This chapter discusses regional economic integration, agreements among countries within a geographic region to achieve economic gains from the free flow of trade and investment among themselves.
There are five levels of economic integration. In order of increasing integration, they include free trade area, customs union, common market, economic union, and full political union.
Integration is not easily achieved or sustained. Although integration brings benefits to the majority, it is never without costs for the minority. Concerns over sovereignty often slow or stop integration attempts.
The creation of single markets in the EU and North America means that many markets that were formerly protected from foreign competition are now more open. This creates major investment and export opportunities for firms within and outside these regions.
The free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes make it possible for firms based in a free trade area to realize potentially enormous cost economies by centralizing production in those locations within the area where the mix of factor costs and skills is optimal.