Trade creation

Trade creation

Trade creation is an economic term related to international economics in which trade is created by the formation of a customs union.

Occurrence of Trade Creation

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. As a result, the member nations establish greater trading ties between themselves now that protectionist barriers such as tariffs, quotas, and non-tariff barriers such as subsidies have been eliminated. The result is an increase in trade among member nations in the good or service of each nation's comparative advantage.

Downside of Trade Creation

The creation of trade is important to the nation entering the customs union in that increased specialization may hurt other industries. Arguments for protectionism, such as the infant industry argument, national defense, outsourcing, and issues with health and safety regulations are brought to mind. However, customs unions are typically formed with friendly nations, eliminating the national defense argument, and in the long run serves to create more jobs and output due to specialization.

ee also

* Trade diversion

External links

* [ Regional Integration and Cooperation in Sub-Saharan Africa: Are Formal Trade Agreements the Right Strategy?] - this "Harvard Institute for International Development" discussion paper from 1997 argues that " [T] here is little reason to expect significant economic gains from formal trade agreements at this time. Such agreements, in and of themselves, are unlikely to yield appreciable benefits unless they are preceded by decisions within member countries to follow more general open trade strategies." It summarizes the conclusion of empirical research that there has been "little, if any, impact on intra-regional trade" (i.e. trade creation) from developing nation customs union formation. Many possible reasons are listed for the lack of trade creation evidence, given that developed nation customs unions do seem to have "stimulated increased trade and economic growth".

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Trade diversion — is an economic term related to international economics in which trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement.OccurrenceWhen a country applies the same tariff to all… …   Wikipedia

  • Trade and development — Trade is a key factor in economic development. A successful use of trade can boost a country s development. On the other hand, opening up markets to international trade may leave local producers swamped by more competitive foreign… …   Wikipedia

  • Trade — This article is about the economic mechanism. For other uses, see Trade (disambiguation). Purchase redirects here. For other uses, see Purchase (disambiguation) Trader in Germany, 16th century …   Wikipedia

  • Trade pact — A trade pact is a wide ranging tax, tariff and trade pact that often includes investment guarantees. Trade pacts are frequently politically contentious since they may change economic customs and deepen interdependence with trade partners.… …   Wikipedia

  • Trade unions in the United Kingdom — were first decriminalised under the recommendation of a Royal Commission in 1867, which agreed that the establishment of the organisations was to the advantage of both employers and employees. Legalised in 1871, the Trade Union Movement sought to …   Wikipedia

  • Trade unions in South Africa — have a history dating back to the 1880s. From the beginning unions could be viewed as a reflection of the racial disunity of the country, with the earliest unions being predominantly for white workers. cite book year = 2005 title = Trade Unions… …   Wikipedia

  • Trade unions in Senegal — Trade unionism is a powerful force in the politics, economy, and culture of Senegal, and was one of the earliest trades union movements to form in Francophone West Africa.History of Trade unionism in SenegalSenegal has a long history of Trade… …   Wikipedia

  • Trade marketing — is a discipline of marketing that relates to increasing the demand at wholesaler, retailer, or distributor level rather than at the consumer level. However, you need to continue with your Brand Management strategies to sustain the need at the… …   Wikipedia

  • Trade air — Codes AITA OACIL Indicatif d appel 8P TDR Trade Air Repères historiques Date de création avril 1994 Généralités Basée à Aéroport de Zagreb …   Wikipédia en Français

  • Trade unions in Maldives — are not expressly prohibited, however, ICTUR reports that there is no apparent union activity within Maldives. There are no laws providing for the creation of trade unions, nor are there protections for joining unions.Maldives is not a member of… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.