As the EFTA has worked to strengthen relationships not only within its member countries, but all over Europe and the rest of the world, it has established many alliances, thus creating a solid base for foreign trade. The level of exporting and importing, particularly among European countries has shown a definite increase. The expansion of foreign trade creates potential for more employment opportunities; it can also be directly related to its aggregate supply, and in effect, its level of GDP. The increase in exporting, being a significant expenditure included in the calculation of GDP, is shown in its effect on GDP growth.
Within the free trade of the EFTA, the level of employment in member countries also has been affected. As the degree of economic activity increases due to free trade alliances, many areas, including that of employment also begin to change direction. The expansion of exporting mentioned before plays a role in the variable level of employment. Increased employment will add to the level of human capital as rising imports and exports expand capital resources, thus contributing to an outward shift in the aggregate supply curve. Any increase in resource availability for land, labor, capital, or entrepreneurship will allow for an outward shift in the production possibilities curve, followed by a similar shift in the aggregate supply curve, eventually increasing real GDP. Rising employment can also effectively create a rise in consumption and in average national income, ultimately adding to real GDP.
Consumption can be affected not only by a rise in the employment level, but also by the reduction in tariffs provided by the EFTA. When consumers have to pay less for their goods, their level of real wealth has the effect of increasing. Lower prices enable them to buy more goods with the same level of income; there is the illusion of greater income. This feeling of increased wealth, along with a rise in the actual level of employment, contributes to increased consumption. The increasing degree of consumption will, again, lead to greater national income, and to a higher level of real GDP.
A rise in trade combined with increasing levels of employment and consumption allows for potential growth in the level of GDP. According to Fortune magazine, the average GDP of those countries belonging to the EFTA rose an average of 2.1% each year (Fortune 7). As trade, employment, and consumption increase together, GDP has a tendency to do so as well. EFTA countries approaching a level of full employment due to changes in trade, tariffs, and consumption will eventually experience its beneficial effect on the economy.
Conclusion
In general, it seems that each of the researched trade agreements has been successful in promoting overall economic growth throughout the regions of the world.
NAFTA
MERCOSUR
The positive effects of GATT are numerous and widespread. GATT has proved to be highly successful in removing barriers to trade in goods. In eight consecutive rounds, GATT has lowered tariffs on manufactured products from more than 40% to below 4% among developed nations. “In part as a result, world merchandise trade, measured in the tens of billions of dollars at the inception of GATT, now stands at $5 trillion” (Break down the barriers). This growth has brought prosperity to developed countries as well as developing countries. Some of these benefits are result of the larger scope of world trade rules and the large proportion of the economy that is covered under GATT.
The EFTA has been fairly effective in following through with its one underlying goal, the removal of trade barriers within and outside of the EFTA. It has also been proficient in cultivating its relationships with third world countries. Its success in these areas has allowed for the growth of its member countries in areas of trade, employment, consumption, and eventually also national income and real GDP. It seems, however, that it needs to do more in order to have a more influential presence.
Since its initial founding, the number of member-countries in the EFTA has dwindled from seven to only four. The EFTA is clearly not the most prominent free trade organization in Europe; it is apparent that the European Union holds the position of dominance, as many EFTA countries have defected to the EU over the years. The EFTA’s minority power in Europe and the simple reality of its size may cause many countries to brush it aside. While it has united with the European to Union to accomplish many things such as the European Economic Area, it might be more effective if it could handle more significant matters on its own.
Bibliography
EFTA Page. EFTA Secretariat EFTA Surveillance Authority EFTA Court. 23 March 1999 *http://www.efta.int/structure/main/index.html*.
“How They Add Up.” Fortune 126.13 (14 Dec. 1992): 152 – 153.
http://www.americasnet.com/mauritz/mercosur/english ; MERCOSUR
Sabkar, Maysoon; http://bmb.net/our_views/Reports/Country/paraguay_1.htm , 1998
http://www.embassy.org/uruguay/econ/mercosur/merc-002.htm ; Embassy of Uruguay, Washington D.C. 1996
http://www.heinlein.com.ar/eco.htm ; Argentina Brief