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ЭКОНОМИЧЕСКИЕ НАУКИ
УДК 330
Khadartseva Larisa Soslanovna
Financial University under the Government of the Russian Federation
Cherkasova Viktoria Gennadievna Financial University under the Government of the Russian Federation
THE MAIN NOTION OF ECONOMIC INTEGRATION Annotation
The paper considers the phenomenon of modern economic integration as a part of economic theory. An attempt is made to define the concept, to analyze the history and origin of the event. Due attention is paid to the etymology of the term "economic integration", to the economic and political objectives. The article gives the main characteristics and the stages of this worldwide actual and successful unification of the integrity process.
Keywords
Economic integration, free trade, horizontal integration, vertical integration, objectives, economies of scale, stage, Preferential Trade Area, Free trading zone, Customs Union, Common Market, Economic Union Economic and
Monetary Union, Full economic integration.
Economic integration is the unification of economic policy between different states through the partial or total abolition of tariff and non-tariff barriers. In its turn, it means that economic integration leads to lower prices from the distributors and consumers in order to increase the aggregate economic performance of the countries concerned.
The effects of trade stimulation through economic integration are part of the modern economic theory of the second best where, in theory, a free trade with free competition and the absence of trade barriers is the best possible option. Free trade is considered as an idealistic version, and although it is implemented in some developed countries, economic integration, as a variant of "the second best", is suitable for global trade, where there are barriers to full free trade.
In economics, the word "integration" was first applied to the unification of commercial companies by means of economic agreements in the cartels, corporations, trusts, and merging. Horizontal integration refers to the unification of the competition, vertical integration involves pooling of suppliers with customers. In this sense, the combining the individual economies in the larger economic areas, the use of the word "integration" can be traced to the 1930s and 1940s years. Fritz Machlup states that Eli Heckscher, Herbert Gaydicke and Gert von Eynern were the first to use the term "economic integration" in its current sense. According to Machlup, such use first appeared in 1935 in an English translation of the book Heckscher «Merkantilismen» ( «Mercantilism"), written in 1931, and independently in the two-volume study of Herbert Gaydicke and Gert von Eynern «Die produktionswirtschaftliche Integration Europas: Eine Untersuchung uber die Aussenhandelsverflechtung der europaischen Lander »(« Production-economic integration of Europe: study of foreign trade integration of the European countries "), written in 1933.
There are economic as well as political reasons why people aspire to economic integration. Economic justification is an increase in trade between Member States of economic unions, which leads to increased productivity. This is one of the causes of economic integration on a global scale, the emergence of continental economic blocs such as NAFTA, SACN, the European Union and the Eurasian Economic Community; and suggestions for intercontinental economic blocs, such as Association of South-East Asian Nations and Transatlantic Free Trade Area.[3]
Comparative advantage refers to the ability of a person or a country to obtain a specific good or service at a lower marginal and opportunity cost. Comparative advantage was first described by David Ricardo who explained it in 1817 in his book "On the Principles of Political Economy and Taxation". As an example he chose England and
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Portugal. Portugal can produce both wine and cloth with less effort than would be required to produce the same products by the UK. However, the relative costs of production of these two products differ in the two countries. It is very difficult to produce wine in England, and not very difficult to produce cloth. On the other hand, it is easy to produce both wine and clothes in Portugal. Therefore, while it is cheaper to produce cloth in Portugal than in England, even more cheaper for Portugal is to produce excess wine, and sell it in exchange for English cloth. And vice versa, this trade is profitable for the UK, as fabric production cost does not change, but now the country can get wine at a lower price, close to the cost of the fabric. Thus, each country can benefit from specialization in the production of a particular product where it has a comparative advantage, and to sell these goods, that is good for other countries.
Economies of scale refer to the cost advantage that the company gets through the expansion. There are factors that lead to a drop in the average unit cost of the goods from the manufacturer, because the scale of production increases. Economies of scale is a long term concept and it refers to a reduction in cost with the capacity increase. Economies of scale is also a rationale for economic integration, as economies of scale may require a broader market than is possible within the framework of one country or another - for example, it would be ineffective for Liechtenstein to have its own automaker, if it will sell the products only in the local market . Single automaker could be profitable, however, if it exports cars to the world markets, in addition to sales in the local market In addition to these economic reasons, the main reason why economic integration was realized in practice is largely political. German Zollverein or Customs Union in 1867 paved the way for German (partial) unification under Prussian leadership in 1871. "Imperial of free trade" has been (unsuccessfully) proposed in the late 19th century to strengthen the weak links within the British Empire. The European Economic Community was created for the integration of the economies of France and Germany on the grounds that they were not at war with each other.
