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signed with a less-efficient nation, it may well be that their products become cheaper in the importing market than those from the more-efficient nation, since there are taxes for only one of them. Consequently, after the establishment of the agreement, the importing country would acquire products from a higher-cost producer, instead of the low-cost producer from which it was importing until then. In other words, this would cause a trade diversion.
811:
creating more efficiency and therefore against more overall surplus. It is widely believed by economists that trade diversion is harmful to consumers. The dynamics of trade diversion was described by
Ravshanbek Dalimov in 2009. He used similarity of trade flows to the flux of gas or liquid stimulated by the pressure difference, while the flows of trade flows are stimulated by the price difference. This allowed use of
797:
Opposite to economically efficient trade creation effect, the trade diversion flow is cost-inefficient compared with the rest of the world. Balance between trade creation and trade diversion effects due to the creation of economic union makes the union either economically efficient (positive balance)
768:
When a country applies the same tariff to all nations, it will always import from the most efficient producer, since the more efficient nation will provide the goods at a lower price. With the establishment of a bilateral or regional free trade agreement, that may not be the case. If the agreement is
793:
Viner's article became and still is the foundation of the theory of international economic integration. It considered only two states comparing their trade flows with the rest of the world after they abolish customs tariffs on inner border of their union. Following the fact that economic unions most
785:
in 1950. In its literal meaning the term was however incomplete, as it failed to capture all welfare effects of discriminatory tariff liberalization, and it was not useful when it came to non-tariff barriers. Economists have however dealt with this incompleteness in two ways. Either they stretched
810:
Diverted trade may hurt the non-member nation economically and politically, and create a strained relationship between the two nations. The decreased output of the good or service traded from one nation with a high comparative advantage to a nation of lower comparative advantage works against
798:
or inefficient (negative balance). It is based on the fact that unification of states usually applies mergers of more than 1 sector in economy (even
European Coal and Steel Union, which had 2 sectors only) leading to the creation of either trade creation or diversion effects.
699:
is when the formation of a trade agreement between countries decreases the price of the goods for more consumers, and therefore increases overall trade. In this case the more efficient producer with the agreement increases trade.
695:. Total cost of good becomes cheaper when trading within the agreement because of the low tariff. This is as compared to trading with countries outside the agreement with lower cost goods but higher tariff. The related term
801:
Positive effects of trade diversion include increase of trade between unified states, increase of employment in manufacturing states inside the union consequently leading to increase of respective taxes and welfare.
794:
often include more than 2 states, attempts have been made to increase the number of the states (3+world), but not so successfully, as they did not have as clear conclusions as Viner's.
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Preferential Trade
Agreement Policies for Development. The World Bank. Jean-Pierre Chauffour and Jean-Christophe Maur, Editors. (2011) 536 pag.
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Contextual
History, Practitioner History, and Classic Status: Reading Jacob Viner's The Customs Union Issue reviewed
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Oslington, Paul (2013). "Contextual
History, Practitioner History, and Classic Status: Reading Jacob Viner's
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Ravshanbek
Dalimov. Dynamics of international economic integration: Non-linear analysis. (2010) 276 pag.
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1054:. Studies in the administration of international law and organisation. Vol. 10. London: Stevens.
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Balassa, Bela (1967). "Trade
Creation and Trade Diversion in the European Common Market".
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Lipsey, Richard G. (1957). "The Theory of
Customs Unions: Trade Diversion and Welfare".
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the original meaning to cover all welfare effects, or they introduced new terms like
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Trade
Creation and Trade Diversion in the European Common Market
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An early use of the terms was by Jacob Viner in his 1950 paper
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is diverted from a more efficient exporter towards a less
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735:of goods would be effected by trade agreements.
815:for the interregional dynamics of trade flows.
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790:or internal versus external trade creation.
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362:Customs and monetary union
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327:Preferential trading area
608:Balassa–Samuelson effect
603:Ricardian trade theories
490:Largest consumer markets
299:World Trade Organization
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813:Navier-Stokes equations
783:The Customs Union Issue
777:The term was coined by
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727:. Later in same decade
725:The Customs Union Issue
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623:Lerner symmetry theorem
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598:Gravity model of trade
495:Leading trade partners
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1050:Viner, Jacob (1950).
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121:Trade route
34:World trade
1078:3838380975
869:9 December
844:References
837:Trade bloc
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707:economist
508:By country
415:Fair trade
261:Free trade
211:Safeguards
86:Trade bloc
81:Trade pact
1060:470257202
961:Economica
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685:efficient
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535:Pakistan
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545:Vietnam
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61:Import
54:Policy
1012:JSTOR
977:JSTOR
942:S2CID
691:or a
681:trade
550:India
468:Lists
1082:ISBN
1074:ISBN
1056:OCLC
1035:ISBN
900:OCLC
890:ISBN
871:2017
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