Trade Creation and Trade Diversion
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What is the difference between trade creation and trade diversion resulting from economic integration?
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Solution Summary
The solution differentiates trade creation & trade diversion resulting from economic integration. References included.
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According to Wikipedia, economic integration is a term used to describe how different aspects between economies are integrated. As economic integration increases, the barriers of trade between markets diminish.
With the onset of economic integration, one asks if this arrangement benefits world trade and increase overall welfare and the answer to this question depends on the difference between the effects of trade creation and trade diversion.
An extra output produced by the member countries causes the trade creation effect which is an output that ...
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