Understanding Economic Integration and World Bank Functions

Economic Integration

• Free Trade Area: In such an area, trade barriers amongst member countries are removed, but they keep their own barriers with third countries. In this situation, countries still need customs to check that no product from a third country is passed as a product from the union. For example, Mexico and the United States are in the NAFTA, but the United States has a higher tariff on rice coming from India. It could go through Mexico if there were no customs between Mexico and the United States.
• Customs Union: Members not only remove trade barriers amongst them but also adopt a common set of external barriers. That way, it is not necessary to have customs inspections at the borders.
• Common Market: Members not only remove trade barriers and have a common external policy but also allow full freedom of factor flow (capital and labour).
• Full Economic Union: Member countries unify all their economic policies, including monetary, fiscal, and welfare. We can find different stages ranging from having a common policy on product regulation to currency or fiscal policy. In the EU, we have an Economic and Monetary Union, and while we aspire to have a complete union, fiscal policies are still dependent on national governments. The United States could be considered a full economic union in its beginning.

World Bank

Their goal is to “end extreme poverty within a generation and boost shared prosperity.”

What do they do?

• Provide low-interest loans, zero to low-interest credits, and grants to developing countries.
• Support developing countries through policy advice, research, analysis, and technical assistance.

How do they do it?

• The International Bank for Reconstruction and Development (IBRD): Lends to governments of middle-income and creditworthy low-income countries.
• The International Development Association (IDA): Provides interest-free loans—called credits—and grants to governments of the poorest countries.
• The International Finance Corporation (IFC): The largest global development institution focused exclusively on the private sector. They help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments.
• The Multilateral Investment Guarantee Agency (MIGA): Created in 1988 to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders.
• The International Centre for Settlement of Investment Disputes (ICSID): Provides international facilities for conciliation and arbitration of investment disputes.