UNIT 2 MODULE 3 RECAP

UNIT 2 MODULE 3
RECAP Miss C. Mohammed
Miss C. Mohamm1 ed
 Difference Between Growth and Development

Difference Between Growth and

Development
Economic Growth: the expansion of Economic Development: refers to
the capacity of a country to produce the more qualitative changes
goods and services from one period
associated with growth. It is a
to the next, therefore causing an
sustainable increase in the standards
increase in a country’s GDP. It refers
to the expansion in a country’s of living of the people in a country.
national income, output and
employment.

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 Sustainable Development

Sustainable Development
• It is the expansion of the capacity of a country to produce output and
improve human development through economic activities which do not
reduce the quality of the natural environment for future generations.

• It is also economic development that is conducted without depletion of

natural resources or development that meets the needs of the present
without compromising the ability of future generations. (Current growth
versus the well-being of future generations).

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 Indicators of Economic Development

• Life expectancy

• Literacy rates

• Poverty rates

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 Factors that Determine Growth
✓ Technical change

✓ Reallocation of resources in order to minimize wastage.

✓ Capital accumulation

✓ Investment – to increase the productive capacity of the economy.

✓ Human capital

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 Factors that Contribute to Sustainable
Development

• Economic: using its resources efficiently

• Social: the ability of society, or any social system, to
persistently achieve a good social well-being.

• Environmental: sustainability means that we are living

within the means of our natural resources.

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 Human Development

Human Development
Four dimensions of human development are:

• Empowerment: enabling people to make decisions which affect their lives.

• Productivity: giving people the opportunity and means to compete in a world of

globalized production.

• Equity: equal opportunities for people of all walks of life.

• Sustainability: making decisions on the basis of enhancing rather than

compromising the benefits received by future generations.

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The Human Development Index (UNDP:HDI – United Nations Development Program: HDI)

The Human Development Index

(UNDP:HDI – United Nations Development
Program: HDI)
This is measured by:

• Real GDP per capita

• Longevity or life expectancy at birth in years and mortality

rates

• Education attainment as given by both access to education

and literacy rates
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This index is calculated using a weighted average of these three
factors. The closer the HDI is to 1, the higher the quality of life
achieved. The United Nations Development Program utilizes the HDI
to group countries into three classes:

• High human development countries (HDI > 0.8)

• Medium human development countries (0.51 < HDI < 0.79)

• Low human development countries (HDI < 0.5)

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Structural Characteristics of Caribbean
Economies
• (a) small size;

• (b) openness;

• (c) composition of exports;

• (d) resource base;

• (e) poverty;

• (f) economic dependence.

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 Benefits of Growth
• Higher living standards

• Poverty reduction

• Full employment

• An increase in public and merit goods

• Increased prospects for wage increases

• Income redistribution

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 Costs of Growth
• Inflationary pressure

• Over-consumption

• Negative externalities

• A rise in consumption of demerit goods

• Balance of payments deficits

• Inability to replace non-renewable resources

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The Factors Which Determine Exports and Imports

The Factors Which Determine Exports and Imports

(a) international price;

(b) domestic production;

(c) domestic prices and exchange rates;

(d) international economic activity as it affects the tourism market in the

Caribbean;

(e) shifts in international demand and the emergence of substitutes;

(f) changes in International Income.

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 Foreign Exchange Earnings from
Exports
(a)access to capital goods;

(b) the export multiplier;

(c) access to consumer goods;

(d) increased domestic production.

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 Absolute Vs Comparative Advantage

Absolute advantage exists Comparative advantage is

when a country can produce achieved when a country can
more of a good than another produce a good at a lower
country where both are using opportunity cost per unit
the same quantity and quality of resource than another country.
resources.

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 Protectionism

Protectionism refers to barriers imposed by governments which restrict

free movement of goods and services among countries.

It protects domestic firms from foreign competition.

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 Arguments for Protection

• (a) infant industries;

• (b) employment;

• (c) food security.

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 Arguments for Trade Liberalization
• The country benefits from a more efficient allocation of scarce resources.

• It encourages foreign direct investment.

• It allows easier access to technology and cheaper goods and services,

including raw materials.

• The domestic economy can benefit from the import of physical capital equipment.

• It facilitates the domestic firm producing at one level but consuming at another
level.

