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The advantages of economic integration

1. Trade creation: Trade creation occurs when consumption shifts from a high cost

producer to a

low cost producer. Economic integration increases specialization by removing trade

barriers and

by encouraging specialization, it enables a shift in production from high cost to low cost

countries. If, for example, Uganda is the most efficient producer of sugar in the East

African

region, after joining the EAC Rwanda consumers start accessing cheaper Uganda sugar

that they

were not accessing before the economic integration.

2. Economic integration increases the variety of products available to consumers in

member

states. Removal of trade barriers enables consumers to have a variety of commodities

from

which to choose. Local consumers are no longer restricted to consuming local products.

Increased variety and consumer choice improve peoples standard of living.

3. Member countries enjoy economies of scale: Economic integration enables member

countries

to expand the scale of production and enjoy economies of scale because of the

expanded

market. For example, a factory in Rwanda gets access to markets in Uganda and

Tanzania and

so it enjoys economies of scale.

4. Attracting Direct Foreign Investment (DFI): Investors are attracted by large markets.

Small and

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fragmental national markets are usually not sufficient to attract huge investments.

Economic

integration makes the region a huge market which foreign investors find attractive.

5. Economic integration improves bargaining power: A group of countries acting

together

improves their bargaining power in trade agreements with other countries and trade

blocs. A

common policy and common stand enables the group of countries to integrate to

achieve more

than they would if the individual countries bargain individually.

6. Economic integration Reduces problems of exchange rates: Economic integration

enables

member countries to use the same currency through out the region. This eliminates the

need

for converting currencies for cross border trade. For example, when the East African

countries

decide to use the same currency, a trader in Kenya can use the same currency in

Uganda,

Rwanda, Tanzania and Burundi. This speeds up trade and because there is one currency

acceptable throughout the region, exchange of goods and services is made easier.

L a s t u p d a t e d : J a n u a r y 2 0 1 2

7. Integration encourages specialization: The knowledge that a country will be able to

freely

export surplus output to its trading partners encourages specialization which greatly

improves

the efficiency and quality of output produced.

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8. Employment due to movement of factors of production: The free movement of

factors of

production in an integrated region enables unemployed factors of production to find

employment in other countries.

9. Lower costs of research and joint utilities: When countries integrate, they are able to

undertake

very costly projects that they would not have afforded individually. This enables them to

undertake costly research, develop better and modern infrastructures and services.

10. No duplication in resource use: In the absence of integration, countries end up

duplicating

industries and infrastructure because they want to be self-reliant. With economic

integration,

there is no wasteful duplication. Countries develop and use common infrastructure and

services. For example, if the entire member countries can be adequately served by one

hydroelectric

power dam, the other countries will have to use the funds to set up something else

other than having to put up their own hydro power plants yet they can get power from

the

other countries.

11. Increases competition: With many firms from the member countries competing for

the market

without restrictions, firms are forced to improve on quality and sell at lower prices.

Firms must

devise the most efficient methods of production so as to favorably compete. Integration

therefore promotes efficiency.

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12. Peace and security: Economic integration promotes peace and security within the

region. A

country will find it difficult to wage war against a fellow member state. There are also

many

structures aimed at resolving conflicts amicably without resorting to war.