benefits of regionalism to an LDC
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The traditional economic approach to regional trade integration assumes perfect competition in markets and is concerned with the implications of forming a region for the allocation of resources in a static sense. This static analysis distinguishes between the trade creation and trade diversion effects of regional trade integration.
Unilateral tariff reductions lead to trade creation
In order to understand these concepts, it is helpful to begin with the analysis of a country which unilaterally eliminates tariffs on all imports. As a result, the domestic price falls to the world price. Domestic production falls, domestic consumption increases and total imports increase. The reduction in tariffs leads to additional trade, or trade creation. The effect of the tariff reduction on economic welfare can be decomposed into three effects: the gain to consumers from lower domestic prices, the loss of profits to producers and the loss of tariff revenue to the government. Under the standard assumptions that resources remain fully employed and that prices reflect marginal costs and benefits, it is easily shown that the consumer gain exceeds the producer and government loss from reducing tariffs and that there is an overall gain in national welfare as a result of this policy change.
MARK BRAINLIEST...
Unilateral tariff reductions lead to trade creation
In order to understand these concepts, it is helpful to begin with the analysis of a country which unilaterally eliminates tariffs on all imports. As a result, the domestic price falls to the world price. Domestic production falls, domestic consumption increases and total imports increase. The reduction in tariffs leads to additional trade, or trade creation. The effect of the tariff reduction on economic welfare can be decomposed into three effects: the gain to consumers from lower domestic prices, the loss of profits to producers and the loss of tariff revenue to the government. Under the standard assumptions that resources remain fully employed and that prices reflect marginal costs and benefits, it is easily shown that the consumer gain exceeds the producer and government loss from reducing tariffs and that there is an overall gain in national welfare as a result of this policy change.
MARK BRAINLIEST...
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