Regional integration gives rise to trade creation and trade diversion.

Question

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Regional integration refers to the process of countries in a particular region coming together to form a trading bloc for the purpose of increasing economic cooperation, integration, and growth. Trade creation occurs when a new economic integration agreement leads to the formation of trade between countries that was not present previously. Trade diversion, on the other hand, occurs when a new economic integration agreement causes a shift in trade patterns away from countries outside the agreement to those inside the agreement. Therefore, regional integration gives rise to both trade creation and trade diversion.

Regional Integration Gives Rise to Trade Creation and Trade Diversion