The larger the size and the greater the number of countries in a customs union, the greater the trade diversion effect.

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Quizplus · Accepted Answer

Trade diversion occurs when a customs union leads to the replacement of cheaper imports from non-member countries with more expensive goods from member countries. However, the size and number of countries in a customs union can also lead to trade creation, where more efficient production within the union leads to lower prices and increased trade among member countries. The overall effect on trade diversion is not directly proportional to the size and number of countries in the union; it also depends on the relative efficiency and trade policies of the member countries.

The Larger the Size and the Greater the Number of Countries