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 The CommodityTerms of Trade

The Commodity Terms of Trade

The commodity terms of trade index also called the net barter terms of
trade index is the ratio of the export price index to the import price index.

𝑬𝑷𝑰
𝑪𝒐𝒎𝒎𝒐𝒅𝒊𝒕𝒚 𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝑻𝒓𝒂𝒅𝒆 =
𝑴𝑷𝑰

Where
EPI – export price index

MPI – import price index

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 Balance of Payments

Balance of Payments

The Balance of Payments is a record of the annual financial

flows that take place between a country and the rest of the
world for a given year.

Any financial inflow is entered as a credit (or + sign), while any

outflow is entered as a debit (or – sign).

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Causes of a Current Account Deficit

Causes of a Current Account Deficit

• Lack of comparative advantage

• High rates of domestic inflation which makes exports

uncompetitive.

• High level of expenditure on imported goods and services

• Significant outflows of profit from MNC’s, along with dividend and

interest income associated with FDI
• Low rates of domestic productivity giving rise to high prices and
uncompetitive exports.
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• The inability to achieve low cost from scale economies due to limited
market size.

• A high exchange rate at which imported goods are purchased and which
are inelastic in demand.

• An expansionary monetary and fiscal policy which increases domestic

income and supports high import expenditure.

• A lack of resources with which to manufacture exported goods e.g.

skilled labour

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Consequence of a Current Account Deficit

Consequence of a Current Account Deficit

A current account deficit caused by huge importation is usually

financed by borrowing from overseas. This gives rise to significant
interest payments which leads to increasing the deficit. Such interest
payments may also be a burden on GNP since it is an outflow of net
property income from abroad.

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 Measures Used to Eliminate a Current Account Deficit

Measures Used to Eliminate a Current Account Deficit

• Devaluation or depreciation of the exchange rate

• Expenditure-Reducing Measures

• Expenditure-Switching Measures

• Introduction of protectionist policies

• Subsidizing import substitutes

• Export subsidies
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 Exchange Rates

This is the price at which one currency can be traded for another in the

international currency markets.

• Flexible Exchange Rate Regime

• Fixed Exchange Rate Regime

• Managed Float Regime

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 Flexible/Floating Exchange Rate

Floating or flexible rates are determined through the interaction of

demand and supply of a particular currency and as such the rate

fluctuates as a result of changes in the conditions of demand and

supply.

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 Advantages of the Floating Exchange Rate System

• Theoretical elimination of current account imbalances.

• No need to manipulate reserves.

• Monetary policy can be implemented.

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Disadvantages of a Floating Exchange Rate System

• Speculation.

• Uncertainty.

• Inflation.

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 Fixed Exchange Rate

Fixed exchange rates are maintained using official financing

transactions i.e. when a particular rate is set given that the BOP

account is not usually zero, the Central Bank must correct for either

the BOP surplus or deficit.

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 Advantages of the Fixed Exchange Rate System

• Stability.

• Avoid speculation.

• Prevents Inflation.

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 Disadvantages of the Fixed Exchange Rate System

• Monetary policy cannot be implemented.

• The need for a large pool of reserves.

• Uncompetitiveness.

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 The Managed Float

The Managed Float

This regime occurs between two extremes of a purely flexible
exchange rate and a purely fixed rate. The Central Bank intervenes in
the foreign exchange market to stabilize the volatility associated with
continuous changes in the conditions of demand and supply for
currency.

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 The J Curve

This refers to the impact of a decrease in the external value of a

country’s currency on the current account balance over time.

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Current Account Balance
+

A
- B

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Main Forms of Economic Integration
Main forms of economic integration, include:

• (a) free trade area;

• (b) customs union;

• (c) common market;

• (d) economic union.

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Categories of Regional Trading Agreements

Categories of Regional Trading Agreements

FTA CU CM EU PU
Removal of intra- Removal of intra- Removal of intra- Removal of intra- Removal of intra-
group tariffs group tariffs group tariffs group tariffs group tariffs

Common external Common external Common external Common external

tariff tariff tariff tariff

Intra-group capital Intra-group capital Intra-group capital

and labour mobility and labour mobility and labour mobility

Common Common
economic policy economic policy
and common and common
currency currency

One government
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Benefits and Costs of Economic Integration

Benefits and Costs of Economic Integration

• Trade Creation and Trade Diversion

• Greater specialization and economies of scale.

