A trade bloc is an official agreement within a group of countries to trade with exterior nations. Implementing a trade bloc reaps significant economic advantages.
Foreign Direct Investment
An increase in foreign direct investment results from trade blocs and benefits the economies of participating nations. Larger markets are created, resulting in lower costs to manufacture products locally.
Economies of Scale
The larger markets created via trading blocs permit economies of scale. The average cost of production is decreased because bulk production is allowed.
Trade blocs bring manufacturers in numerous countries closer together, resulting in greater competition. Accordingly, the increased competition promotes greater efficiency within firms.
Trade blocs eliminate tariffs, thus driving the cost of imports down. As a result, demand changes and consumers make purchases based on the lowest prices, allowing firms with a competitive advantage in production to thrive.
The increased consumption experienced with changes in demand combines with a greater amount of products being manufactured to result in an efficient market.