Economic integration: notes and practice questions
- This topic examines different forms of economic integration and the role of the World Trade Organization (WTO).
- Preferential trade agreements can be bilateral, regional, or multilateral.
- Trading blocs include free trade areas, customs unions, and common markets.
- Advantages of trading blocs include greater market access, economies of scale, and increased political stability.
- Disadvantages of trading blocs include a potential loss of national sovereignty.
- The WTO aims to promote free trade and resolve trade disputes among member countries.
How it is examined
At SL the WTO and the bloc types are short definitional and `explain` material. At HL the trade creation and diversion pair is a favourite 10-mark `explain` and a monetary union evaluation is a plausible 15-mark part (b). Note that 4.4 cannot carry a Paper 2 diagram part, because it has no required diagram.
- Preferential trade agreements: bilateral, regional and multilateral, the last through the World Trade Organization. (AO1)
- Trading blocs: free trade areas or agreements, customs unions, and common markets. (AO2)
- The advantages and disadvantages of trading blocs. (AO3) - Advantages: greater access to markets offering potential for economies of scale; freedom of labour giving greater employment opportunities; stronger bargaining power in multilateral negotiations; greater political stability and cooperation. - Disadvantages: loss of sovereignty; challenge to multilateral trading negotiations.
- Monetary union. (AO2)
- Trade creation, as an advantage of trading blocs. (AO3)
- Trade diversion, as a disadvantage of trading blocs. (AO3)
- The advantages and disadvantages of monetary union. (AO3)
Guiding questions
- What do countries give up when they join together, and what do they get?
Linking questions
- Extends the free trade case from 4.1 and the protection case from 4.3.
- Monetary union removes the exchange rate policy of 4.5.
- Economic integration is listed as a trade strategy for development in 4.10.
Practice questions
4 questions · 1 easy · 2 medium · 1 hardQuestion 1
EasyPaper 2 · calculator2 marksText A: Trade developments in East Africa
In recent years, Kenya has actively pursued international trade expansion by entering into new commercial arrangements. In 2020, Kenya and the United Kingdom finalized a bilateral trade agreement to ensure continuous duty-free access for exports, such as tea, coffee, and cut flowers, following the UK's departure from the European Union.
Define the term bilateral trade agreement indicated in bold in Text A.
Break the term down into two essential components: the number of parties involved ('bilateral') and what the agreement specifically does regarding barriers to international trade.
Question 2
MediumPaper 1 · no calculator10 marks(a) Distinguish between a free trade area, a customs union and a common market.
Think about the progressive stages of economic integration. What specific policy does a customs union add that a free trade area lacks? What additional economic freedoms are introduced when moving from a customs union to a common market?
Question 3
HardPaper 1 · no calculator15 marks(b) Using real-world examples, evaluate the view that the advantages of joining a trading bloc outweigh the disadvantages for member countries.
Think about what countries gain when they integrate (such as larger markets allowing domestic firms to achieve economies of scale, or greater political cooperation) versus what they lose (such as the ability to set their own independent trade policies, representing a loss of national sovereignty). Remember to anchor your evaluation to specific examples of trading blocs like the EU, USMCA, or ASEAN.
Question 4
MediumPaper 2 · calculator4 marksText A: Agricultural negotiations at the WTO
Multilateral negotiations at the World Trade Organization (WTO) have faced repeated impasses over primary products, particularly agriculture. Developing nations such as Zambezi, where agriculture accounts for a substantial share of export earnings and employment, have argued that massive domestic subsidies provided to farmers in high-income member economies distort world markets and depress prices, hurting smallholders across the developing world.
However, reaching a multilateral consensus has proven difficult. Wealthier member states maintain significant bargaining power due to their large domestic markets, extensive trade expertise, and legal capacities, while lower-income countries often lack the resources to contest complex dispute settlements or enforce reciprocal concessions. Furthermore, because WTO agreements require consensus among all 164 member states, disagreements regarding agricultural subsidies and protectionist domestic policies have brought negotiations to a prolonged standstill, prompting many nations to prioritise bilateral trade deals instead.
Using Text A, analyse two factors that limit the influence of the World Trade Organization (WTO).
Identify two distinct factors mentioned in the text that undermine the WTO's ability to achieve its goals, such as unequal bargaining power between member states and difficulties reaching consensus on agricultural subsidies, and explain how each factor weakens the organization's effectiveness.
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
