economy more flexible, which ensures reduction in costs both for the manufacturers and the consumers. There lay certain political along with economic reasons behind following the procedure of economic integration. Economic integration is intended towards leading higher productivity and developing economy by increasing trade between different nations throughout the globe (Linderburg, 1963). It is worth mentioning that economic integration allows a consumer to spend more because of the availability of the cheaper imported goods. This results in high purchasing power of consumers. Thus, the goods that are not produced in sufficient quantities in one country can be imported and distributed in other country with low cost. Movement of capital is identified as the essential element of economic integration. It generally signifies transfer of business or individual assets among countries. Economic integration removes barrier from foreign investors. Finally, it can be affirmed that economic cooperation and equality in the context of financial development are the prime purposes of economic integration (EUbusiness Ltd, 2013). Resulting Types of Economic Groupings (Levels of Economic Integration) The resulting types of economic groupings that can be apparently observed in today’s world have been discussed by taking into concern various levels associated with economic integration. In this regard, there are five levels of economic integration namely (a) free trade, (b) custom union, (c) common market, (d) economic union and (e) political union. Free trade abolishes the tariffs existing between the member countries and its overall objective is to gain economies of scale and superior competitive advantage. One of the benefits of free trade is raising the size of a firm’s market resulting in a lower average cost and increased productivity. The limitation of free trade can be viewed as encouragement to temporary structural employment, leading towards the downfall of local economy. Custom union ensures levelling the competitiveness and addressing the problems of re-export. The major advantages of custom union can be stated as the elimination of transaction costs and greater transparency. One of the limitations of custom union can be viewed as a threat to the loss of free trade agreement and unemployment (Tarr & Michalopoulos, 2004). The common market generally relies upon certain significant factors such as labor, cost along with capital that are allowed to move freely among various nations. One of the major benefits of common market is effective allocation of the production factors and augmenting market costs can be duly considered as one of the limitations of common market. A level of economic union is largely formulated by introducing effective monetary along with fiscal policies, which assists in developing economy at large. Specially mentioning, coordinating various financial policies between various member states effectively is the major benefit of economic union. On the other hand, the non-existence of free trade can be regarded as one of the limitations of economic union. The last level i.e. the political union reflects the most advanced form of integration with a common government. One of the benefits of political union is delivering several security guarantees and one of its limitations can be viewed as forming numerous disagreements amid the policy makers (Rodregue, 2013). The levels can be better understood with the help of the following diagram. One of the examples of the economic grouping can be apaprently observed as The North American Free Trade Agreement (NAFTA). This particualr agreement generally tends to remove the barriers associated with international trade and focuses in making substantial investments for the purpose of developing the vital aspect of financial integration in an effective manner (Villarreal & Fergusson, 2013). Procedures of the Firms Seeking to Internationalise Their Operations The contemporary meaning of economic integration is straightforward. It allows free trade with the imposition of no internal tariffs. Specially mentioning, economic integration permits the freedom of trading goods or services, labours and capital throughout the globe (Marchetti, 2009). In this context, the firms seeking to internationalise their respective operations use this particular knowledge i.e. economic integration effectively through realising that the idea of economic integration ensures high productivity and permits conducting more trades between various nations throughout the globe. Moreover, it can also be affirmed that a few of the unique qualities of economic integration that encompass restricting government to impose stern regulations, facilitating free along with smooth flow of services or goods, ensuring long-term benefits and removing barriers from international investors can help the firms to internationalise their operations (Korres, 2007). Conclusion From the above analysis, it is clear that economic integration acts as a bridge of trade between two nations. It is quite confirmed that economic integration makes an economy flexible and reduces the cost involved in manufacturing along with purchasing. It can be apparently observed that the levels of economic integration help in determining the competitiveness and allowing smooth movement of labour, cost and capital. Thus, it can be concluded that the facets of economic integration might help the firms seeking to internationalise their operations by using the knowledge i.e. economic integration effectively. References EUbusiness Ltd 2013 The economics of European integration [Online]. Available at: http://www.eubusiness.com/topics/institutions/integration.bk/?searchterm=economic%20integration (Accessed 06 November 2013). EUbusiness Ltd 2013 The European Union: economics and policies - 9th Edition [Online]. Available at: http://www.eubusiness.com/topics/institutions/integration.bk/?searchterm=economic%20integration (Accessed 06 November 2013). European Central Bank (2007) The process of European economic integration [Online]. Available at: http://www.ecb.europa.eu/press/key/date/2007/html/sp070921_2.en.html (Accessed 06 November 2013). George, H. 1949. Protection or Free Trade. An Examination of the Tariff Question, With Especial Regard To The Interests Of Labor. [Online]. Available at: http://mises.org/etexts/freetrade.pdf (Accessed 06 November 2013). Jovanovic, N. M. (2002). International economic integration. United Kingdom: Routledge. Kuroiwa, I.( 2012). Economic integration and the location of industries. US: Palgrave Macmillan. Korres, M. J. (2007). Regionalisation, growth, and economic integration. United Kingdom: Springer. L. N. Linderburg. (1963). The political dynamics of European economic integration. United States: Stanford University Publication. Marchetti, A. J. (2009) Do economic integration agreements lead to deeper integration of services markets [Online]. Available at: http://www.wto.org/english/res_e/reser_e/gtdw_e/wkshop09_e/marchetti_e.pdf (Accessed: 06 November 2013). Rodregue, J. P. (2013) Levels of economic integration[Online]. Available at: http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/economicintegration.html (Accessed: 06 November 2013). Sledziewska, K (n.d.) Theory of economic integration [Online]. Available at: http://coin.wne.uw.edu.pl/sledziewska/wyklady/tei2.pdf (Accessed 06 November 2013). Tarr, D. & Michalopoulos, C. 2004. Are customs unions economically sensible in the commonwealth of independent states. [Online]. Available at: http://siteresources.worldbank.org/INTRANETTRADE/Resources/WBI-Training/288464 1162851806581/Tarr_Michalopoulos_Customs_Unions_eng.pdf (Accessed 12 December 2013). Villarreal, M. A. & Fergusson, I. F., 2013. NAFTA at 20: overview and trade effects. [Online] Available at: http://www.fas.org/sgp/crs/row/R42965.pdf (Accessed 12 December 2013). 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