This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the level of welfare, while leading to an increase of economic productivity of the states. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the “stages of regional economic integration pdf best” option for global trade where barriers to full free trade exist. There are economic as well as political reasons why nations pursue economic integration. However the relative costs of producing those two goods are different in the two countries.
In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore, while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth.
The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to the local market.
Besides these economic reasons, the primary reasons why economic integration has been pursued in practise are largely political. 19th century to strengthen the loosening ties within British Empire. France and Germany’s economies to the point that they would find it impossible to go to war with each other. These differ in the degree of unification of economic policies, with the highest one being the completed economic integration of the states, which would most likely involve political integration as well.
A “monetary union” introduces a shared currency. A “common market” add to a FTA the free movement of services, capital and labor. An “economic union” combines customs union with a common market. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration. As economic integration increases, the barriers of trade between markets diminish. This provided an interdisciplinary approach to the previously static theory of international economic integration, showing what effects take place due to economic integration, as well as enabling the results of the non-linear sciences to be applied to the dynamics of international economic integration.