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Economic Integration And How It Affects Development Part (1)

By Ahmed A. Morgan

As South Sudan aspires to fully integrate into the world economic structure, it is worthwhile to enlighten ourselves deeper on the concepts, costs and benefits of regional and economic integration. Regional economic integration in Africa is not a new phenomena. The goal of such integration in Africa has consistently been reaffirmed notably by the 1980 Lagos plan of action. Of recent at the Organization of African Union meeting in Abuja 1991. The following itegrational patterns were noted: Preferential trade areas; Customs Union; River basin unions; and other Intergovernmental organizations. Economic Integration occurs whenever a group of nations in the same economic or geographical region come together to form an economic union or regional trading block by raising a common tariff wall against the products of non-member countries while freeing internal trade among member states. Economic Integration can take place in different forms which include: Economic Union or Regional Trading block by raising a common tariff wall against the products of non member countries while freeing internal trade among members; Customs Union where nations levy a common external tariffs while freeing internal trade; and Free Trade Area where free trade generally exists amongst members. Developing countries need to work together to remove trade barriers and consolidate economic, monetary and trade areas. Doing so can lead to the pooling of their small markets. It can enable more bulky production and purchase of raw materials and can facilitate the realization of other economies of scale. There are several benefits that can accrue from regional economic integration. Economic integration theorists postulate that integration schemes affect economies of the member states through three states main channels as follows: (a) Inter - sectoral specialization effects as tariff adjustment lead to a once - for- all reallocation of a country's resources among sectors. (b) Realization effects, implying that as production is reorganized to take advantage of economies of scale and is spurred to greater efficiency by a sharper competitive environment where there are external economies of scale. Integration may stimulate a higher growth rate by increasing the returns to capital thereby inducing greater capital formation. (c) Macro-economics effects also occur as increased trade affects economic variables such as growth and inflation.

The basic economic rationale for the gradual integration of less developed economies is long-term economic development. Integration leads to increased efficiency in production of various goods and services with the removal of barriers to trade and investment in goods and services within the partner member states. The production of goods andprovisionof services will be rationalized to the most efficient producers according to the comparative advantage of each country. This will lead to lower prices to consumers in all member states enhancing cosumer surpluses and hence, consumer welfare would be improved. Integration therefore needs to be viewed as a mechanism to encourage a rational division of labor amongst economies. The other dynamic rationale for economic integration is the removal of all forms of barriers to trade among member states. This translates into increased volume of trade, income and economies of scale. A large economic base and large markets are likely to translate into attractive investment opportunities for both domestic and external investors and equally it can pave way to effective resource utilization and allocation. Integration enhances increased bargaining strength of the regional economic entity involved. It enhances globalization, facilitate harmonization of trade policy and macro-economic stability. Integration gives rise to a large economic base and large markets which will prove more attractive to domestic as well as foreign investors. Through economic integration, there will be greater flexibility in resource use and planning in such matters as appropriate location of resources, lower national overhead costs per capita and enhanced faster GDP growth. Also more safeguards against the exploitation of smaller economies are created when countries get into economic and regional integration. However, regional economic integration in Africa failed to a larger extent to acieve the desired goals. This has been mainly because of incompatibility of original goals with the political and economic realities of the day. Most economic integration has remained weak in many cases. Majority of integration schemes suffer from design and implementation problems. Moreover, majority of African economies do not enjoy close historical, commercial and cultural ties. Some major or key problems of regional integration in Africa include : Historical evolution of African states; Political resistance and differences because of ideological differences and disputes about sharing expected benefits; The policies of national governments have been excessively inward looking which has created insufficient production structures and has discriminated against other African producers; Over reliance on large bureaucracies instead of a framework that would allow the private sector of individual countries to respond to market signals; and too many demarcations i.e. boundaries (over 165 boundaries. So for integration to successfully take place, the following points are to be carefully noted: (a) Integration would require the necessarypolitical commitments and support. (b) African governments must be prepared and willing to confront national pressure groups and lobbies that seek to hold back the economic liberalization that is a key to growth and successful economic cooperation. (c) Successful economic integration will be contigent on implementing policies that elicit the correct response from markets and that will boost regional production and demand. (d) To strengthen the above, policy institutional frameworks have to be put in place that facilitates the free flow of goods and services among member states. (e) A further critical element neccessary for Africa economic and regional integration is adequate financial support from the world financial bodies. Integration at a final stage could lead to convergence in the economies of the integrating countries. Only through cooperation will there be convergence between Africa's vast resources and its great needs. There is in this case need for integration on the areas of Agriculture, Industry, Infrastructure development-transport and communication, Security, and Trade.

Oh God may you save Africa and her people. Amen.

The writer is a lecturer of economics at the University of Juba and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. +211912250567 or +254716147016

 

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