4.4 Economic Integration (DP IB Economics: HL): Flashcards
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Define economic integration.
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Cards in this collection (39)
Define economic integration.
Economic integration occurs as countries reduce trading barriers between themselves and become more interdependent.
What are the three ways in which economic integration can deepen?
Economic integration can deepen through the development of trade agreements, the creation of trading blocs, and the formation of a monetary union.
Define a preferential trade agreement (PTA).
A preferential trade agreement (PTA) is an agreement between two or more countries providing better terms and conditions of trade to member countries.
What is a bilateral trade agreement?
A bilateral trade agreement is a preferential trade agreement between two countries that aims to reduce or eliminate barriers to trade.
What distinguishes a regional trade agreement (RTA) from a bilateral one?
A regional trade agreement (RTA) is usually between more than two countries in the same geographical region, unlike a bilateral agreement, which is between just two countries.
What is a multilateral trade agreement?
A multilateral trade agreement is a legally binding preferential trade agreement between more than two countries or trading blocs, usually negotiated and overseen by the WTO.
Define a trading bloc.
A trading bloc is a group of countries that agree to trade with each other more freely, usually by reducing taxes or rules on imports and exports between them.
What are the three types of trading bloc, in order of increasing integration?
Free Trade Areas (FTAs), then Customs Unions, then Common Markets, with each successive bloc having a higher level of integration.
Define trade creation.
Trade creation occurs when a regional trade agreement leads to the expansion of trade between member countries as trade barriers such as tariffs or quotas are reduced.
Define trade diversion.
Trade diversion occurs when a regional trade agreement redirects trade away from more efficient external suppliers towards less efficient internal suppliers.
True or False?
Joining a monetary union allows a nation to keep full control over its own monetary policy.
False.
Joining a monetary union involves a loss of sovereignty, as member nations lose the ability to set their own monetary policy.
Monetary unions often develop once there is integration at a level, where nations may desire a common central bank.
Monetary unions often develop once there is integration at a Common Market level, where nations may desire a common central bank.
Give one advantage of joining a trading bloc.
Greater access to markets offers the potential for economies of scale (other advantages include greater employment opportunities, stronger bargaining power and greater political stability).
Define a free trade area (FTA).
A free trade area is a bloc in which countries agree to abolish trade restrictions between themselves but maintain their own restrictions with other countries.
Each subsequent type of trading bloc has levels of economic integration.
Each subsequent type of trading bloc has increased levels of economic integration.
Give a real-world example of a free trade area.
The Canada–United States–Mexico Agreement (CUSMA) is an example of a free trade area.
True or False?
In a free trade area, member countries adopt a common external tariff on all third-party countries.
False.
A common external tariff describes a customs union; in a free trade area, each member keeps its own restrictions with other countries.
Define a customs union.
A customs union is an agreement in which members trade all goods and services tariff-free between themselves and agree on common tariff rates on imports from external countries.
What key feature distinguishes a customs union from a free trade area?
A customs union adds common external tariffs on third-party countries, whereas a free trade area lets each member keep its own individual external restrictions.
Define a common market.
A common market is a customs union in which goods and services are traded tariff-free and the four factors of production flow freely between member countries.
What is the goal of letting factors of production flow freely in a common market?
To improve the allocation of resources between members and lower the costs of production.
Define a monetary union.
A monetary union extends a common market by establishing a common central bank that issues a common currency and controls the monetary policy of member countries.
Give one advantage of a monetary union.
A common currency eliminates exchange rate fluctuations, providing price stability and reducing transaction costs (it can also increase trade and enhance monetary policy credibility).
True or False?
Prior to Brexit, the UK was a member of the Eurozone.
False.
The UK was a member of the European customs union and common market but never joined the Eurozone.
Give one disadvantage of a monetary union.
Members relinquish control over monetary policy to a supranational central bank, limiting their ability to adjust interest rates to their own economic conditions.
In a monetary union, members lose the ability to use currency devaluation to restore their .
In a monetary union, members lose the ability to use currency devaluation to restore their competitiveness.
Define the World Trade Organisation (WTO).
The World Trade Organisation (WTO), established in 1995, is a body that promotes free trade as the best way to raise living standards, create jobs and improve people's lives.
What are the WTO's two main roles in liberalising trade?
The WTO brings countries together to reduce protectionist trade barriers, and it acts as an adjudicating body in trade disputes.
Define trade liberalisation.
Trade liberalisation is the process of rolling back the barriers to free trade, for example removing tariffs.
True or False?
WTO judgements are legally binding on member countries.
False.
WTO judgements are not legally binding; members voluntarily submit to them.
When a member believes a trading partner has violated an agreement, the WTO acts as an body, running a hearing and making a judgement.
When a member believes a trading partner has violated an agreement, the WTO acts as an adjudicating body, running a hearing and making a judgement.
What can the WTO permit a country to do if it wins a trade dispute?
It can allow the aggrieved nation to impose protectionist measures with the WTO's approval, pressuring the violating nation to back down.
How do larger economies weaken the WTO's influence?
Larger economies tend to selectively choose which WTO rulings to abide by, a luxury smaller developing economies do not have.
Define trade diversion.
Trade diversion occurs when a regional agreement shifts trade away from a more efficient non-member towards a less efficient member country.
How do regional trade agreements conflict with the aim of the WTO?
They cause trade diversion and lead members to impose common trade barriers on non-members, which is the opposite of trade liberalisation.
How does subsidisation by MEDCs undermine the WTO's aims?
MEDCs subsidise firms producing primary products so they dominate global markets, while LEDCs lack the tax revenue to compete.
True or False?
All member countries hold equal bargaining power in WTO negotiations.
False.
There is an unequal bargaining power; wealthier MEDCs are better networked and pressurise negotiations, making it harder for LEDCs to gain preferential terms.
Firms from LEDCs are frequently blocked from offering in MEDCs, which prevents free trade in this area.
Firms from LEDCs are frequently blocked from offering services in MEDCs, which prevents free trade in this area.
State one stated objective of the WTO.
Improving people's lives (other objectives include the promotion of fair competition and protecting the environment).
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