Which of the following is a concern of some economists regarding regional integration?
A) The benefits of regional integration are determined by the extent of trade diversion.
B) The benefits of regional integration may have been oversold, while the costs have been ignored.
C) A regional free trade agreement will benefit the world only if the amount of trade it diverts exceeds the amount it creates.
D) The costs of regional integration will be exceedingly high with little chance that the benefits will outweigh the costs.

Question

Quizplus · Accepted Answer

While there is a general movement toward the establishment of regional free trade agreements, some economists have suggested that caution be used. According to these economists, the benefits of regional integration may have been oversold, while the costs have been ignored. They point out that the benefits of regional integration are determined by the extent of trade creation as opposed to trade diversion. Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.

Which of the Following Is a Concern of Some Economists