Economic integration

Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. There are economic as well as political reasons why nations pursue economic integration. The economic rationale for the increase of trade between member states of economic unions rests on the supposed productivity gains from integration. This is one of the reasons for the development of economic integration on a global scale, a phenomenon now realized in continental economic blocs such as ASEAN, NAFTA, SACN, the European Union, AfCFTA and the Eurasian Economic Community; and proposed for intercontinental economic blocks, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area.Among the requirements for successful development of economic integration are 'permanency' in its evolution (a gradual expansion and over time a higher degree of economic/political unification); 'a formula for sharing joint revenues' (customs duties, licensing etc.) between member states (e.g., per capita); 'a process for adopting decisions' both economically and politically; and 'a will to make concessions' between developed and developing states of the union.The framework of the theory of economic integration was laid out by Jacob Viner (1950) who defined the trade creation and trade diversion effects, the terms introduced for the change of interregional flow of goods caused by changes in customs tariffs due to the creation of an economic union. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration. The next attempts to enlarge the static analysis towards three states+world (Lipsey, et al.) were not as successful.The degree of economic integration can be categorized into seven stages:Globalization refers to the increasing global relationships of culture, people, and economic activity.In economics the word integration was first employed in industrial organisation to refer to combinations of business firms through economic agreements, cartels, concerns, trusts, and mergers—horizontal integration referring to combinations of competitors, vertical integration to combinations of suppliers with customers. In the current sense of combining separate economies into larger economic regions, the use of the word integration can be traced to the 1930s and 1940s. Fritz Machlup credits Eli Heckscher, Herbert Gaedicke and Gert von Eyern as the first users of the term economic integration in its current sense. According to Machlup, such usage first appears in the 1935 English translation of Hecksher's 1931 book Merkantilismen (Mercantilism in English), and independently in Gaedicke's and von Eyern's 1933 two-volume study Die produktionswirtschaftliche Integration Europas: Eine Untersuchung über die Aussenhandelsverflechtung der europäischen Länder.