International Economic Integration: Limits and Prospects

The importance of international economic integration is well recognized. ¹ It has touched most of the countries in the world and it became an unavoidable element in most economic policy decisions. In fact, most of the countries throughout the world have attempted to integrate with other ones. The biggest achievements in integration, however, have been among the developed countries, in particular the European Union (EU), because integration both deepened and widened in that region. Countries in other areas of the world have tried to copy some of the integration achievements that took place in Europe. Policy makers usually had a favourable view of integration. They attempted to use economic integration as a means of securing access to a wider market and reinforce growth in order to attain a higher level of national welfare. The degree of success in integration, however, has varied between regions. In the EU, following the elimination of tariffs and quotas in 1968, a deepening of integration covered areas such as competition, public procurement and services, thus preceding multilateral negotiations and agreements on these issues. Developing countries have altered their past inward-looking integration strategies of 1960s towards improved economic ties with the north in the 1990s. However, because of the changed aspirations, past experiences in integration in the developing world are not very useful guides for future integration policy. None the less, international economic integration has remained an attractive economic strategy in the developing world. This is because integration can serve as a reliable ‘insurance policy’ against sudden changes in the trading behaviour of partner countries. ‘Dividends’ from such a policy include an increase in business predictability which has a potentially positive impact on domestic and foreign investment.

In spite of past experiences with integration, which may have been quite negative in certain groups that integrated the developing countries, new opportunities are still there. They have been prompted by at least four developments since the mid-1980s. First, is the deepening and widening of integration in the EU and North America; second, economic transition in the formerly centrally planned economies in central and eastern Europe and the possibility of some kind of integration with the EU; third, a change in economic policies in the developing countries towards more outward-looking models; and fourth, integration between developed countries (such as the United States and Canada) with a developing one (such as Mexico).

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