Economic Integration + Trading Blocs

• Economic integration


  A process whereby countries coordinate to reduce trade barriers and maybe to harmonize monetary and fiscal policy
• Types of economic integration

  • Reducing trade barriers
  • Harmonizing monetary and fiscal policy
• Trading bloc


  A group of countries that join together and agree to increase trade between themselves
• Bilateral trade agreement


  An agreement to reduce tariffs and quotas on trade between two countries
• Multilateral trade agreement


  An agreement to reduce tariffs and quotas on trade between multiple countries
• Types of trading blocs (from least to most integrated)

  • Preferential trading area (PTA)
  • Free trade area
  • Customs union
  • Common market
  • Economic and monetary union
  • Full economic integration
• Preferential trading area (PTA)


  • Countries reduce tariffs or quotas on certain goods and services, not all
  • Not complete elimination of all tariffs and quotas
• Free trade area


  • Countries eliminate all trade barriers between each other
  • But are free to trade however they want with countries outside the free trade area
• Customs union

  • Free trade between member countries
  • Common external tariff imposed on imports from non-member countries
• Common market


  • Customs union with free movement of labour, capital, and business between member countries
  • Common policies on regulation
• Economic and monetary union


  • Common market with common currency, central bank, and monetary policy
• Full economic integration


  • Complete harmonization of fiscal, monetary, and political policies under one governing body
• Examples of trading blocs: NAFTA, EU, CARICOM