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Economic integration reduces or eliminates trade barriers among nations, and coordinates monetary and fiscal policies.

The aim is to reduce costs for consumers and producers, as well as to increase trade between the countries participating in the agreement. The more integrated economies become, the fewer trade barriers exist, and the more politically coordinated they are.

Countries can agree to different levels of economic integration:

  • A preferential trade agreement is a trading bloc where members reduce or remove tariffs on certain goods imported and exported throughout their region.
  • A free trade area is a bloc in which countries reduce or remove tariffs on all goods among member nations. An example is the North American Free Trade Agreement.
  • In a customs union, member countries reduce or remove tariffs among themselves and impose a common tariff against non-member countries.
  • Countries involved in a common markets bloc freely exchange all goods, services, labor and capital.
  • An economic union is a common markets bloc among members that also share one trade policy with non-members.
  • And in a monetary union, nations share a single currency, such as the euro.

The good thing about economic integration is its members pay smaller expenses to trade, which can spur economic growth.

But one member of a bloc can bring others down if its economy or growth slows. The more integrated the economies become, the less flexibility the governments of member nations have to make adjustments that would benefit themselves.

 

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