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National governments are key players in terms of promoting free trade blocs (P: role of European Union (EU), The Association of Southeast Asian Nations (ASEAN) ) and through policies (free-market liberalisation, privatisation, encouraging business start-ups). (P: role of governments in economic liberalisation).

Free trade bloc - an inter-governmental agreement where barriers to trade between member nations are partially or completely removed (KEY DEFINITION).

The introduction of free trade blocs has encouraged specialisation, fostering the growth of comparative advantage and the growth in overall global output (if you don't understand this, refer to 1.1.5 under theme 1 of my economics revision notes for some detailed analysis and explanation).

The European Union

This is a single market trade bloc, with 27 members and a population of 447 million. Because it is a single market, there is free movement of commodities, capital, information, migrants and tourists between member nations. In Schengen area countries (all EU members except Bulgaria, Cyprus, Ireland and Romania) there are no barrier controls at all. The integration of their economies was with political intent. Since it was founded not long after WW2, the founding nations thought it was essential to become economically interdependent to prevent war. The 1957 founding Treaty of Rome states that members shall always seek an 'ever closer union'. Currently, 20 of the countries share a common currency (the Euro). All member nations have the Common Agricultural Policy, which subsidises farmers to ensure that food prices remain low and affordable.

The Association of Southeast Asian Nations

This is a free trade area, with 10 members and a population of 666 million. The trade bloc has a uniform low tariff on agreed-upon goods and services between nations, and is currently working towards 0 tariffs overall. In 2015, the 10 members signed The ASEAN Economic Community (AEC) Agreement, which aims to make ASEAN one of the largest single market economies in the world. Similarly to the EU, whilst it does have economic growth at the core of its goals, it is more politically orientated than anything. In 1995 they pledged to remain nuke-free, and they refuse to publicly criticise member nation's governments. For example, in 2021 the Myanmar military carried out mass genocide on its citizens who did not adhere to its laws and regulations, yet no ASEAN member has spoken on this matter to the press.

Free-market liberalisation

This is the promotion of the free market economy structure (refer to 1.1.6 in theme 1 of the economics section of this website for further detail on this) - encouraging free trade and reducing government intervention. This can allow more competition in the market, making firms compete to innovate and work towards the lowest cost of production. Lower cost of production lowers prices for consumers, and the additional competition increases consumer choice as there are more large firms producing given goods and services in one market as opposed to a monopoly provision (where only one firm dominates the market). This maximises consumer welfare, improving living standards. It was first promoted by Margaret Thatcher and Ronald Reagan in the 1980's (in the UK this was in the form of the opening up of financial markets).


Due to the increased adoption of free-market liberalisation in the 1980's, privatisation of previously government owned industries has become common. For example, in the UK the steel, car, water and gas industries were all in the public sector, but have since been privatised. However, in France the energy industry is still government owned. During the recent period of very high inflation of energy prices (2022-2023), many European countries saw a volatile jump in their fuel prices, but because this industry in France is not privately owned, the government intervened to cap prices at a reasonable level, conserving consumer incomes. Privatisation can increase efficiency by means of the profit motive, and can end monopoly provision in the market by opening up to competition. Also, permitting foreign ownership can increase foreign direct investment (an injection into the circular flow of income), stimulating economic growth and providing more employment.

Encouraging business start-ups

Business start-ups can be some of the most innovative firms in the market, and encouraging their growth can lead to more competition and more innovation, significantly benefiting the consumer and the economy. Grants, reasonably priced loans, lower corporation tax, fewer regulations and efficiency bankruptcy procedures can all be used to incentivise the beginning and growth of business start-ups. The government is more likely to use such measures in industries with the most comparative advantage or the most demand globally (usually the tertiary and quaternary sectors of the economy). In the UK, the government supports ICT start-ups in Tech City, Old Street Area, London.

To help revise this, click the button for my condensed flashcards!

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