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participating in the integration association. The classic of the theory of 
economic integration Viner (1950) believed that the creation of new trade flows 
increases the country's total wealth, while the deviation effect reduces it, but 
many researchers disagreed with it (Lipsey, 1957; Johnson, 1975; Meade, 1955). 
In addition, there is enough research to confirm that each integration association 
has a unique combination of advantages and disadvantages, and it can vary 
markedly for developed and developing countries. 
In particular, for developing countries the phenomenon of trade rejection 
can have significant positive consequences: (1) for business entities -  market 
growth, economies of scale and, as a consequence, cost reduction;  (2) for the 
state — the release of foreign currency funds that are redirected to the import of 
capital as a result, increasing economic growth and improving the balance of 
payments;  (3) for consumers —  a decrease in prices for imported goods, an 
increase in their consumption. According to Linder (1966) and Sakamoto 
(1969), trade diversion can increase the welfare of developing countries as a 
result of changes in the supply structure (preference is given to a relatively 
efficient domestic supplier rather than an efficient supplier from a developed 
country). In parallel with economic development, the import of investment 
 
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goods from developed countries is increasing. That is, integration processes do 
not reduce the volume of trade between countries, but change its structure 
(Mikesell, 1965). The positive impact of integration on the welfare of 
developing countries is not limited to production and consumption, but extends 
to employment, labor productivity, and population income (Jaber, 1971). 
Many researchers, when analyzing the effects of integration for developing 
countries, noted wide opportunities for stimulating industrial development 
through protectionist measures. In this regard, the theory of the training field, 
based on the idea that for developing countries participating in integration, 
relying on the domestic market during the development of industry, is gradually 
increasing international competitiveness (Langhammer & Hiemenz, 1990; 
Inotai, 1991; Inotai, 1997). This is industrialization based on import substitution 
due to high external customs and tariff restrictions. At the same time, financial 
and economic integration is a transitional stage, followed by the full inclusion of 
the state in the world economy. 
In addition to static effects, dynamic integration effects are essential for 
developing countries. They can be identified by dynamic analysis, which 
suggests that during the integration patterns of the functioning of the system 
change (and therefore, they cannot be traced through static analysis). 
It was further established that integration reduces risks and increases 
investment growth rates (Brada & Mendez, 1988), which can be explained by 
the economies of scale (i.e., increased return on capital under conditions of 
market expansion (Corden, 1972). Schiff & Winters (1998) believe that all 
factors affecting the medium-term  growth rate can be considered dynamic 
effects. 
The economies of scale play a critical role for developing countries that 
need to expand markets and seek to attract investment (Balassa, 1975). In small 
markets, costs are higher, fewer opportunities for the development of production 
specialization, less competition, which reduces the motivation of business 
entities to improve technologies. 
Dynamic effects also include the creation and rejection of investment 
flows, studied by many experts (Baldwin et al., 1995; Dunning & Robson, 1988; 
Dee & Gali, 2003; Kalotay, 2007). The effect of creating investment flows is 
noted when production is transferred to a country participating in an integration 
association, where lower costs are due to the absence of barriers to capital flows. 
The effect of deviation of investment flows is observed when production is 
transferred from a country that is not part of an integration association but 
provides lower costs to a country that is a member of integration, which has 
higher costs. 
Financial and economic integration, as follows from our analysis, has a 
positive effect on the economies of countries that are members of an integration 
association, and developing countries can get a more pronounced effect 
compared to developed ones. Without denying the importance of the foreign 
 
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trade effects inherent in the initial stages of integration (free trade zone, customs 
union), it should be emphasized that in the current conditions, dynamic effects 
due to globalization and deepening integration interaction (common market, 
common economic space, economic union) are gaining importance. 
The French economist Perroux (2007), having studied the relationship 
between economic growth and economic development, believed that growth 
means a steady increase in the size of the business entity (simple or complex), 
achieved through structural and, possibly, systemic transformations, which is 
accompanied by economic progress. These transformations have a decisive 
effect on development. And development, for its part, promotes growth, 
embraces, and supports it. 
Thus, it is business entities that act as the main link linking integration and 
economic growth. They are the locomotive of integration, strive to achieve the 
optimal scale of activity, using, inter alia, cooperation and cooperation with 
foreign partners. You can build a sequence of achieving the integration effect: 
expanding  sales  markets  →  increasing  intercountry  trade  →  reorganizing  the 
production  of  goods  and  services  →  there  is  a  revival  in  the  economy  → 
increasing  investment  flows  →  increasing  production  of  economic  entities  → 
economic growth of the country. 
It can be concluded that financial and economic integration, which is a 
combination of relations and ties between economic entities that determine the 
targeted rapprochement and mutual adaptation of economic systems capable of 
self-regulation and self-development, will certainly lead to economic growth. 
For this growth to be sustainable, it is necessary to maintain the integrity of the 
economic system, which implies a certain degree of integration. 
Thus, financial and economic integration should be understood as a 
specific type of concentration in which the effect can be achieved not only 
through mergers and acquisitions, but also through a combination of functions, 
as well as through a consolidating management mechanism that brings together 
the technical, financial, labor potential of interaction individual participants. In 
this case, cooperation as a form of economic interaction organically fits into 
industrial integration. 
The effect of industrial integration consists of the results of financial and 
industrial interaction of integration participants and due to close intersectoral 
relations. Based on this, we can distinguish groups of criteria for assessing such 
an effect: 1) technological, reflecting the use of resources 2) financial, 
characterizing the ratio of costs and profits from the sale of products 3) social, 
describing the conditions for the reproduction of labor. 
The development and effective operation of integrated associations occurs 
under the influence of many factors (Figure 12). 
 
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