4.4 Economic Integration (DP IB Economics: SL): Flashcards
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Define economic integration.
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Cards in this collection (37)
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 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 preferential (better) terms and conditions of trade to member countries.
What distinguishes a bilateral trade agreement from other preferential trade agreements?
A bilateral trade agreement is a preferential trade agreement between exactly two countries that aims to reduce or eliminate barriers to trade.
What is a regional trade agreement (RTA)?
A regional trade agreement (RTA) is a preferential trade agreement usually between more than two countries in the same geographical region.
Define 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 World Trade Organisation (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?
The three types are Free Trade Areas (FTAs), Customs Unions and 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 within the agreement are reduced or eliminated.
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?
Trade diversion redirects trade towards more efficient suppliers.
False.
Trade diversion redirects trade away from more efficient external suppliers towards less efficient internal suppliers, which can raise costs.
Membership of a trading bloc may give a nation stronger power in new multilateral negotiations.
Membership of a trading bloc may give a nation stronger bargaining power in new multilateral negotiations.
True or False?
Joining a monetary union means a nation loses the ability to set its own monetary policy.
True.
Joining a monetary union involves a loss of sovereignty, as member nations give up the ability to set their own monetary policy.
Define a free trade area (FTA).
A free trade area (FTA) is a bloc in which countries abolish trade restrictions between themselves but each maintain their own restrictions with other countries.
True or False?
Members of a free trade area must impose the same tariffs on non-member countries.
False.
In a free trade area each member keeps its own external restrictions; imposing common external tariffs is a feature of a customs union.
Define a customs union.
A customs union is an agreement in which members trade all goods and services tariff free and agree on common tariff rates on imports from external countries.
In a customs union, members agree on tariff rates on imports from external third-party countries.
In a customs union, members agree on common tariff rates on imports from external third-party countries.
Define a common market.
A common market trades goods and services tariff-free like a customs union, and additionally allows the four factors of production to flow freely between member countries.
What is the goal of allowing factors of production to flow freely in a common market?
The goal is to improve the allocation of resources between members and lower the costs of production.
Define a monetary union.
A monetary union builds on a customs union and common market by establishing a common central bank that issues a common currency and controls members' monetary policy.
How does a monetary union promote price stability?
A monetary union's common currency eliminates exchange rate fluctuations, reducing transaction costs and increasing price stability within the union.
Why is limited monetary policy flexibility a disadvantage of a monetary union?
Members relinquish control over monetary policy to a supranational authority, restricting their ability to independently adjust interest rates for their domestic conditions.
True or False?
While part of the EU customs union and common market, the UK also used the euro.
False.
Before Brexit the UK was in the European customs union and common market but never joined the Eurozone.
Which real-world bloc is both a customs union and a common market?
The European Union is both a customs union and a common market.
List the types of trading bloc in order of increasing economic integration.
Integration increases from a free trade area, to a customs union, to a common market, and finally to a monetary union.
Define the World Trade Organisation (WTO).
The World Trade Organisation (WTO) was established in 1995 to promote free trade as the best way to raise living standards, create jobs and improve people's lives.
Define trade liberalisation.
Trade liberalisation is the process of rolling back the barriers to free trade, such as removing tariffs.
What are the WTO's two main roles in liberalising trade?
The WTO brings countries together at conferences to reduce or eliminate protectionist barriers, and acts as an adjudicating body in trade disputes.
The WTO brings member countries together at conferences, such as the Round, to reduce protectionist trade barriers.
The WTO's objectives are improving people's lives, the promotion of fair competition, and protecting the environment.
True or False?
WTO judgements in trade disputes are legally binding on member countries.
False.
WTO judgements are not legally binding; members voluntarily submit to them, though a ruling lets the aggrieved nation impose protectionist measures with WTO approval.
The WTO brings member countries together at conferences, such as the Round, to reduce protectionist trade barriers.
The WTO brings member countries together at conferences, such as the Doha Round, to reduce protectionist trade barriers.
What does a WTO ruling in favour of a complainant allow that country to do?
It allows the aggrieved nation to impose protectionist measures with the WTO's approval, aiming to force the violating country to back down.
How do regional trade agreements conflict with the WTO's aim of trade liberalisation?
They cause trade diversion towards less efficient member producers and impose common trade barriers on non-members, which is protectionism.
How do subsidies on primary products undermine the WTO's influence?
MEDCs subsidise firms producing primary products to dominate global markets, while LEDCs lack the tax revenue to compete.
Define the unequal bargaining power of WTO members.
Unequal bargaining power means MEDC firms are better networked and pressurise negotiations, making it harder for LEDCs to gain preferential trade terms.
True or False?
Larger economies tend to selectively choose which WTO rulings to abide by.
True.
Larger economies can selectively choose which rulings to follow, whereas smaller, usually developing economies do not have that luxury.
Why are LEDC service firms disadvantaged under the current trade system?
Firms from LEDCs are frequently blocked from offering services in MEDCs, which prevents free trade in the higher-profit services sector.
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