effects growth of trading blocs such as the TFTA on global trading patterns (2)

Question 1

evalaute effects growth of trading blocs such as the TFTA on global trading patterns [KAA1 - trade creation + increased specialisation]

Answer 1

1. MORE TRADE CREATION
   - define FTA (tariffs + non-tariff barriers are removed) -> encourages comp. adv. -> countries produce more goods/services at a lower opportunity cost -> e.g. SA = machinery; Angola = oil + diamonds -> more intra-bloc trade volume -> trade creation = lower-cost producers within the bloc replace higher-cost producers outside bloc -> shifts global trade from non-member countries -> more efficiency -> incr LRAS -> more real GDP -> potential eco. growth for member countries

DIAGRAM: can use tariff diagram to show incr trade

Question 2

evalaute effects growth of trading blocs such as the TFTA on global trading patterns [EVAL1 - trade creation + increased specialisation]

Answer 2

MAY LEAD TO TRADE DIVERSION
- more efficient non-member (e.g. China or the EU) may be replaced by a less efficient member country simply because of tariff advantages -> less global efficiency
- member countries may face non-tariff barriers e.g. poor infrastructure -> limits trade flows despite policy changes
- member countries have differing levels of development -> benefits are unequal