Regional Economic Integrations

Regional Economic Integrations


Definition and Purpose of Economic Integration

The efforts of the countries in a certain geographical area to increase the welfare in the region by removing the barriers to foreign trade is called regionalization.

When countries see that it is difficult to compete alone in the market, they try to create a single market in their region by forming regional blocks and try to establish common legal and social systems.

Besides economic proximity, the proximity of socio-cultural ties is also an important factor in economic integration.


Required Conditions for Integration

There must be five important affinities between countries in terms of the conditions that provide integration and the availability of international economic integrations. These are geographical proximity, political proximity, proximity in terms of economic development levels or homogeneity in economic development, homogeneity in the applied economic system and closeness of socio-cultural ties.

For geographical proximity, to be permanent on a regional basis it is only possible by producing trade policies for the countries in the region in which they are located and following a foreign trade strategy based on neighboring countries and carried out with healthy inter-institutional coordination. Nowadays, when we look at the world in general, we witness that regional integrations and therefore trade with neighboring countries are developing rapidly and countries are following a policy in this direction.

For political proximity, it is important to establish a "legal infrastructure" in the development of bilateral economic relations between states. The most important agreements that prepare the legal ground of the relations can be listed as;

1. Trade Agreement

2. Double Taxation Prevention Agreement (DTPA)

3. Agreement on Mutual Promotion and Protection of Investments (AMPPI)

Proximity in terms of economic development levels, the success of integration varies depending on the development level of the countries. While the integration to be established between countries with similar economic structures will be more successful, the chances of success of integrations established between countries with different economic structures are more limited. E.g; Integration of developed countries with developed countries and developing countries with developing countries increases the chance of integration, while integration of developing countries with developed countries limits the success of integration.

Homogeneity in the applied economic system includes the integration of other instruments such as money, finance and socio-economic policies beyond the common market. A single monetary and banking system, common financial policies and a supranational body that will determine and implement common economic policies throughout the union must be established.

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Goals of Regional Integration

In the literature, we see that the three methods‐stages are applicable according to the degree of integration at the point of achieving the main objectives of integration.

1. Ensuring the free movement of goods and services

2. Ensuring free movement of production factors

3. Harmonization of the economic policies of the member countries. These methods can also be defined as stages of integration.


Free Movement of Goods and Services

This approach; It emphasizes the thesis that the free exchange of goods and services will have a positive impact on the well-being of all. Free foreign trade provides the consumer with the opportunity to choose the cheapest one among a much larger number of goods, thus contributing to the consumer's ability to consume cheap and high-quality goods and services and, in this respect, to maximize their welfare.


Free Movement of Factors of Production

At this stage, which is another basic principle of economic integration, free movement allows for the optimal distribution of labor and capital. Accordingly, the shift of labor and capital to areas where they are more productive plays a role in increasing efficiency and productivity in production.


Harmonization of Member States' Economic Policies

The abolition of trade disputes between member states and their peaceful resolution is the second main goal of economic integration, which is defined as policy harmonization.

In the mixed economy, some transactions are carried out within the framework of the market economy logic, and some are carried out by the public.

In a structure where the state's intervention in the economy is defined as a mixed economic system, the policies followed by the individual states, which are parts of the integration, may also differ. Therefore, if the policies implemented by each state are not harmonized within the whole, full integration cannot take place.


Examples of Integration Among Developed Countries

Today, the North American Free Trade Agreement with the European Union is among the most suitable examples of integration agreements between DCs.

It is noteworthy that intra-industry trade rather than inter-industry trade is common between DCs, while prices are above both marginal and average costs as reflections of imperfect competition conditions, and there are conditions of increasing returns to scale.


Examples of Integration Among Developing or Least Developed Countries

In Asia and Latin America, some countries have made significant strides in planning, implementing, and developing regional trade cooperation agreements. Among the most important purposes of adapting the customs union, free trade area and other regional trade agreements are the initiation and examination of bilateral trade relations between a kind of center (developed countries) and the periphery (developing and/or less developed countries).

Within the framework of static comparative advantages, which is the main objective of the economic integration theory, it is understood that the substitution industrialization strategy based on full specialization and expansion in trade should be aimed at realizing the industrialization and economic development of the economic structure on a sectoral basis, rather than providing an increase in welfare within the union.


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