|
Trade diversion is an economic term related to international economics in which trade is diverted by the formation of a customs union. Economics (deriving from the Greek words οίκω [okos], house, and νÎμω [nemo], rules hence household management) is the social science that studies the allocation of scarce resources to satisfy unlimited wants. ...
International economics is the branch of economics relating to ideas such as International trade, Foreign Direct Investment (FDI), and the exchange rate and how they influence one another. ...
A fruit stand at a market. ...
A customs union is a free trade area with a Common External Tariff. ...
International trade is the exchange of goods and services across international boundaries or territories. ...
The history of international trade chronicles the way that the flow of trade over long distances has shaped, and been shaped by history. ...
A trade bloc is a large free trade area or near-free trade area formed by one or more tax, tariff and trade agreements. ...
A free trade area is a designate group of countries that have agreed to eliminate tariffs, quotas and preferences on most goods between them. ...
A customs union is a free trade area with a Common External Tariff. ...
Trade creation is an economic term related to international economics in which trade is created by the formation of a customs union. ...
In economics, a monetary union is a situation where several countries have agreed to share a single currency among them, for example, the East Caribbean Dollar. ...
A single market, also referred to as a Common Market, is a customs union with common policies on product regulation, and freedom of movement of all the factors of production (goods, services, capital and labour). ...
This article covers the general information on the topic. ...
Term The term was coined by Jacob Viner in The Customs Union Issue in 1950. In its literal meaning the term was however incomplete, as it failed to capture all welfare effects of discrimnatory tariff liberalization, and it was not usefull when it came to non-tariff bariers. Economists have however dealt with this incompleteness in two ways. Either they stretched the original meaning to cover all wellfare effects, or they introduced new terms like trade expansion or internal versus external trade creation. Jacob Viner (May 3, 1892 - September 12, 1970) was a noted economist. ...
Occurrence When a customs union is formed, the member nations establish a free trade zone amongst themselves and a common external tariff on non-member nations. Previously a nation may have had a working trade relation with another nation outside the customs union in which each nation produced to their comparative advantages, the common external tariff may now make it not as efficient to trade with that non-member nation than with a nation within the member nation's free trade zone. In this respect, trade is diverted from the nation outside the union to a nation inside the union, lowering the total output of the good or service being traded. A customs union is a free trade area with a Common External Tariff. ...
A free trade zone (FTZ) or export processing zone is one or more areas of a country where tariffs and quotas are eliminated and bureaucratic requirements are lowered in order to attract companies by raising the incentives for doing business there. ...
A tariff is a tax on imported goods. ...
In economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. ...
Downside 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 creating more efficiency and therefore more overall surplus. However, one can argue that the benefits of the free trade zone and trade creation will ultimately outweigh the introduction of trade diversion. Surplus means the quantity left over, after conducting an activity; the quantity which has not been used up, and can refer to: budget surplus, the opposite of a budget deficit economic surplus Surplus product or surplus value in Marxian economics physical surplus in the economic theory of Piero Sraffa Operating...
Example An example of trade diversion is the UK's import of lamb, before Britain joined the EU most lamb imports came from New Zealand, the cheapest lamb producer, however when Britain joined they EU the common external tariff made it more expensive to import lamb from New Zealand than countries inside the union, thus France became the majority exporter of lamb to the UK. Trade was diverted from New Zealand and created between France.
See Also Trade creation is an economic term related to international economics in which trade is created by the formation of a customs union. ...
External links |
Feeds |
Contact