Advantages & Disadvantages of Regional Integration
27 JUN 2018
Regional integration refers to various types of political and economic agreements that form closer ties between sovereign countries. Such policies vary from trade agreements to more extensive treaties in which individual member countries sacrifice part of their national sovereignty to a higher entity. The most famous example is the European Union, where a series of countries together formed a new political body, with each member state sacrificing certain powers such as the right to mint currency. Agreements like these are not uncontroversial, because they entail certain advantages and disadvantages.
1 Gains in Trade
Trade gains are one of the major advantages of regional integration for individual member states. Besides the European Union, other trade-related regional integration policies include numerous agreements in Africa: for example, the Southern African Customs Union Agreement, the Multilateral Monetary Agreement and the Indian Ocean Commission. In various ways, these agreements make moving goods across borders in Africa easier. This leads to gains in trade. Trade agreements that open borders allow a country with a particularly strong industry, like wool production, to sell its goods to an even bigger market outside of the country of origin. This leads to monetary gains for countries involved, through more profits for the country of origin and through cheaper products for the importing country.
2 Economies of Scale
Regional integration agreements expand the market for goods and therefore allow companies, factories and industries to produce more of their goods and sell it to a bigger market. This creates something called economies of scale, where the per-unit price of producing a good decreases as the total quantity of that good's production increases. Fewer trade barriers also allows increased competition, which in turn causes less-productive companies within a particular industry to close. This is an overall net positive, because it leads to greater productivity within an industry, because only the companies that produce a good the most quickly and efficiently survive amid increased competition.
3 Limited Fiscal Capabilities
Some regional integration agreements that involve the creation of a common currency -- most notably the European Union's -- lead to fiscal crises. Without regional integration, individual countries can control the supply of their own currency to suit the nation's economic conditions. When a higher entity controls that currency -- as is the case with the EU's euro -- individual countries have no power to vary the strength of their currency when their economy weakens. This occurred when Greece's national finances were very weak, and its economy suffered. If it could have printed more currency to pay its bills, the country's financial situation would not have been as weak. The European Union, however, controlled the country's currency, which left it little power to fix its own economy.
4 Cultural Centralization
Regional integration has a final non-economic disadvantage. Especially strong integration -- like the European Union -- can lead to the loss of unique minority cultures within a region. The European Union has a series of languages that it deems to be the official languages of the EU government. These do not include minority languages spoken by remote communities in Europe: Welsh, Breton, Frisian, Retoromanic, Occitan and others. These languages in turn get little protection from the state, and reduced barriers to movement across countries within the EU leads people toward speaking only "major" languages, such as Spanish, French and German.