The general market as a stage of integration, its features, examples

Economic integration is a process, as a result of which the economic policies of various states are unified due to the partial or complete removal of tariff and other restrictions on trade between them. This leads to a reduction in prices for producers and consumers, which increases the welfare of the country and each individual citizen. The common market is one of the stages of integration. It involves not only the free movement of goods between the united countries, as it does when signing an association agreement, but also services, labor and capital.

Stages and their features

For the first time, the theory of economic integration was formulated in 1950 by Jacob Wiener. He considered the flows of goods between states before and after unification and compared them with indicators for the rest of the world. However, in modern form, the theory was developed by the Hungarian economist Bela Balassa in the 1960s. He believed that a supranational common market, characterized by the free movement of factors, creates a demand for further integration. Moreover, not only the economy of states converges, but also politics. The following stages of integration stand out:

1. Zone of preferential trade. At this stage, there is a partial lifting of restrictions on the movement of goods, capital and services.
2. Free trading zone. This stage involves the removal of tariff barriers on the movement of goods.
3. Customs Union. At this stage, barriers to the movement of goods are removed. A common external customs tariff is also formed.
4. Common Market. This stage is characterized by free movement between the united states of goods, services, money and labor resources.
5. The Economic Union. Everything is the same as in the previous stage, but in part a common foreign policy is added on the barriers in the movement of goods and services, capital and labor resources to third countries.
6. Economic and Monetary Union. It further increases the degree of unification between countries. This stage assumes in addition to the features of the previous general monetary policy between the united countries.
7. Full economic integration. This is the last stage. Its feature is the free movement within the union of all production factors, a single monetary and fiscal policy and the establishment of common external barriers to all factors in relation to other countries.

A common, single or unified market?

Within each of the stages of integration, several steps can be distinguished. The common market is often seen as an intermediate. Often, it is created on the basis of a trade association with a relatively free movement of production factors, other than labor, for the further removal of tariff barriers. Then it is transformed into a single market. This step within the fourth stage of integration involves the creation of a bloc in which most trade barriers to goods are removed. Also, the single market provides for almost complete freedom of movement of other factors of production. Gradually, with deepening integration, goods, services, capital and labor resources begin to move within the union without taking into account national borders. When this happens, we can talk about creating a unified market, the last stage of the fourth stage.

Advantages and disadvantages

The creation of a single market entails many benefits for the union of countries. Full freedom of movement of factors of production allows using them more effectively. Increased competition in the market allows us to squeeze out weak players, but do not let the monopolies form. The remaining firms can fully benefit from economies of scale. Consumers enjoy low prices and a large selection of products. Countries in the common market may experience negative effects from the formation of the association during the transition period. Increased competition can withdraw from the business part of national producers. If they fail to increase the efficiency of their work in a short time, they will have to cease to function.

Common Economic Space

It was created in 2012. Initially, the common economic space included Belarus, Kazakhstan and Russia. However, since 2015, Armenia and Kyrgyzstan have joined the association. Now it functions within the framework of the Eurasian Customs Union. As the ultimate goal of creating the association is considered the formation of a single market between countries.

Andean Community

This is also a customs union. It includes such South American states as Bolivia, Colombia, Ecuador and Peru. The long-term goal of the merger was also initially the formation of a common market. However, now more and more talk about its merger with Mercosur and the creation of a free trade zone.