Economics · Lesson 22

Economic integration and international economic organisations

JAMBWAECNECO

What the syllabus asks

JAMB: International economic institutions: World Bank, IMF, ECOWAS, AU, ADB, OPEC, WTO, ECA – objectives and functions; economic integration (meaning, forms, problems)

WAEC: International economic organisations and economic integration: meaning, forms and benefits of economic integration; ECOWAS, AU, AfCFTA; IMF, World Bank (IBRD), African Development Bank, WTO, OPEC, UNCTAD, ECA – aims, functions, achievements and problems; their relevance to Nigeria

NECO: International economic organisations and economic integration: meaning, forms and benefits of economic integration; ECOWAS, AU, AfCFTA; IMF, World Bank (IBRD), African Development Bank, WTO, OPEC, UNCTAD, ECA – aims, functions, achievements and problems; their relevance to Nigeria

What you will learn

Define economic integration and describe its forms and stages.
Explain the benefits and problems of economic integration, including trade creation and diversion.
State the aims, achievements and problems of ECOWAS, the AU and AfCFTA.
Explain the functions of the IMF and the World Bank and evaluate conditionality.
Explain the roles of the WTO, AfDB, OPEC, UNCTAD and ECA.
Explain the relevance of these organisations to Nigeria.

Key points

Integration stages: preferential area → FTA → customs union → common market → economic union.
Benefits: larger market, scale economies, competition, investment; problems: trade diversion, unequal gains, revenue loss.
ECOWAS: Treaty of Lagos 1975; HQ Abuja; free movement protocol 1979; CET 2015; ECOMOG.
OAU 1963 → AU 2002 (Addis Ababa); AfCFTA signed 2018, trading from 2021 (Accra).
IMF (1944): BOP support, surveillance, SDRs; conditionality criticised.
World Bank (1944): IBRD, IDA, IFC, MIGA, ICSID; long-term development loans.
WTO (1995, replaced GATT): trade rules, MFN, disputes; HQ Geneva.
AfDB 1964 (Abidjan); UNCTAD 1964 (Geneva); ECA 1958 (Addis Ababa); OPEC 1960 (Vienna).
Single currency: lower transaction costs but loss of monetary independence; the Eco is not yet launched.

Start here: Meaning and forms of economic integration

A trader in Kano who sells onions to Niamey, or a Lagos firm that exports cosmetics to Accra, benefits when barriers between countries come down. When countries agree to reduce such barriers, they are pursuing economic integration.

Economic integration is the process by which a group of countries removes or reduces barriers to trade and the movement of factors among themselves, and may coordinate their economic policies.

Forms (stages)

Preferential trade area: members give each other lower (not zero) tariffs.
Free trade area (FTA): no tariffs among members; each keeps its own tariffs on non-members.
Customs union: FTA plus a common external tariff (CET).
Common market: customs union plus free movement of labour and capital.
Economic union: common market plus harmonised monetary and fiscal policies; often a single currency.
Political union: complete integration under one government.

Worked example 22.1

Identify the form: (a) members abolish tariffs among themselves and adopt one tariff on outsiders; (b) members also allow citizens to work anywhere in the group; (c) members also adopt a single currency and central bank.

(a) Customs union.
(b) Common market.
(c) Economic (monetary) union.

Customs union; common market; economic union

⚠️ Common mistake: describing a free trade area as having a common external tariff. That is a customs union.

Try it yourself. What problem do rules of origin solve in a free trade area?

Show solution

They stop outside goods entering through the member with the lowest external tariff and then moving freely to others (trade deflection).

Continue this lesson in the free app →

Practice questions

1. A group of countries that removes trade barriers among themselves and adopts a common external tariff forms a

customs union
free trade area
common market
preferential trade area

Show answer

A: customs union
A free trade area has no common external tariff.

2. A common market adds to a customs union the

common currency only
removal of all tariffs worldwide
right to withdraw
free movement of labour and capital

Show answer

D: free movement of labour and capital
Factors move freely.

3. ECOWAS was established by the Treaty of Lagos in

1980
2002
1975
1963

Show answer

C: 1975
28 May 1975.

4. The headquarters of the ECOWAS Commission is in

Dakar
Abuja
Lagos
Accra

Show answer

B: Abuja
Abuja.

5. The ECOWAS protocol on free movement of persons was adopted in

1979
1975
1990
2015

Show answer

A: 1979
Protocol of 29 May 1979.

Key words

Economic integration: Process by which countries remove trade and other economic barriers among themselves.
Free trade area: Group of countries with no tariffs among members, each keeping its own external tariffs.
Customs union: Free trade area with a common external tariff.
Common market: Customs union with free movement of labour and capital.
Economic union: Common market with harmonised economic policies, often a common currency.
Trade creation: Replacement of higher-cost domestic production by lower-cost imports from a partner after integration.
Trade diversion: Shift of imports from a low-cost outside country to a higher-cost member because of the common tariff.
Rules of origin: Rules deciding whether a good counts as made within a trade area.
ECOWAS: Economic Community of West African States, founded 1975.
AU: African Union, successor to the OAU, launched 2002.
AfCFTA: African Continental Free Trade Area.
IMF: International Monetary Fund: promotes monetary cooperation and gives short-term balance of payments support.

Learn Economic integration and international economic organisations step by step, free.
The Cara's Tips app teaches every topic from the very basics, with quick checks, worked examples and exam practice. It works offline.
Open this lesson in the free app Download for Android