Related to: Integration, What does it mean?
Economic integration refers to the process of unification of economic policies through the removal of trade tariffs. This is meant to ensure the free movement of people, goods, services, and capital, enact and maintain common policies on trade,agriculture and regional development and lower prices for distributors and consumers. This is to increase the combined economic productivity of the states and better the standards of living for the citizens of the member states.
Therefore the main purpose of integration is to increase welfare (well being and social support of the citizens) by increasing the GDP of its members.
Let’s discuss this desired welfare in a clearer manner.
First, a regional bloc such as EAC would provide companies in the region with an extended market for the promotion and the sale of their goods and services. A regional bloc is obviously larger than any individual nation. Larger markets lead to a larger consumer base and even employment pool as corporations have the opportunity to hire labour from any of the five countries. Consequently such corporations may be more attractive to foreign investment as they can boast of having a larger market than they would in any individual country.
Secondly, unification would create a competitive business environment. The absence of trade barriers would enable the free movement of goods and services across the member states standardising the costs of production for similar goods. This would increase competition and put downward pressure on the cost of goods and services as each producer seeks for an attractive price to lock in consumers.
Third, formation of the EAC would lower the Balance of Payments of each of the member states. The Balance of Payments is the monetary difference between the exports and imports a country makes annually. A negative Balance of Payments means that a country is importing more than it is exporting. This is the case with most East African States. A regional economic bloc would cheapen the cost of imports from member states. This means that the cost Kenya incurs importing goods and services from the other 4 member states would fall. This in turn would strengthen the Kenyan shilling.
Fourth, a regional economic bloc would increase employment opportunities for citizens of the member states. Free movement of people would drive the free movement of labour or human capital and increased employment as the marketplace available for skilled individuals will be larger than any individual country.
Finally, unification could reduce government expenditure to some extent. In similar economic and political blocs such as the European Union, member countries have a single Central Bank, a single Parliament, single Judicial System and a single Executive Body. This reduces the government’s revenue as compared to each member state having its own form of these institutions.
Read about the disadvantages of integration tomorrow.