Regional analysis and concepts

Traditionally, the European Union has become a synonym for a successful regional integration story. Ever since its creation, in Rome, in 1957, the Union successively grew to include more new members and to become, at this moment, a 27 - countries conglomerate, the number commercial player in the world and one of the economic factors of decision at a global level. The aim of this paper will be to analyze some of the classical advantages and disadvantages of regional integration and to determine how these have applied in EU's case, as well as to compare and contrast the economic development stages of countries within the EU after the adherence of Romania and Bulgaria in 2007. We will also aim to make some evaluations on the future of the EU, especially given the perspective of new countries adhering in the future, such as Croatia or Turkey.

When referring to regional integration, the first advantage that comes to mind is the removal of trade barriers. This, in turn, would lead to lower prices for products coming from outside the area of regional integration, due to the increased competition from companies within this area.

The economic explanation for this comes from the differences in costs between products that move freely within the area of regional integration and the products that are exported into this area from a third country not member of the area. Within the area of integration, there are no commercial barriers, either tariff or non-tariff. At the same time, however, the area of integration imposes the same tariff barriers to third parties outside it. This obviously will increase the actual cost of a third party product, but, further more, the price will also likely increase, making it less competitive on the regionally integrated market. This will force the third party to better manage its costs in order to be able to afford to export on this market.

In the EU, the removal of trade barriers between the countries members led to the removal of an additional cost element in the equation and to overall lower prices offered to the EU consumers. 63.4% of total EU trade is intra-trade, between the countries member of the regionally integrated area.

Another important advantage is derived from the fact that a larger, integrated market, offers companies many more opportunities than if they had simply operated on their own national market, including opportunities to have economies of scale, to employ cheaper and better qualified personnel from the countries members of the area of integration etc. All this at lower costs, induced by the increased regional integration in this area. Further more, companies are likely to be more competitive on an integrated market, all to the benefit of the consumers, because this is likely to translate into better services and lower prices.

In the EU, this was the obvious case ever since the creation of the integrated area, but even more so with the adherence of countries in Eastern Europe. First of all, the creation of an integrated area across the entire continent will mean easier access to the cheap and well qualified human resource in Eastern Europe. Before integration, it was more difficult for individuals in Eastern Europe to work in the EU countries, mainly because of the numerous administrative issues and regulations that needed to be handled, including, at some point, obtaining a visa. Now that these countries are EU members, it is much simpler to access a unified, integrated labor market at EU level.

Further more, the tendency for companies to expand at EU level and to create integrated business structures is more and more evident. Competition laws in the EU do tend to restrict the market in terms of entity size, so as to stimulate a competitive market, but it is now much easier to acquire companies in other EU countries and simply to open new production units elsewhere in the regionally integrated area.

It also seems that a regionally integrated market can increase foreign direct investments (FDIs), mainly due to the fact that this will appear as a better regulated market and as a market offering more opportunities than a smaller market. For example, in EU's case, we are talking about a market with almost half a billion consumers and coordinated with unified economic policies from Brussels. A highly stable market and with good growth potential, this will attract foreign investors. So, as a regionally integrated market, the EU also offers the advantage of a regulated market, with practical approaches that make the market successful.

Other advantages of regional economic integration are particular to specific countries. In the EU, this is the case of less developed countries, such as Greece, Portugal and Spain (at the moment of their adherence) or the countries of Eastern Europe (in the present). The fact that these countries adhered to the European Union meant that they had to commit to specific macroeconomic reform, as specified in their treaties of accession. This virtually not only improved macroeconomic conditions, but also significantly improved living standards for the citizens of those countries. Basically, accession to the EU was conditioned by the capacity of these countries to implement reforms that would allow them to eventually reach an economic level closer to the one in the EU.

Indeed, one of the problems lately in the EU is given by the discrepancy in economic development stages between the member countries. At the beginning, with the six founding members, these discrepancies were relatively small, the countries generally being at similar stages of economic development. However, with the accession of Greece (1981), Spain and Portugal (1986) and former East Germany (1990), this changed. The new countries were less developed and significant amounts of money, in the form of cohesion, social or development fund needed to be poured in so as to sustain these economies and bring them to a similar level as the ones of the member countries.