Economic integration is a process where barriers to trade are reduced or eliminated to facilitate trade between regions or nations. There are varying degrees of economic integration ranging from theoretically completely free trade to the use of preferential trade agreements to stimulate relationships between specific trade partners. Removing trade barriers comes with costs and benefits, depending on the degree of integration and the level of cooperation between member regions or nations.
Many economies have attempted some degree of economic integration. Some nations use free trade zones, for example, to stimulate trade with partners. Others sign free trade agreements like the North American Free Trade Agreement (NAFTA). In the European Union (EU), a high degree of economic and monetary integration has been accomplished between member nations. Various EU nations may also have trade agreements with nations outside the union.
Reducing barriers to trade has the tendency to cut costs associated with economic activities. Not having to pay taxes, tariffs, fees, and other expenses can be beneficial for trading partners. This causes the volume of trade to increase, as trading partners actively seek out deals in regions where some degree of economic integration has been achieved. For nations outside integration agreements, however, barriers to trade can be created as they may not be able to compete with preferred trading partners.
When economies are strong, economic integration has benefits for all members, and every member of an agreement, union, or treaty can experience economic growth. The same holds true of economic downturns. When individual members of a trade agreement start to be dragged down, their economic problems can spread. This was notably seen in the European Union during the economic crises of the early 2000s, when bad debt in nations like Greece and Portugal caused problems across the EU, including in nations with relatively strong economies, like Germany.
As regions and nations embark on economic integration programs, they weigh the costs and benefits of integration carefully to see if it is the right choice for their needs. Some nations may prefer to avoid the risks, even though barriers to trade may pose a problem. Others may be willing to take on the risks in exchange for increased trade and foreign exchange. Growing nations are often particularly eager to engage in economic integration, as trade with foreign nations can contribute to rapid economic growth. They may use incentive programs to attract foreign trade and investment.