• Greater competition.

• Higher levels of investment.

• Possible dynamic losses

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 The Significance of Integration Movements for
Caribbean Economies

• CARICOM and CSME

• Free Trade Area of Americas (FTAA)

• The North America Free Trade Area (NAFTA)

• EU

• Cariforum

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 Role and Functions of the WTO
The main purpose of the WTO is to enable free trade among the world’s exporting countries.

The main functions of the WTO are:

• Administering trade agreements

• Providing a forum for trade negotiations

• Arbitrating in trade disputes between member countries

• Providing assistance to member countries with respect to formulation of trade policy

• Promoting international cooperation.

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International Financial Institutions

• International Monetary Fund (IMF)

• The World Bank (WB)

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 Multinational (Transnational) Corporations
(MNC)

A multinational corporation has its headquarters in one country

and multiple operations in other countries. When MNC's set up
operations in a country it is a one-time injection of foreign
exchange into the economy. These MNC's generate employment
not only at the company level but for firms to which they
subcontract services.

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 Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI)

FDI can be defined as investment of long-term duration from a

foreign country into a domestic host country. It may take the
form of a composite bundle of capital stocks, know how and
technology. The implication of this long-term investment is
that there is a long-term relationship between the investor
and the host country’s enterprise.

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 Benefits of FDI
• Build up of physical capital
• Human capital, management and organizational skills
• Access to technology
• Market access
• Reduction in poverty

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 Disadvantages of FDI
• Repatriation of profits
• Transfer pricing
• Environmental damage
• Wage inequality

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 Globalization

Globalization
Globalization may be defined us the process of intensification of the interconnectivity
of economic, political and the social activities across borders which tends to stimulate
the world economy and result in human innovation and technological progress.
Globalization is made possible through the following forces:

• communications technology

• the removal of trade barriers

• the formation of trading blocs

• the operations of MNC‘s

• the efforts of the IMF

• the WTO
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 Positive Effects of Globalization
• Increased competition, increased factor productivity, low prices,

increased global output of goods and services, enhanced quality of

products, research and a greater diversity of products for the

consumer market.

• Access to a wide range of high quality and low-priced goods and

services.

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 Positive Effects of Globalization
• Increased opportunities for and benefits from economies of scale and
specialization.

• Foreign direct investment is associated with advancements in technology,

savings, foreign revenue, modern management, accounting practices, tax
revenue and investment.

• Advancements in air and sea transportation arising out of competition for air
and sea routes results in reduced costs of international transport.

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 Negative Consequences of Globalization
• The spread of international terrorism.
• The undermining of small economies by drug transhipments.
• the spread of fatal diseases example SARS, AIDS, Avian flu, H1N1 virus.
• Money laundering activities.
• Industrial espionage.
• The subversion of culture example indigenous music and cultural traditions.
• Environment degradation.

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 2025 #3

2025 #3
(a) List FOUR structural characteristics of Caribbean Economies.[4
marks]
● Small
● Open
● Low growth
● Low economic diversification
● High levels of debt
● Disaster prone
● Economic dependence

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(b) (i) Define the term “net-exports”. [2 marks] Net exports can be defined as the difference between a country’s total exports and total imports (1 mark) for a given period (1 mark).

(b) (i) Define the term “net-exports”. [2 marks]

Net exports can be defined as the difference between a

country’s total exports and total imports (1 mark) for a given
period (1 mark).

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(ii) Explain the term “small economy”. [3 marks] A small economy is an economy that is a price taker (1 mark). The demand and supply for goods, services, and credit is small relative to larger countries (1 mark,) and so the small economy cannot influence international prices for goods, services, and credit. (1 mark).

(ii) Explain the term “small economy”. [3 marks]

A small economy is an economy that is a price taker (1 mark).

The demand and supply for goods, services, and credit is small
relative to larger countries (1 mark,) and so the small economy
cannot influence international prices for goods, services, and
credit. (1 mark).

