题目内容
Suppose that Mexico and Canada form a free-trade area. The Mexicans the decrease refrigertor manufacturing and increase imports of refrigerators from Canada, while the Canadians decrease auto manufacturing and import more autos from Mexico. This is an example of trade creation.
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Trade creation and trade diversion refer to the short run (static) effects of economic integration while economies of scale, stimulus to investment, and effects on competition refer to the long run (dynamic) effects.
For countries forming a customs union, the trade-creation effect represents a welfare loss and the trade-diversion effect represents a welfare gain.
In the short run, Mexico would realize overall welfare gains from becoming a member of the North American Free Trade Agreement if the resulting diseconomies of scale effect more than offset the competition effect.
Trade creation occurs when imports from a low-cost supplier outside of a customs union are replaced by purchases from a higher-cost supplier within the union.
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