Economic Policies

ECONOMIC INTEGRATION

Economic integration can be defined as the rise of international trade through cross-country links in the markets for goods, services, and some factors of production. It plays an increasing role in multinational corporations, and international capital markets which support higher growth and higher employment. Exports from several countries reflect some of the tangible outcomes of economic integration across the globe.

In general, economic integration is expected to provide a slew of benefits to consumers. It would result in lower consumer prices because of increasing allocative efficiency through production structures based on comparative advantage, the exploitation of economies of scale in the bigger domestic and international markets, and the adoption of new technologies. The pace of international economic integration accelerated in the 1980s and 1990s. The sweep of economic reform and spectacular economic growth in China and the commitment to market-based reforms by India have added fuel to this process.

The establishment of the World Trade Organization (WTO) in 1995 created a favorable environment for settling multilateral international trade issues in an amicable manner. As a consequence of these developments, hundreds of global, regional, and bilateral integration processes have emerged, and many of them have taken root. Two hundred and sixty five regional trade agreements were notified to the WTO from 1995 to May 2003.

As a consequence of expanded consumer choices because of greater quantities and ranges of imports and exports, more competition, the dismantling of vested monopolies in domestic markets, higher productivity growth, and lower price markups, the average consumer in a country is better off with more trade rather than with less. The poor might also conceivably benefit from the growth of international trade. They would benefit as consumers from lower prices. Additionally, there is evidence that greater economic integration has played an important role in accelerating growth and reducing poverty in an increasing number of developing countries and, hence, in reducing overall global inequality in income distribution.

Economic integration promotes growth, which has significant trickle-down effects.

Another major benefit from economic integration is good governance. The failure of

governance can lead to an overall political breakdown. Weak governance has contributed to the poor economic performance of several countries. Several countries have gained from economic integration. For instance, after Cambodia gained access to the European and U.S. markets, its garment exports increased in value from around US$20 million in 1995 to almost US$2 billion in 2005. Growing employment in the garment and textile sectors was been a major factor in stabilizing the economy. Currently these two sectors employ 280,000 skilled and unskilled workers. Cambodia has gained jobs and investments, along with better working conditions for its citizens.

Alongside the benefits, economic integration is thought to create some problems. Oxfam

(2000) critiques globalization as anti-growth and anti-poor because globalization ignores the crucial role of income distribution in poverty reduction. The poor have virtually no access to productive resources. Since economic integration benefits only those with resources, people who lack resources, typically the poor, are left behind. Therefore, globalization has contributed to a growing divide between the haves and the have-nots.

The distribution of per capita income between countries has become more unequal in

recent decades. For example, in 1960, the average per capita gross domestic product (GDP) in the richest 20 countries in the world was 15 times that in the poorest 20 countries. Today, this gap has widened to 30 times since rich countries have, on average, also grown more rapidly than poor ones. Moreover, the hopes of some of the poorest

countries that the demand for low-skilled labor will increase once a country has opened up may not be realized because low-skilled labor may no longer be needed following the introduction of new technologies. Job insecurity may also result. In the developed countries, integration will provide job security to those with the skills and mobility to exploit opportunities in global markets, while low-skilled workers will be left out because their jobs and earnings will be displaced by labor-intensive imports from low-wage countries or shifted overseas by multinational corporations

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