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(iii) Distinguish between the terms “fixed exchange rate” and “floating exchange rate”.[4 marks]

(iii) Distinguish between the terms “fixed exchange rate” and

“floating exchange rate”.[4 marks]

With the fixed exchange rate, the rate is set by the monetary
authorities (central bank) (1 mark) with respect to a foreign
currency or a basket of foreign currencies (1 mark). while in the
case of the floating rate, the rate is determined by market
forces (supply and demand) (1 mark) and fluctuates (1 mark).

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(c) Discuss THREE implications of globalization, in reference to
developing countries. [12 marks]
Marks Allocation:
1 mark each for identifying THREE correct implications.
A maximum of 3 marks for discussing each implication.

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Greater Competition (1 mark)
With globalization comes greater competition in the provision of
goods and services (1 mark). Poorer countries are naturally more
likely to be negatively affected by this competition since they are
more likely to have less efficient production processes and
supply chains (1 mark). On the positive side, greater competition
can lead to a reallocation of resources into the production of
goods that countries are better at producing (1 mark).
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Technology Transfer (1 mark)
A key implication of globalization is the transfer of technological
advances among countries (1 mark). Technology is simply the
method or the process of doing something and doesn’t have to
be embodied in a new piece of equipment like a phone (1 mark).
Technological transfer is especially useful for developing
countries that lack the resources to engage in significant
research and development (1 mark).
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Greater Variety of Goods & Services (1 mark)
Globalization, as evidenced by the explosion in international
trade, has increased the variety of goods available to countries
(1 mark). The lowering of transportation costs means that goods
can be moved around the world at cheaper costs (1 mark).
Access to a wider choice of goods and services leads to higher
levels of human development (economic development) (1 mark).

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Loss of Preferential Markets (1 mark)
With globalization, there has been a removal of preferential
markets for reciprocal trade agreements (1 mark). Without these
preferential arrangements, these countries are unable to sell
their goods in these markets (1 mark). The loss of these markets
means a loss of much-needed foreign currency (1 mark).

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Increased standard of living (1 mark)
Globalization means more firms will be competing in the market,
leading to more competitive prices (1 mark) and access to a
greater variety of goods and services from all over the world (1
mark). This can lead to an improvement in the standard of living
of people in the country (1 mark).

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Small and infant industries may close (1 mark)
Competition from other foreign firms may lead to small and
infant industries closing in local economies (1 mark). The quality
of foreign products may be superior to that of local firms (1
mark). This will lead to reduced demand for local products,
resulting in unemployment (1 mark).

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Changing culture (1 mark)
Globalization causes people to have access to the cultures from
all over the world (1 mark). Other countries' cultures may be
adopted (1 mark), leading to increased demand (imports) for
foreign products, and consuming less domestically produced
products (1 mark).

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 2024 #3

2024 #3
(a) List four factors of economic growth. [4 marks]

- Natural resources

- Human resources

- Capital goods

- Technology

- Economic (productive and allocative) efficiency

- Purchases (household, businesses and government)

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(i) According to the principle of comparative advantage, determine which
nation will specialize in which product. [5 marks]

The cost of producing 1 Y in nation L is 2X (20 Y = 40 X) (1 mark) given the

stated cost conditions. The cost of producing 1 Y in nation M is only 1 X (15 Y =
15 X) (1 mark). Regarding opportunity costs or the amount of X that must be
given up to get each Y, nation M can produce units of Y more cheaply (1 mark).
Therefore, nation M should produce Y’s, nation L should produce units of X (1
mark), and M should trade away some of its Y to nation L for some of the units
of X produced in nation L (1 mark).

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(ii) Based on your answer in (b) (i), discuss the impacts on the terms of trade
between the two nations. [4 marks]
The limit is that it is to nation L’s advantage to trade away units of X for as many
units of Y as it can get above the lower limit of 0.5 Y, which is what each X costs
in nation L (1 mark). Nation M will not be willing to trade more than one Y for
each X since any more than that could be gotten more cheaply by producing
them at home (1 mark). Then the limits to the terms of trade will be between
0.5cY and 1 Y for each X (1 mark), and country M will be able to get between 1 X
and 2 X for each Y (1 mark).

