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Advantages Of Economic Integration

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3.2.1 Market Size and Market Access

Another argument in support of economic integration in Africa is that it can assist countries to overcome constraints associated with the smallness of domestic markets, by allowing them to benefit from economies of scale as well as smooth market access. These kinds of benefits can lead to stronger competition, and as a result raise productivity and diversify production and exports. In regional economic integration, neighbouring African countries will constitute a regional market for certain goods that, for reasons of taste or excessive transport costs, are not tradable with the rest of the world. If a RIA includes all potential suppliers of such a good, in terms of small countries, it is bound to be welfare‐improving. …show more content…

This is a very serious situation, and to correct it would call for coordinated planning and distribution of capital, and its application over a wider area involving more than one state. Africa needs long‐term strategies in order to increase its productivity, by co‐ordinating in terms of building industrial infrastructure, in order to also enable it to break into new markets. While macroeconomic reforms that reduce waste can produce short‐term productivity gains, sustained long‐term productivity gains require a balanced mix of capital accumulation, human capital development and structural change (ECA 2006). In addition, reallocation of factors of production to more productive uses can permanently raise total factor productivity. Regional integration agreements are likely to induce economic activities to relocate, by reducing existing distortions and altering incentives for business. Industries may relocate based on the comparative advantage of members, relative to one another and to nonmembers. Relocation can change income levels and demand for factors of production, generating gains for some members and losses for others. RIAs can also lead to income convergence, and the perfect example in this regard was shown by the EU when Ireland, Portugal and Spain closed the gap in richer EU members. In the mid‐1980s, their per capita incomes ranged from 27 % to 61 % of the average of larger EU countries, and by the 1990s, they ranged from 38 % to 91 % (ECA 2004). It has been questioned as to whether or not this argument for income convergence also holds for developing countries, or only for developed countries. The level of industrial development in Africa is very low compared to other countries in the world, and agriculture is dominant in terms of both overall economic activities and volume and value of exports. Therefore, it is to Africa’s advantage to integrate its economies particularly if member

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