Harmonization of Economic Policies in Customs Unions: The Andean Group*

The payer examines the conditions under which the formation of a customs union or free trade area makes some degree of harmonization of economic policies desirable, and the extent to which these conditions apply in the Andean Group customs union recently formed by Bolivia, Chile, Colombia, Ecuador and Peru. The policies analysed are those concerning tariffs, export subsidies, indirect taxes, exchange rates, planning and macro scabilization, intra‐union factor movements, foreign capital, and currency unification. Different conclusions as to the desirability of harmonizing the policies are derived depending on the specific type of harmonization considered and the assumptions which are made concerning concurrent harmonization of other policies.