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Some historians contend that WW2 was a war for resources. Germany and Japan sought to expand to create self-sufficient economies, leading to devastating consequences. In response to this, efforts toward economic integration happened after the war to prevent aggressive competition between countries, raise living standards, and promote stability. Learn about the concepts of economic integration and how it was implemented in Europe here.
Economic integration is two or more countries cooperating on economic policy. Usually, trade barriers such as tariffs are reduced or removed to make trade easier.
Taxes on imports and/or exports.
Countries practicing economic integration may also cooperate on monetary and fiscal policy or even adopt a common currency.
Economists define 7 levels of economic integration.
There are also different types and forms of economic integration.
|Regional Economic Integration||Occurs between countries within the same geographic area or region.|
|Multinational Economic Integration||Economic integration between sovereign nation-states anywhere in the world.|
|Social Economic Integration||Seeks to move beyond simple economic integration to include social policy such as education.|
There are pros and cons to economic integration.
The primary benefit of economic integration is better economic outcomes.
Generally, free or minimally restricted trade will lead to more competition and, by extension, lower costs for goods.
These lower prices result from reducing or eliminating tariffs on imported goods, which increase prices on imported goods. This allows consumers to choose the best and/or lowest priced goods, whether they are produced domestically or not.
This also allows countries to focus on producing goods for which they have a comparative advantage, meaning they can specialize and produce more of what they are best at producing, leading to more production, trade, and income for all countries involved.
The ability of a particular nation to engage in a particular economic activity more efficiently than other activities and more efficiently than other nations. For example, one country may have a comparative advantage in producing corn due to environmental factors and another beef. With each focusing on the other and trading, their populations will have access to better and cheaper corn and beef rather than each trying to produce both.
A significant indirect benefit of economic integration among nations is the promotion of better relations.
In essence, countries that rely on each other for trade are less likely to go to war, and cooperation on trade will lend itself to more cooperation in other areas.
The main arguments against economic integration concern national sovereignty.
Sovereignty is the authority of a country to govern itself.
For example, reducing trade barriers and specializing in certain goods may reduce prices, limiting countries' ability to make their own decisions. Tariffs allow domestic industries to develop when they cannot effectively compete with foreign industries. Without them, they may never develop.
As long as positive relations and cooperation continue, that's fine.
However, if the two countries have a falling out and stop trading, people could lose access to imported goods they rely on since there are no domestic producers. Also, economic integration means economic problems in one country could cause problems in another. For example, if there is a drought in one country, people in another might face food shortages.
Likewise, specialization might make countries too reliant on producing one good or product. If the prices of that good fall, they may face more economic difficulty than if they were more diversified.
Controversy also surrounds economic integration that includes a monetary union. By adopting a common currency, countries give up the freedom to control the value of their money. This gives countries less flexibility to respond to inflation and deflation.
Inflation and Deflation
Inflation occurs when prices rise, and the value of money declines. Deflation occurs when prices fall and the value of money increases.
Countries can encourage inflation by printing more money or reducing taxes, or spending on social policies and infrastructure to put more money into the overall economy.
They can encourage deflation by removing money from circulation, raising taxes, or reducing government spending to reduce the amount of money in the economy.
Maintaining control over the money supply is one of the arguments against levels of economic integration that include using common currencies since countries lose independent control over these methods to manipulate the currency's value.
Since WW2, Europe has seen increased economic integration.
The term communist bloc refers to the communist countries of Eastern Europe and their allies.
Used to describe a group of countries that operate as a group, perhaps with some degree of global economic integration.
The communist bloc countries engaged in economic integration through COMECON.
The Council for Mutual Economic Assistance was created in 1949 to promote trade and economic coordination among communist countries.
At first, COMECON focused primarily on fostering trade agreements similar to a preferential trade area.
However, later it began to promote specialization and operate more similarly to a common market.
COMECON was less successful in achieving economic integration than its Western European counterparts.
The Organisation of European Economic Cooperation, or OEEC, was created in 1948 to help plan the administration of Marshall Plan aid from the US to Europe and promote cooperation in the rebuilding of Europe more broadly.
By the late 1950s, its job was essentially done, and the body was reconstituted as the Organisation for Economic Co-operation and Development, or OECD, in 1961.
The OECD looked to continue to promote economic integration in Europe and globally, and the US, Canada, Japan, Australia, and New Zealand were all made members by 1973.
After the fall of communism, many Eastern European countries joined. In the 2010s, several Latin American countries joined, marking its transition from regional economic integration to proper multinational economic integration.
Although the OECD has never advanced to more full economic integration, it was an essential forerunner to other European economic integration efforts.
The European Economic Community, or EEC, was created by the 1957 Treaty of Rome.
Its goal was to promote more complete economic integration, including creating a customs union and a common market.
There were only six founding members, but its membership gradually expanded.
The Treaty of Rome also created a European Parliament, which laid some foundations for social-economic integration.
In 1993, the Maastricht Treaty created the European Union or EU.
It essentially absorbed and replaced the EEC. It has created the highest level of economic integration among independent sovereign states.
The European Union is a customs union and common market, although a few member states only participate in one or the other.
It currently has 27 member states.
The European Parliament, under the umbrella of the EU, continues to promote social-economic integration through many common laws between member states.
The Euro Zone refers to the countries of the European Union that adopted the common currency known as the Euro, created in 1999.
Currently, 19 of the 27 EU participants use the Euro.
The EU and Eurozone have generally been regarded as highly successful in promoting better economic outcomes, prosperity, and peace in post-WW2 Europe.
However, the 2008 financial crisis and the resulting fallout, the exit of the UK from the EU (commonly referred to as Brexit), debates over the socioeconomic integration of immigrants, and renewed conflict in Europe are all challenges that continued and expanded economic integration faces in the first decades of the 21st Century.
Economic integration is cooperation between countries to reduce or eliminate barriers to trade, thereby integrating their economies.
There are many different forms of economic integration. Four of the forms of economic integration include preferential trade agreements, full free trade agreements, single market systems, and monetary unions.
Five levels of economic integration include preferential trade agreements, free trade agreements, customs unions, single markets, and monetary unions.
Three methods of economic integration include regional economic integration, multinational economic integration, and the creation of single markets or full monetary unions.
Economic integration can be both good and bad. Advantages include increased competition and lower prices for consumer goods. Disadvantages include the loss of full sovereignty over economic policy.
What are tariffs?
Taxes on imported and/or exported goods.
What best defines economic integration?
Countries using the same currency.
What is the difference between a preferential trade area and free trade area?
Preferential trade areas include special reductions on tariffs, while free trade areas eliminate them entirely.
Which best describes the difference between a custom union and single market?
A customs union has no tariffs between them and a common tariff policy towards other countries, while a single market also allows the complete freedom of movement of goods, services, and labor between them.
What is the main benefit of economic integration?
Lower prices for consumer goods in each country.
What is the main disadvantage of economic integration?
It can limit national sovereignty and independence over economic policy.
What was the organization that promoted economic integration among the communist countries?
The Council of Mutual Economic Assistance, or COMECON
What treaty created the European Economic Community?
The Treaty of Rome
The Maastricht Treaty created what organization that still exists?
The European Union, or EU
Which of the economic integration levels best describes the EU?
A free trade area
True or False: All countries in the EU use the Euro?
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