The basic static arguments for economic integration in less developed countries are resource reallocation effects and production reallocation effects. This happens because of standard evaluation criteria known as trade creation and trade diversions. Trade creation is said to have occurred when creation of common external barriers and internal free trade area results in shifting of production from high cost member state to low cost member state. On the other hand, trade diversion is said to have occurred when creation of common external barriers and internal free trade area results in shifting of production from low cost non-member state to high cost member state
The basic dynamic arguments for economic integration in less developed countries are as follows
- By undertaking economic integration with each other less developed countries can establish as well as strengthen already established industries that require economies of large-scale production because expanded markets due to economic integration enables them to do so.
- Economic integration by removing various tariff and non-tariff barriers among the member countries them to create coordinated industrial strategy which will enable the member countries to accelerate their rates of industrial growth.