The degree of economic integration can be divided into seven stages[3]:
• Preferential Trade Area,
• Free trading zone,
• Customs Union,
• Common Market,
• Economic Union
• Economic and Monetary Union
• Full economic integration
They differ in the degree of unification of economic policies, the highest of which is the completion of economic integration of the states which are likely to be associated as a political integration.[1]
"Free Trade Zone" (FTZ) is formed when at least two states fully or partially cancel the customs duties on their internal borders . To exclude regional zero tariffs granted under the FTA there is usually a certificate of origin for products originating in the territory of the Member State of the FTA.
"Customs Union" introduces uniform tariffs on the external borders of the union. "Monetary Union" introduces a common currency.
"Common Market" adds to the FTA free movement of services, capital and labor force
"Economic Union" combines customs union with a common market
"Financial Union" introduces a common fiscal and budgetary policy. In order to successfully move forward in terms of economic integration of the state tend to accompany economic integration unification of economic policies (taxes, social benefits, etc.), reduction of other trade barriers, the creation of supranational bodies and the gradual move towards the final stage - "political Union. "
The fundamentals of economic integration theory were laid by Jacob Wagner (1950), who determined the effect of the expansion of trade and trade flows, modified the terms of inter-regional movement of goods, caused by changes in customs duties in connection with the creation of an economic union. He examined trade flows between the two countries before and after their union and compared them with the flows in the rest of the world. His conclusions became and still are the basis of economic integration theory. Subsequent attempts to expand the static
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analysis up to three states and international relations (Lipsey et al.) were not so successful.
The fundamentals of the theory have been compiled by the Hungarian economist Bela Balassa in 1960. With increasing economic integration, trade barriers between markets are reduced. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economic (through currency unions), but also political and, thus, over time, economic communities naturally evolve into political associations.
The dynamic part of the theory of international economic integration, for example, the dynamics of trade creation and trade diversion effects, Pareto efficiency factors (labor, capital) and added value, was introduced mathematically by Ravshanbek Dalimov. It provided an interdisciplinary approach to the previously static theory of international economic integration, showing what effects occur in relation to economic integration, as well as it allowed to receive the results of nonlinear sciences, that should be applied to the dynamics of international economic integration.
The simple conclusion from the results is that the knowledge of the exact and natural sciences can be accumulated to use (physics, biodynamics and chemical kinetics) and apply them to the analysis and forecasting of economic dynamics.
Dynamic analysis began with the new definition of gross domestic product (GDP) as the difference between total income and investment sectors (modification of the definition of GDP by value added).[1]
Another important conclusion is a direct relationship between the dynamics of macro- and micro-economic indicators, such as the evolution of industrial clusters and the temporal and spatial dynamics of GDP. The dynamic approach analytically describes the main features of the competition theory summarized by Michael Porter, determining that the industrial clusters develop from primary enterprises, gradually expand within their geographic proximity. It was analytically found that the geographic expansion of industrial clusters is paralleled by an increase in productivity and technological innovation.
The barrier to the development of economic integration is the desire of local authorities to preserve tax revenue and licensing control. Sometimes it takes decades to pass on the integration path to achieve the desired objectives.
However, the experience of 1990-2009 years showed a radical change, as the world witnessed the economic success of the European Union. And now not a single state disputes the benefits of economic integration.
References:
1. Balassa, В. Trade Creation and Trade Diversion in the European Common Market. The Economic Journal, vol. 77, 1967, pp. 1-21.
2. Dalimov R.T. Modelling international economic integration: an oscillation theory approach. Trafford, Victoria 2008, 234 p.
3. Khadartseva L.S. Globalization and business ethics // Сборники конференций НИЦ Социосфера. 2014. № 16. С. 148-153.
4. Khadartseva L.S., Dzilikhova L.F. Realization of individual approach to the teaching of foreign languages in the nonlinguistic high school // Наука и человечество. 2014. Т. 4. № 2. С. 106-112.
5. Khadartseva L., Kaytmazov V. Social media in business // Сборники конференций НИЦ Социосфера. 2014.№ 61. С. 191-195.
6. Negishi, T. Customs Unions and the Theory of the Second Best. International Economic Review, 1969, vol. 10, pp.391-398
7. Porter M. On Competition. Harvard Business School Press; 1998; 485 pgs.
8. Riezman, R. A Theory of Customs Unions: The Three Country-Two Goods Case. Weltwirtschaftliches Archiv, 1979, vol. 115, pp. 701-715.
© Khadartseva L. S., Cherkasova V. G., 2016
