IGCSE Economics - Trading blocs

Trading blocs

A group of countries that come together and form agreements to promote trade and economic cooperation among themselves.

Trading blocs around the world

1. APEC (exports: $12.47 trillion, imports: $12.55 trillion)

2. EU (exports: $7.49 trillion, imports: $8.11 trillion)

3. BRICS (exports: $5 trillion, imports: $4 trillion)

4. NAFTA (exports: $3.23 trillion, imports: $4.55 trillion)

5. ASEAN (exports: $1.95 trillion, imports: $1.88 trillion)

6. GCC (exports: $1.1 trillion, imports: $691 billion)

7. SAARC (exports: $567 billion, imports: $935 billion)

8. MERCOSUR (exports: $448 billion, imports: $388 billion)

9. COMESA (exports: $182 billion, imports: $257 billion)

10. SACU (exports: $141 billion, imports: $131 billion)

5 types

1. Preferential Trade Areas

2. Free Trade Areas

3. Customs Union

4. Common Market

5. Economic Union

Different stages of economic integration

Free trade Area

• An agreement formed by a group of like-minded countries that agree to reduce trade barriers, such as tariffs and quotas

Customs Union

Group of countries that apply one common system of procedures, rules and tariffs for all or almost all their imports, exports and transiting goods.

Single Market

Allows for people, goods, services and capital to move around a union as freely as they do within a single country

Monetary Union

A group of countries that share a common market where goods, services, capital, and labor can move freely. Uses a common currency, eliminating the need for exchange rate fluctuations within the union.

Economic Union

An agreement between two or more nations to allow goods, services and workers to move over borders freely. (EU)

Why do trading blocs exist

• Remove all barriers to trade and gain all the benefits of trade

• Competition

• Efficiency (resources allocation)

• Economies of scale

• Macroobjectives (e.g. Unemployment)

Trading bloc membership

Immigration

Membership fees

Trade

Immigration

• More factors of production —> increases PPC

- Lowers wage rate (Increase supply of labour)

- Creates unemployment for local citizens

Membership fees

• Gains for developing countries

- Cost to more developed countries - support less developed countries

Trade

• Increased trade with member countries (benefits of free trade)

- Reduced trade with non-member countries

- Local businesses face greater competition (reasons for protectionism)

Trading bloc

• causes domestic firms to lose out to foreign competition

• On balance trading blocs will benefit economies, however with BREXIT, there can be loss of sovereignty (power) to other countries

• Countries are far more interdependent in trading blocs (problematic in financial crisis 2008-9 where economic failure can spread)