Objectives of Trading blocs

The positive impact of WTO on developing countries can be viewed from the following aspects:

1.      Trade Creation: Economists argue that economic integration leads to trade creation. This is because; a trading bloc may remove tariffs on member nations. As a result, a high cost producing country of the bloc can import goods from low cost producing member nation. Due to formation of a free trade area, there is proper allocation of resources, and the nations can take advantage of comparative cost. Due to the comparative cost advantage, trade creation takes place.

2.      Competition: The formation of a trading bloc leads to intense competition between firms of the entire bloc. Due to intense competition, the efficiency of the firms improves. This leads to:

•        Reduction in prices.

•        Improvement in quality.

3.      Economies of Large Scale: Due to economic integration, there can be economies of large scale production and distribution. Firms in the region will try to specialize in those goods and services which they are more capable of producing. This leads to large scale production and distribution, which in turn brings economies of large scale. The economies of large scale are partly passed on to the consumers in form of lower prices.

4.      Economic Growth: The formation of a trading bloc can increase economic growth of the region. Due to reduction of trade barriers, firms in the region would be in a position to produce goods at a lower price. This would increase demand, which in turn would lead to large scale production. The increase in production of goods and services may lead to economic growth in the region.

5.      Employment: Due to large scale production and distribution of goods, the employment also increases. There can be direct and indirect effect on employment. The direct effect in the industries producing goods and services. The indirect effect is due to the increase in employment in the supporting industries such as ancillary units, banking, insurance, etc.

6.      Technological Development: Due to economic integration, there can be improvements in technology. As the firms grow, they would go for higher technological developments. A part of the increased profits can be utilized for research and development for the purpose of improving technology that will help to reduce prices, and improve quality.

7.      Investment: There can be higher investment. The member nations may reduce or remove restrictions on investment. Therefore, there can be an increase in intra-regional investments, which in turn would increase the economic development of the region. Also, the region would be in a position to attract more investment from other countries due to its growth potential.

8.      Social and Cultural Relations: Due to integration, there can be betterment of social and cultural relations in the region. The member countries can improve their relations with each other through the exchange and social programmes. This will indirectly help for the peace and prosperity of the region.

9.      Better Utilisation of Resources: The economic integration would help to make better utilization of resources. Due to the growth of the region, there would be optimum use of:

         a)      Physical Resources.

b)      Human Resources.

c)      Financial Resources.

The Optimum use of resources would in turn lead to higher efficiency and productivity of the various firms in the region.

10.    Consumer Welfare: A trading bloc facilitates consumer welfare in the region. Due to economic growth, the employment opportunities increase, which in turn increases purchasing power, and the people can enjoy higher standard of living. Also, due to trading bloc, the consumers may have to pay lower prices, and at the same time enjoy higher quality products.