Question

An economist would say that the benefits of regional integration are determined by

Multiple Choice

• the formation of a political union.

• the amount of trade diversion.

• the amount of trade creation.

• the level of consumer involvement.

• the location of manufacturing facilities.

Answer 1

Regional integration is the integration of several countries that are located close to each other and agree to make a regional trade area to facility trade within the region. this results in a creation of several trade links between the member countries where the transaction cost and trade barriers are either removed or reduced. In this manner the benefits are dependent on trade creation. Political union and consumer involvement do play a critical role but they are not responsible for the quantum of benefits available for members. Location of manufacturing facility is a weak criteria because now many firms outsource the same work in other countries at a cheaper cost

Select the amount of trade creation.

.