Economic integration effects

Economic integration involves at least two countries to abolish customs tariffs on inner border between the states. This causes a number of effects, while the phenomenon itself has specific properties for its successful development.

Properties

Economic integration requires a lot of coherence of the policies (customs, tax, financial, social policies, and entity registration) applied in integrated states. Economic parameters (domestic savings rate, tax rates, etc.) are striving to one single multitude. Coherence policy finally leads to equal multi-dimensional economic space within integrated area. At the same time, it is very similar to the process of mixing differently coloured liquids in a retort: coherence leads to one final colour in a retort.R.T.Daimov, Modelling international economic integration: an oscillation theory approach, Victoria, Trafford, 2008, 234 p./

Successful implementation needs permanency of economic integration stages applied to unified states (free trade area, customs union, economic union, political union). Otherwise, integration process stagnates, finally leading to termination of economic unions (Belgium-Luxemburg Union).

Economic integration leads to Pareto-reallocation of the factors (labor and capital) which move towards their better exploitation. Labor moves to area of higher wages, while capital - to area with higher returns. It was foundRavshanbek Dalimov, The heat equation and the dynamics of labor and capital migration prior and after economic integration, African Journal of Marketing Management vol. 1 (1), pp. 023–031, April 2009/ that the pair of the value added of sectors and labor disperse within a region in the same way as heat or gas in a space. Domestic saving rates in the member states of economically integrated region strive to the one and same magnitude, described by the coherence policy of economic blocks. At the same time, practical observation shows that this phenomenon is taking place before formal creation of economic unions.

Formulation of economic integration theory has been initiated by Jacob Viner who described trade creation and trade diversion effects caused by economic integration. They actually mean a change in direction of interregional trade flows respectively caused by the change of tariffs within and outside economic union. The dynamics of trade creation and diversion effects was mathematically described by R.T.Dalimov. The finding shows that trade flow (an output moving from region to region) may be d