Lecture
Economic integration - the unification of economic policies between different states through the partial or complete abolition of tariff and non-tariff restrictions on trade that occur among them before their integration. This means, in turn, that economic integration leads to lower prices for distributors and consumers in order to increase the aggregate economic productivity of states.
The effects of stimulating trade through economic integration are part of the second-best modern economic theory: where, in theory, the best option is free trade with free competition and the absence of trade barriers anywhere. Free trade is seen as an idealistic option, and although it is implemented in some developed countries, economic integration, as the “second best” option, is suitable for global trade, where barriers to complete free trade exist.
In economics, the word integration was first used in an industrial organization and referred to the integration of commercial firms through economic agreements into cartels, concerns, trusts, and mergers - horizontal integration refers to association with competitors, vertical integration implies association of suppliers with customers. In the current sense, the integration of individual economies into larger economic areas, the use of the word integration can be attributed to the years 1930 and 1940. Fritz Machlup calls Eli Heckscher, Herbert Gaidicke, and Gert von Aiern as the first to use the term “economic integration” in its current sense. According to Machlup, such use first appeared in 1935 in an English translation of Heckscher’s book “Merkantilismen” (“Mercantilism”), written in 1931, and independently in the two-volume study of Herbert Gaidikke and Gert von Ayern “Die produktionswirtschaftliche Integration Europas: Eine Untersuchung uberberge Aussenhandelsverflechtung der europaischen Lander "(" Production-Economic Integration of Europe: A Study of the Foreign Trade Integration of European Countries "), written in 1933.
There are economic as well as political reasons why nations strive for economic integration. The business case is an increase in trade between member countries of economic unions, which leads to an increase in productivity. This is one of the reasons for the development of economic integration on a global scale, the emergence of continental economic blocs, such as ASEAN, NAFTA, SACN, the European Union and the Eurasian Economic Community; and proposals for intercontinental economic blocs, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area.
Comparative advantage refers to the ability of a person or a country to receive a particular product or service at a lower marginal and alternative cost than it previously existed. The comparative advantage was first described by David Ricardo, who explained it in 1817 in his book On the Foundations of Political Economy and Taxation, choosing England and Portugal as an example. In Portugal, it is possible to produce both wine and cloth with less labor than is required to produce the same products in England. However, the relative costs of producing these two goods differ in these two countries. In England it is very difficult to produce wine and only moderately difficult to produce fabric. In Portugal, it is easy to produce. Therefore, while it is cheaper to produce fabrics in Portugal than in England, it is even cheaper for Portugal to produce an excess of wine and sell it in exchange for English cloth. On the contrary, England has the benefits of this trade, since the cost of producing cloth for her does not change, but now she can get wine at a lower price, closer to the cost of cloth. Thus, each country can benefit from specialization in the production of a particular product, where it has a comparative advantage, and sell this product, which is good for other countries.
The effect of scale refers to the cost advantages that an enterprise gains through expansion. There are factors that lead to a drop in the average unit cost of a commodity from a manufacturer, as the scale of production increases. The effect of scale is a concept in the long term and refers to a reduction in cost while increasing capacity and the level of their use. The economies of scale also justify economic integration, since economies of scale may require a broader market than is possible within a country — for example, it would be inefficient for Liechtenstein to have its own automaker if it only sells products in the local market. . A lone automaker can be profitable, however, if it exports cars to world markets in addition to local sales.
In addition to these economic reasons, the main reason why economic integration has been implemented in practice is largely political. Zollverein or the German Customs Union of 1867 paved the way for German (partial) unification under Prussian leadership in 1871. The "free trade imperial" was (unsuccessfully) proposed in the late 19th century to strengthen weakened ties in the British Empire. The European Economic Community was created to integrate the economies of France and Germany for the reason that they did not fight each other.
The degree of economic integration can be divided into seven stages:
They differ in the degree of unification of economic policies, the highest of which is the completed economic integration of states, which are likely to be also linked by political integration.
A “free trade zone” (FTA) is formed when at least two states completely or partially cancel customs duties at their internal border. In order to exclude regional exploitation of zero tariffs within the framework of the FTA, there is a rule of certificate of origin for goods originating from the territory of a FTA member state.
The Customs Union introduces uniform tariffs at the Union’s external borders. "Currency Union" introduces a common currency. "Common Market" adds to the FTA the free movement of services, capital and labor.