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(c) Discuss the following with reference to the Caricom Single
Market and Economy (CSME) and economic integration:

(i) Trade creation

(ii) Political cooperation

(iii) Employment opportunities [12 marks]

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(i) Trade creation
Trade creation is the increased economic welfare from joining a free trade
area, such as a customs union (1 mark). Member countries have a
wider selection of goods and services not previously available. (1
mark) They also acquire goods and services at a lower cost after trade
barriers due to lowered tariffs or removal of tariffs. (1 mark) This
encourages more trade between member countries the balance of money
spend from cheaper goods and services, can be used to buy more products
and services. (1 mark) It can also occur from the forming of a trading
bloc which moves from the less efficient producer to the more efficient
producer or creates trade that did not exist before. (1 mark)

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(ii) Political cooperation
This refers to denotes governments of different states working
together toward a common goal (1 mark). A group of nations can
have significantly greater political influence than each country
would have individually. (1 mark) This integration is an essential
strategy to address the effects of conflicts and political instability
that may affect the region. (1 mark) This is a useful tool to handle
the social and economic challenges associated with
globalization. (1 mark)
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(iii) Employment opportunities
As economic integration encourages trade liberation and leads to
market expansion, (1 mark) more investment into the country and
greater diffusion of technology, (1 mark) it creates more employment
opportunities for people to move from one country to another to find
jobs or to earn higher pay. (1 mark) For example, industries requiring
mostly unskilled labour tend to shift production to low-wage
countries within regional cooperation. (1 mark)

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 2023 #3

2023 #3
(a) Differentiate between the current and capital accounts in the
balance of payments. [4 marks]
The current account shows a country’s position in terms of trade in
goods and services with the rest of the world (1) during a year. The
capital account shows the capital flows in purchasing or selling real
(tangible) and financial assets (1) during a year.

Current account: Merchandise balance, Transfers, Investment Income

Capital Account: Foreign Direct Investment, Portfolio Investment
1 mark for definition and 1 mark for example for each.

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(b) Explain EACH of the following methods of trade protection:
(i) Tariffs as a method of trade protection [3 marks]
Tariffs are excise taxes/duties on the dollar values or
physical quantities of imported goods (1). They may be
imposed to obtain revenue or protect domestic producers
from foreign competition (1) Tariffs impede free trade by
increasing the price of imported goods (1) and shifting sales
towards the domestic producer (1).
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(ii) Quotas as a method of trade protection [3 marks]
Import quotas specify the limit on the quantity or total
values of specific imported items within a period (1).
Import quotas are can lead to price increases which can
impede international trade (1). With an import quota, all
imports of the item become prohibited once the quota is
filled (1) this can lead to black market (1).

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(iii) Non-tariffs as a method of trade protection [3 marks]
Non-tariff barriers refer to the creation of additional
restrictions outside of tariffs to limit imports (1). These
include licensing requirements (1), unreasonable standards
about product quality (1), bureaucratic red tape in customs
procedures, and foreign exchange requirements (1).

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(c) Discuss EACH of the following economic
integration concepts:
(i) Free trade areas
(ii) Trade creation
(iii) Trade diversion [12 marks]

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(i) Free trade areas
A free trade area is a form of economic integration through in which various countries
agree to come together (1) to create a competitive market (1). The group’s ultimate
objective is to create a more efficient trade structure wherein trade barriers (ex., tariffs
or quotas) are removed among members (1). Still, each member retains its barriers to
trade with nonmembers (1). Free trade areas are also likely to increase the volume of
trade among members (1) and allow them to increase their area of specialization (1).
Examples of free trade areas are African Free Trade Zone (AFTZ), Asia-Pacific Trade
Agreement (APTA), Central European Free Trade Agreement (CEFTA),
Commonwealth of Independent States Free Trade Agreement (CISFTA), North
American Free Trade Agreement (NAFTA), European Economic Area (EEA),etc.
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(ii) Trade creation
Trade creation occurs when common external barriers and internal free trade lead
to a shift in production (1) from high- to low-cost member states (1). Trade would
be created because removing barriers (1) increases the country consumption
from the relatively lower-cost member countries (1).
1 mark for clear example - For example, countries A and B may produce textiles
for their respective local markets before integration. Country A may be a lower-
cost producer, but its exports to country B are blocked by B’s high tariffs. Suppose
A and B form a customs union by eliminating all barriers to internal trade. In that
case, country A’s more efficient, lower-cost textile industry will service both
markets.
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(iii) Trade diversion
Trade diversion occurs when the erection of external tariff barriers (1)
causes the production and consumption of one or more member
states to shift from lower-cost non-member (1) sources of supply (e.g.,
developed countries) to higher-cost member producers. Trade
diversion is undesirable because everyone (the world and member
states) is perceived to be worse-off (1) due to the diversion of
production from more efficient foreign suppliers to member states’
less efficient (1) domestic industries. (1 mark for suitable example)
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 2022 #3

