Study Notes
Globalisation involves transforming the world into a unified market by reducing barriers to the movement of goods, services, investments, and labor. It leads to a global marketplace with fewer restrictions on trade and work across countries.
- Globalisation — the process of creating a unified global market by minimizing trade barriers. Example: Multinational corporations operating in multiple countries.
- Free Trade Area — a region where member countries eliminate trade restrictions among themselves. Example: USMCA between the USA, Canada, and Mexico.
- Customs Union — a trade bloc with no trade restrictions among members and a common external tariff. Example: Southern African Customs Union (SACU).
- Monetary Union — an economic integration with a single currency and unified monetary policies. Example: European Union with the euro.
- Full Economic Union — the highest level of integration, merging member economies into one. Example: The United States of America.
- Trade Creation — occurs when joining a trade bloc leads to specialization and lower prices. Example: Removal of tariffs increases consumer surplus.
- Trade Diversion — occurs when trade shifts from a more efficient to a less efficient member country within a bloc. Example: Importing from a less efficient country due to bloc membership.
Exam Tips
Key Definitions to Remember
- Globalisation
- Free Trade Area
- Customs Union
- Monetary Union
- Full Economic Union
- Trade Creation
- Trade Diversion
Common Confusions
- Confusing trade creation with trade diversion
- Misunderstanding the difference between a free trade area and a customs union
Typical Exam Questions
- What is globalisation? Globalisation is the process of creating a unified global market by reducing trade barriers.
- How does a customs union differ from a free trade area? A customs union has a common external tariff, while a free trade area does not.
- What are the consequences of globalisation? It can lead to economic growth, lower prices, and increased inequality.
What Examiners Usually Test
- Understanding of different types of trade blocs
- Ability to explain the causes and consequences of globalisation
- Differentiating between trade creation and trade diversion