What's the link between economic integration and inequality?

Economic integration can both exacerbate and reduce inequality, depending on the specific circumstances and policies in place.

Economic integration refers to the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade. This process can have a significant impact on inequality, which is the unequal distribution of income and opportunity.

On one hand, economic integration can exacerbate inequality. This is particularly the case in situations where integration leads to increased competition. For example, if a country with a high concentration of skilled labour integrates with a country where unskilled labour is more prevalent, the wages of skilled workers may increase while those of unskilled workers may decrease. This can lead to increased income inequality. Similarly, if integration leads to the relocation of industries to areas with lower production costs, it can result in job losses and increased inequality in the areas left behind.

On the other hand, economic integration can also reduce inequality. This can occur when integration leads to increased economic growth and prosperity. For instance, integration can lead to increased trade, which can boost economic activity and create jobs. If these benefits are distributed evenly across society, they can help to reduce inequality. Moreover, integration can also lead to the transfer of technology and knowledge between countries, which can help to boost productivity and wages.

However, the impact of economic integration on inequality is not automatic and depends on a range of factors. These include the specific policies that are put in place to manage the process of integration, the nature of the economies that are integrating, and the extent to which the benefits of integration are distributed evenly across society. For example, if policies are put in place to protect vulnerable workers and industries, and to ensure that the benefits of integration are shared widely, it is possible for economic integration to lead to a reduction in inequality.

In conclusion, while economic integration can potentially lead to increased inequality, it can also provide opportunities to reduce inequality. The ultimate impact depends on a range of factors, including the specific policies that are put in place to manage the process of integration.