(a) Define EACH of the following terms:

(i) Terms of Trade [2 marks]

This refers to the measurement of the price of a country’s exports

(1 mark) relative to the price of its imports. (1 mark)

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(ii) Fixed exchange rate [2 marks]
Refers to an exchange rate in which the price of a country’s currency
relative to another country (1 mark) is not allowed to change based
on the market forces of demand and supply. (1 mark)
OR
Fixed exchange rate – A situation where the price of a country’s
currency relative to another country (1 mark) is fixed (regulated) by
the authorities. (1 mark)

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(b) Explain the following concepts:
(i) Comparative Advantage [3 marks]
A country is said to have a comparative advantage in the production of a particular
good/service if it does so at a lower opportunity cost than its trade partner. (1 mark)
Countries will therefore export the good/service for which it has the comparative
advantage (1 mark) and import the good/service for which it does not have the
advantage. (1 mark) OR
The country with the lowest opportunity cost (1 mark) in the production of a good or
service (1 mark) is said to have a comparative advantage in that good, and will
specialize in the production of that good and export (produce it)/should specialize in
it. (1 mark)
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(ii) Sustainable Development [ 3 m a r k s ]
Sustainable development is the expansion of the
capacity of a country to produce output (1 mark)
and improve human development through
economic activities (1 mark) which do not reduce
the quality of the natural environment for future
generations. (1 mark)
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(iii) Economic growth [ 3 m a r k s ]
Economic growth is the expansion of the capacity of a country (1
mark) to produce goods and services from one period to the next. (1
mark) In the presence of economic growth, a country’s GDP will
increase. (1 mark)
OR
Economic growth is a quantitative measure (1 mark) concerned with
an increase in real GDP/output/real GDP per capita/income/outward
shift in the PPF/productive capacity (1 mark) to produce
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(c) Discuss THREE ways in which economic integration may impact a
country. [12 marks]
4 Marks as Follows:
1 Mark - Identifying a cost or benefit of economic integration as done
below
3 Marks – Discussing each cost or benefit identified as done below

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 Costs of Economic Integration
Trade diversion (1 mark): When countries form a free trade, or some
other deeper integration movement, (1 mark) cheaper products from
non-member countries could be sacrificed for more expensive
purchases from member countries due to the removal of taxes on goods
traded among member countries (1 mark). Effectively this represents a
cost to the members of the movement, and can also lead to
dependency. (1 mark)

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Loss of economic independence (1 mark): Economic integration
may lead to total removal of trade barriers.(1 mark)Specifically,
larger member countries may be able charge lower prices and
provide better quality products, and more importation amongst
smaller member countries.(1 mark)Furthermore, larger member
countries may exert more power in decision making over the
smaller member countries.(1 mark)

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Loss of skills to stronger economies (1 mark): In an economic
union, labour is usually allowed to move freely from one member
country to another. (1 mark) Poorer countries within the union
could lose highly skilled workers to richer member countries. (1
mark) A skilled labour force is invaluable to economic growth and
development and so losing skilled workers retards growth and
development. (1 mark)

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Loss of monetary policy sovereignty (1 mark): In the case of a
monetary union, member countries are required to abide by a single
monetary policy framework, (1 mark) as such countries do not have
the ability to initiate monetary policy to achieve national goals. (1
mark) This can be costly for a member country if it requires a
monetary expansion when the rest of the union requires a no-
change in monetary policy, or worse the opposite policy requirement
(contractionary monetary policy). (1 mark)

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 Benefits of Economic Integration
Trade creation (1 mark): Since there may be little or no tariffs
amongst members, (1 mark) members selling at a lowest cost will
gain market share (economies of scale)or provide a variety of
goods (1 mark) this will encourage greater scope for employment
across the region etc. as business will expand to accommodate
the increase in sales. (1 mark)