The Economic Union unites the customs union with the common market. "Financial Union" introduces general fiscal and budgetary policies. In order to successfully advance in terms of economic integration of the state, as a rule, they accompany economic integration by unifying economic policies (taxes, social benefits, etc.), reducing other trade barriers, creating supranational bodies and gradually moving to the final union. "
The foundations of the theory of economic integration were laid by Jacob Wiener (1950), who defined the effect of the expansion of trade and trade flows, terms for changing the interregional movement of goods, caused by changes in customs tariffs in connection with the creation of an economic union. He considered trade flows between the two states before and after their unification and compared them with flows in the rest of the world. His conclusions have become and still are the basis of the theory of economic integration. The following attempts to extend the static analysis to three states and world relations (Lipsi and others) were not so successful.
The foundations of the theory were compiled by the Hungarian economist Bela Balass in 1960. As economic integration increases, barriers to trade between markets decrease. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally create a demand for further integration, not only economic (through currency unions), but also political and, thus, economic communities naturally evolve into political associations.
The dynamic part of the international theory of economic integration, for example, the dynamics of trade creation and the effects of trade reorientation, the Pareto-efficiency factors (labor, capital) and value added, were mathematically introduced by Ravshanbek Dalimov. It provided an interdisciplinary approach to the previously static theory of international economic integration, showing what effects exist in connection with economic integration, and also allowed obtaining the results of nonlinear sciences, which should be applied to the dynamics of international economic integration.
Equations describing the violent oscillations of a pendulum with friction; predator-prey vibrations; heat conduction equations and the Navier-Stokes equation
have been successfully applied to GDP dynamics; the dynamics of producer prices and a dynamic matrix of economic performance; regional and interregional migration of labor income and value added; and the creation of trade and the effects of trade reorientation (interregional production flows).
A simple conclusion from the results is that you can use the accumulated knowledge of the exact and natural sciences (physics, biodynamics and chemical kinetics) and apply them to the analysis and prediction of economic dynamics.
The dynamic analysis began with a new definition of gross domestic product (GDP), as the difference between the total income of sectors and investments (a modification of the definition of GDP for value added). It was analytically possible to prove that all states would benefit from economic unification, despite the fact that larger states will receive less growth in GDP and productivity, and vice versa, smaller states will benefit more. Although this fact has been empirically known for decades, it has now also been shown that it is mathematically correct.
The qualitative discovery of the dynamic method is a similarity to the policy of consistency of economic integration and a mixture of previously separate liquids: they finally get one color and become one liquid. The economic space (tax, insurance and financial policies, customs tariffs, etc.) all finally becomes united when following the stages of economic integration.
Another important conclusion is the direct connection between the dynamics of macroeconomic and microeconomic indicators, such as the evolution of industrial clusters and the temporal and spatial dynamics of GDP. In particular, the dynamic approach analytically describes the main features of the theory of competition summarized by Michael Porter, determining that industrial clusters develop from initial enterprises, gradually expanding within their geographical proximity. It was analytically found that the expansion of the geography of industrial clusters goes hand in hand with increasing their productivity and technological innovations.
Domestic savings rates of member countries, according to observations, tend to the same value, and a dynamic method has been developed to predict this phenomenon. The overall dynamic picture of economic integration looks very similar to the unification of previously separate basins after the opening of locks, where (income) of the subjects of the member states are added instead of water.
Among the requirements for the successful development of economic integration is "constancy" in its evolution (gradual expansion and, over time, a higher degree of economic / political unification); “Formula for sharing joint incomes” (customs duties, licensing, etc.) among member states (for example, per capita); "Decision-making process" both economic and political; and the "will to make concessions" between the developed and developing states of the union.
The policy of "coherence" is mandatory for the continuous development of economic unions, being also a feature of the process of economic integration. Historically, the success of the European Coal and Steel Community paved the way for the formation of the European Economic Community (EEC), which involved far more than just two sectors in the ECSC. So, with the help of a coherent policy, it became possible to use a different speed of economic unification (coherence), applied both to economic sectors and to economic policy. The implementation of the principle of coherence in the adjustment of economic policy in the member states of the economic bloc causes the effects of economic integration.
An obstacle that hinders the development of economic integration is the desire of local authorities to maintain control over tax revenues and licensing. Therefore, sometimes it takes decades to go through the integration path to achieve the desired goals.
However, the experience of 1990–2009 showed a radical change in this model, since the world observed the economic success of the European Union. Now, no state disputes the benefits of economic integration. The only question is when and how this will happen, exactly what benefits the state will be able to receive from integration and what negative consequences may occur.
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World economy
Terms: World economy