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Assess the economic effects of the growth of trading blocs on the global economy

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Introduction

"Assess the economic effects of the growth of trading blocs on the global economy" [20] Trading blocs are groups of countries that agree to reduce trade barriers amongst themselves. This is used to promote trade activities within certain areas, whilst also assisting in economically managing specific regions. By implementing trade blocs it provides a means of agreement between the countries within that trade bloc to enable them to benefit from each other through trade. A trading bloc increases and creates trade between countries. Trade creation occurs when consumption shifts from a high cost producer to a low cost producer. For example, if the UK started taxing imported Brazilian sugar, but did not tax imported European Union sugar, consumption would shift to European Union sugar because it is cheaper than Brazilian. ...read more.

Middle

Inflation within the trade bloc could also lead to global inflation rates. Due to the protectionism of the trade bloc, it could lead to rising inequality between the bloc countries and the countries which attempt to import. This can be seen with countries in Africa, and South America who attempt to import raw materials and foodstuffs into the EU, but are prevented from doing so because of tariffs imposed on them. They are trying to stimulate their country?s economy through export led growth, but this is stifled if other countries are barring their entry to the global market. Furthermore, within trading blocs with free trade, members knowing that they have access to each other?s markets, members are encouraged to specialize, countries can then benefit from Another economic effect of trading blocs is that it can make companies from outside certain trading blocs struggle. ...read more.

Conclusion

Much of this money is then sent home, which means it leaves the host economy. This is a removal from the circular flow. Trading blocs are also used as protection; an economy will have more economic presence as a group, this also increases political stability and support from trading bloc members. I think that overall, the economic effects of trading blocs on the global economy is negative to the majority of countries around the world that are not within a trading bloc. Although the countries within the trading bloc benefit from free trade within the countries, countries outside the bloc may have comparative advantage. It skews what should be world economic growth, and deprives some countries of being able to develop. ...read more.

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