Question

privide three benefits sulting from economic intergration amongst developing countries

Answer 1

Benefits of Economic Integration amongst Developing Countries

Economic integration is a cooperative arrangement by some countries that involves common economic policies like the reduction of trade barriers and coordinated monetary and fiscal policy. With the economies becoming more integrated, economic and political coordination between the countries increase. There can be different types of economic integration like Free Trade Areas, Customs Unions, Common Market, Economic Union, etc. Some examples of economic integration in developed countries are – European Union (EU) & The North American Free Trade Agreement (NAFTA). In the post-world war period, fuelled by the success of EU, many developing countries also formed regional groups to increase integration like – Association of South-East Asian Nations (ASEAN), The Latin American Free Trade Association (LAFTA), etc. The three major benefits of economic integration amongst developing countries are as follows –

1. Trade Creation

Trade creation refers to an increase in the volume of international trade that results from reduction or elimination of trade barriers like tariffs and quotas. When a group of economically integrated economies lowers the duty on imports originating from other member countries, industries having a higher comparative advantage in those countries can compete with a country’s firm in their own markets. More goods are traded than before, leading to a more efficient outcome. It encourages specialization through a shift in high-cost production to low-cost production. Moreover, it increases production due to economies of scale. Though some producers in the importing country are affected by this, the consumers enjoy lower prices and a wider range of choices. Thus social welfare increases.

2. Free flow of labor

Economic integration leads to higher diffusion of technology through trade liberation and market expansion. Capital movements become easier, leading to higher investment. Owing to economies of scale, the market expands rapidly. This, in turn, creates more opportunities for workers who move across countries seeking employment opportunities. So there is an increasing need for labor. This is particularly helpful in developing countries since these countries are generally characterized by a huge labor force. So, there will be a free flow of labor due to economic integration.

3. Political Cooperation and greater consensus

A regional group collectively will have more bargaining power than individual economies. So, economic integration will also help the member countries to have greater political influence in the world market. This will help to address important issues pertaining to conflicts affecting the region as a whole. Political and economic hurdles in the world market will become easier to deal with.