Globalisation and International Trade - Trading Blocs - The Direct Effects of a Customs Union: Trade Creation and Trade Diversion

3 important questions on Globalisation and International Trade - Trading Blocs - The Direct Effects of a Customs Union: Trade Creation and Trade Diversion

A country will find that its trade pattern changes with two characteristics:

- Trade creation
- Trade diversion

Consumption shifts from a high cost producer to a low cost producer:

Trade creation

Consumptio shifts from a lower-cost producer outside the customs unions to a higher cost producer:

Trade diversion

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