International trade: economic integration

Regional economic integration occurs when countries come together to form free trade areas or customs unions, offering members preferential trade access to each others' markets. The article reviews the economic effects of such agreements on member countries and on the world trading system. Effects on member countries include the benefits and costs of trade creation and trade diversion, as well as gains from increased scale and competition. 'Deeper' integration can be pursued by going beyond abolition of import tariffs and quotas, to further measures to remove market segmentation and promote integration. Effects on the world trading system are not clear-cut. There is little evidence that regionalism has retarded multilateral liberalization, but neither is there support for the view that continuing expansion of regional agreements will obviate the need for multilateral liberalization efforts.