Monetary unions can't use monetary policies to achieve economic growth (no automatic stabilizers) Economies of scale (more sources of comparative advantage) Disadvantages of Trading Blocs - Obligated to follow regulations of trading blocs (loss of economic independence) Decrease in risk speculations for monetary unions (increase in currency confidence) Greater political stability and cooperation More choices and lower prices for consumers Increased competition (leading to greater efficiency) Examples of Economic & Monetary Union - Eurozone → includes the member countries of the EU that have adopted Euro as their currency (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain) Definition of Complete Economic Integration Monetary union that has common economic and fiscal policies Advantages of Trading Blocs - Greater market size (larger export market) → Increase in foreign direct investment → financial account surplus
#TRADING BLOCS ARE GROUPS OF COUNTRIES QUIZLET FREE#
UNASUR Conflicts between WTO and free trade agreements Free trade agreements can lead to trade diversion etc.Definition of Economic & Monetary Union Common market with a common currency. Examples of trading blocs - EU, arguably the world's most important trading bloc Around the world, there is debate over this, such as UKIP in the UK supporting Brexit.
Trading blocks lessen national sovereignty. Creation of trade blocs can lead to trade diversion instead of trade creation, reducing overall economic output even if some members of the bloc are net gainers. Many regional agreements are weak because the cover free trade in a very limited range of goods, limiting their economic benefit. Some regional agreements distribute gains from trade unequally in practice, for example bilateral agreements between the EU or US and a developing country may give little benefit to the developing countries but open up their markets to imports from the EU or US. This is especially true of bilateral trade agreements. Disadvantages of trading blocs - Taking part in trading blocks can distract governments from larger gains of signing free trade agreements with all countries through the WTO. Membership of trading blocs can bring dynamic gains if it lessens the international isolation of countries and brings improvements in government, the rule of law, and state institutions. Trade diversion diagram Advantages of trading blocs - Similar to advantages of international trade It essentially means that even if a country outside the trading bloc could produce the good more efficiently, it is disadvantaged against countries inside the bloc due to common tariffs, meaning that people buy from a less efficient producer inside the trading bloc. Economists generally think the efficiency gain of (b) and net welfare/surplus gain of (a) outweighs the losses from international trade, so are happy Trade diversion This is a disadvantage of greater economic integration and occurs when the entry of a country into a customs union leads to the production of good or service transferring from a low cost producer to a high cost producer. Domestic (French) government loses tariff revenues of (c) Domestic (French) producers lose producer surplus of (a) and revenues of (a+b+g) Domestic (French) consumers gain consumer surplus of (a+b+c+d) Diagrammatic analysis of trade creation - Foreign (UK) producers gain sales of (g+i)
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