Levels of Economic Integration
There are about five additive levels of economic integration impacting the global landscape:
  • Free trade. Tariffs (a tax imposed on imported goods) between member countries are abolished or significantly reduced. Each member country keeps its own tariffs in regard to third countries. The general goal is to develop economies of scale and comparative advantages, which promotes economic efficiency.
  • Custom union. Sets common external tariffs among member countries, implying that the same tariffs are applied to third countries. Custom unions are particularly useful to level the competitiveness playing field and address the problem of re-exports (using preferential tariffs in one country to enter another country).
  • Common market. Factors of production, such a labor and capital, are free to move within member countries, expanding scale economies and comparative advantages. Thus, a worker in a member country is able to move and work in another member country.
  • Economic union. Monetary and fiscal policies between member countries are harmonized, which implies a level of political integration. A further step concerns a monetary union where a common currency is used, such as with the European Union (Euro).
  • Political union. Represents the potentially most advanced form of integration with a common government and were the sovereignty of member country is significantly reduced. Only found within nation states, such as federations where there is a central government and regions having a level of autonomy.