Miss C. Mohammed 88
Increased competition (1 mark): This can also lead to greater efficiency as firms compete and citizens can benefit from lower prices, improved technology (1 mark) and better-quality goods and services. (1 mark) Also, consumers will benefit from increased choices and variety of goods and services. (1 mark)

Increased competition (1 mark): This can also lead to greater

efficiency as firms compete and citizens can benefit from lower
prices, improved technology (1 mark) and better-quality goods
and services. (1 mark) Also, consumers will benefit from
increased choices and variety of goods and services. (1 mark)

Miss C. Mohammed 89
Economic growth (1 mark): Economic integration provides the opportunity to
access to larger markets. (1 mark) As such, this may lead to increased export
activities of member countries (1 mark) leading to higher levels of production
in respective economies. (1 mark)

Increased employment(1 mark): Since there may be free movement of labour

amongst members (1 mark)individuals may now have access to various
options for employment(1 mark) which can lead to an increase in GDP for the
host country and increased remittances to the origin/sending country. (1
mark)

Miss C. Mohammed 90
 2021 #3
a) Identify FOUR forms of economic integration.[ 4 marks]

- Preferential trade area

- Free trade area

- Customs union

- Common market

- Monetary union

- Economic union

Miss C. Mohammed 91
b) Explain each of the following concepts:
i) The Human Development Index [3 marks]
This is an index used to rank countries (1 mark) according to three areas
representative of human development (1 mark) i.e., education, health and
income (1 mark).
OR
It consists of three indices: literacy rate, life expectancy. GDP per capita (1
mark). These can lead to an increase in human potential (1 mark). The HDI is
used to rank or compare the general well-being or human development
countries.
Miss C. Mohammed 92
ii) Preferential Trade Agreement [3 marks]

This is an agreement is an agreement that gives

preferential access (1 mark) to a specific set of goods or
services from participating countries (1 mark). This is
achieved by reducing tariffs on eligible goods and
services (1 mark).

Miss C. Mohammed 93
iii) Exchange Rate Depreciation [3 marks]
This occurs due to market forces (1 mark) and results in a
fall in the value of a country’s currency (1 mark) relative to
another country’s currency (1 mark).
OR
It occurs in a floating exchange regime (1 mark) and results
in a fall in the value of a country’s currency (1 mark) relative
to another country’s currency (1 mark).
Miss C. Mohammed 94
c) Discuss THREE factors responsible for globalization.
[12 marks]

Information and Communications Technologies

Over the last three decades, there have been rapid
advances in information and communications
technologies (1 mark). These advances have reduced
transaction costs, reduced risks (1 mark) and increased
information regarding the choice of tradable goods and
services (1 mark). This has led to greater interaction
between countries and regions especially with regards to
international trade (1 mark).
Miss C. Mohammed 95
New Transportation Technologies
Advances in transportation technologies (1 mark) have made the
process of moving goods and people much easier (1 mark). New
transportation technologies reduce the cost of
transportation services by reducing the time and allowing for
movement of more goods (1 mark). For example, supermax ships
have increased the container carrying capacity of cargo ships (1
mark).

Miss C. Mohammed 96
 Trade liberalization
Over the last four decades or so there have been significant efforts to
increase the international flow of goods and services by removing
barriers to trade (1 mark) through greater international cooperation
(1 mark). This reduces the likelihood of international economic
crises, and more importantly promotes economic growth and
development (1 mark). Through multilateral cooperation (GATT/WTO)
countries have worked towards lowering barriers to trade such as
tariffs and have created a framework for dispute settlement (1 mark).
Miss C. Mohammed 97
Regional Integration
In recent decades there has been rapid growth in the number of
regional trade agreements (1 mark). A regional trade agreement is a
form of regional integration where members of a bloc example
CARICOM (1 mark) benefit from the removal of trade barriers (1
mark) thereby increasing bilateral trade and in some cases
functional cooperation (health, tourism, agriculture et cetera) (1
mark).

Miss C. Mohammed 98
Financial Liberalization
Financial liberalization is the opening up of the financial sector to
competition and the removal of government intervention or
repression of the sector (1 mark). In liberalized sector allows for the
easy movement of financial resources and greater transparency (1
mark). As a result of financial liberalization, a country is better
able to engage in international trade thereby increasing economic
activity (1 mark). However, financial liberalization could increase the
economic vulnerability of an economy (1 mark).
Miss C. Mohammed 99