Understanding Economic Integration (DP IB Economics)
Revision Note
Economic Integration
Economic integration occurs as countries reduce trading barriers between themselves and become more interdependent
There are several ways in which economic integration can deepen
Through the development of trade agreements
Through the creation of trading blocs
Through the formation of a monetary union
1. Trade agreements
There are 4 common types of trade agreements
A preferential trade agreement (PTA) is an agreement between two or more countries providing preferential (better)
terms and conditions of trade to member countriesE.g. Vietnam has preferential tariff rates with Australia
A bilateral trade agreement is a preferential trade agreement between two countries and aims to reduce or eliminate barriers to trade
E.g. Vietnam signed a bilateral trade agreement with Korea in 2015
A regional trade agreement (RTA) is a preferential trade agreement usually between more than two countries in the same geographical region
E.g. Armenia created an agreement with the EU in 2019 to create the EU-Armenia RTA
A multilateral trade agreement is a legally binding preferential trade agreement between more than two countries or trading blocs and is usually negotiated and overseen by the World Trade Organisation (WTO)
E.g. The East African Community was created in 2005 between seven African countries
2. Trading Blocs
There are generally three types of trading blocs - Free Trade Areas (FTAs), Customs Unions, and Common Markets
Each successive bloc has a higher level of integration
Advantages and Disadvantages of Trading Blocs
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3. Monetary Unions
Monetary Unions often develop once there is integration at a Common Market level
Nations in the Common Market may desire the creation of a common central bank and convergence of monetary policy
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