Evaluate the view that further enlargement of the European Union would be beneficial for the UK economy - Jun 2015

Question 1

Structure of Essay

Answer 1

1. Look at the question
   P1. Trade and it’s benefits
   P2. Balaance of payments and the curve
   P3. FDI & Migration

Question 2

Intro

Answer 2

• The EU is a single market built on four key freedoms of free trade of goods, services, labour mobility, and capital.
• The expansion of the EU could involve more countries joining or an increase in its power and significance. The measure of benefit to the UK economy would be the effects on macroeconomic performance.

Question 3

Draw benefits of trade diagram

P1 - Trade

Answer 3

• Free movement of labour and capital and free trade of goods and services is likely to lead to trade creation.
• More countries joining the single market should decrease barriers to trade for the UK, allowing countries to exploit comparative advantage and increase efficiency, which can lead to deflation and reduced domestic employment.
• This would also reduce revenue generated from tariffs, but the UK is unlikely to engage in much trade with the joining countries.
• The EU could gain more power leading to favourable trade agreements, and experienced by all countries in the EU.

Question 4

Draw J-Curve diagraam

P2 - Balance of Payments

Answer 4

• The impact of trade balance with then influence the balance of payments.
• Falling import prices will likely increase the total money spent on imports, with some export values decreasing.
• The current account deficit will likely increase, leading to a surplus on the financial account, which is potentially dangerous but suggests a stable economy that other economies are happy lending to.
• The UK will continue to be a net contributor to the EU funding, which could increase with more countries joining.

Question 5

P3 - FDI & Migration

Answer 5

• Free movement of labour and capital opens up the opportunity for FDI and migration.
• Net inward migration of labour can reduce the wage rate and increase output, helping with inflation in the long run.
• Net inward FDI can improve productivity and lead to employment, but some profits have to be repatriated back to the origin of the FDI country, and there is the opportunity for skilled workers to leave the country (brain drain).