What is globalisation, and how do trading blocs and economic integration shape the world economy?
The causes and effects of globalisation, the role of transnational corporations, the stages of economic integration, and the costs and benefits of trading blocs such as the EU single market.
A focused CCEA A-Level Economics answer on globalisation and integration, covering the causes and effects of globalisation, the role of transnational corporations, the stages of economic integration from free trade area to monetary union, trade creation and diversion, and the costs and benefits of the EU single market, with worked integration analysis.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
Jump to a section
What this dot point is asking
CCEA wants you to define globalisation and explain its causes and effects, explain the role of transnational corporations, describe the stages of economic integration from a free trade area to a monetary union, explain trade creation and trade diversion, and evaluate the costs and benefits of trading blocs such as the EU single market.
Globalisation
Its main causes are trade liberalisation (falling tariffs, promoted by the World Trade Organization and trading blocs), cheaper transport (containerisation, air freight) and communications (the internet), the growth of transnational corporations, and the liberalisation of capital flows. Its effects are mixed: it brings lower prices, faster growth, inward investment and technology transfer, but also greater inequality, exposure to global instability, pressure on jobs in higher-cost countries, and environmental costs.
Transnational corporations
The stages of economic integration
Economic integration deepens through successive stages:
- Free trade area - members remove tariffs between themselves but keep their own external tariffs (for example, a basic free trade agreement).
- Customs union - a free trade area plus a common external tariff on non-members (the basis of trade diversion).
- Single (common) market - a customs union plus free movement of goods, services, capital and labour and harmonised regulation (the EU single market).
- Monetary union - a single market plus a single currency and common monetary policy (the eurozone).
Try this
Q1. Define a transnational corporation. [2 marks]
- Cue. A firm that owns or controls production in more than one country.
Q2. Distinguish between a customs union and a single market. [3 marks]
- Cue. A customs union adds a common external tariff to free internal trade; a single market also allows free movement of goods, services, capital and labour.
Q3. Explain the difference between trade creation and trade diversion. [4 marks]
- Cue. Trade creation is switching to a lower-cost member (welfare gain); trade diversion is switching from a cheaper non-member to a dearer member because of the external tariff (welfare loss).
Exam-style practice questions
Practice questions written in the style of CCEA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
CCEA A2 26 marksExplain the main causes of globalisation.Show worked answer →
Worth 6 marks. Markers reward several distinct drivers, each explained.
Trade liberalisation: the reduction of tariffs and other barriers, promoted by bodies such as the World Trade Organization and trading blocs, has opened markets.
Technology and transport: containerisation and cheaper shipping and air freight have cut transport costs, while the internet and communications allow instant global coordination.
Transnational corporations: large firms have spread production across borders to exploit lower costs and reach new markets, integrating economies.
Capital flows: the liberalisation of financial markets allows money and investment to flow freely across borders.
Conclusion: falling trade barriers, technology, the growth of transnational corporations and free capital flows together explain the deepening integration of the world economy.
CCEA A2 28 marksEvaluate the benefits and costs of membership of a trading bloc such as the EU single market.Show worked answer →
Worth 8 marks. Evaluate requires benefits and costs with a judgement.
Benefits: free movement of goods, services, capital and labour gives access to a large market, economies of scale, more competition and lower prices, inward investment, and trade creation as members buy from lower-cost partners.
Costs: a common external tariff can cause trade diversion away from lower-cost non-members, loss of some national policy independence, the costs of regulation, and exposure to other members' problems in a monetary union.
Distribution: gains and losses are uneven across regions and sectors, and structural decline in some industries can follow.
Judgement: membership tends to raise welfare overall through trade creation, scale and investment, but the net benefit depends on whether trade creation outweighs trade diversion and on how the costs of lost sovereignty and adjustment are valued, so it is a balanced rather than one-sided case.
Related dot points
- The basis for international trade, absolute and comparative advantage, the gains from trade, the methods and effects of protectionism, and the terms of trade.
A focused CCEA A-Level Economics answer on international trade, covering absolute and comparative advantage, the gains from specialisation and trade, the methods of protectionism (tariffs, quotas, subsidies and barriers), the arguments for and against protection, and the terms of trade, with a worked comparative-advantage example.
- The structure of the balance of payments, the causes and consequences of a current account imbalance, exchange rate systems, and exchange rate determination and effects.
A focused CCEA A-Level Economics answer on the balance of payments and exchange rates, covering the current and capital and financial accounts, the causes and consequences of a current account deficit, floating, fixed and managed exchange rate systems, how a floating rate is determined, and the effects of currency changes, with worked depreciation analysis.
- The use of macroeconomic policy in an open economy, the role of international institutions, and the conflicts and constraints policymakers face in a global world.
A focused CCEA A-Level Economics answer on managing the open economy, covering how fiscal, monetary and supply-side policy work in a globalised world, the role of the IMF, World Bank and World Trade Organization, the constraints globalisation places on national policy, and the conflicts between objectives, with a worked policy analysis.
- The difference between growth and development, measures of development, the barriers to development, and strategies to promote development.
A focused CCEA A-Level Economics answer on economic development, covering the difference between growth and development, single and composite measures such as GDP per capita and the Human Development Index, the barriers to development, and market-led and interventionist strategies including aid, trade, microfinance and debt relief, with worked HDI reasoning.
Sources & how we know this
- CCEA GCE Economics specification — CCEA (2016)