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Topic: Trade diversion

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In the News (Sat 20 Apr 19)

  Trade: Chapter 110-2A: Trade Diversion and Trade Creation
In general, trade diversion means that a free trade area diverts trade, away from a more efficient supplier outside the FTA, towards a less efficient supplier within the FTA.
The adjoining diagram depicts the case in which trade diversion is harmful to a country that joins a FTA.
Trade diversion occurs when a FTA shifts imports from a more efficient supplier to a less efficient supplier which by itself causes a reduction in national welfare.
internationalecon.com /Trade/Tch110/T110-2A.php   (2218 words)

  Trade diversion - Wikipedia, the free encyclopedia
Trade diversion is an economic term related to international economics in which trade is diverted by the formation of a customs union.
Previously a nation may have had a working trade relation with another nation outside the customs union in which each nation produced to their comparative advantages, the common external tariff may now make it not as efficient to trade with that non-member nation than with a nation within the member nation's free trade zone.
In this respect, trade is diverted from the nation outside the union to a nation inside the union, lowering the total output of the good or service being traded.
en.wikipedia.org /wiki/Trade_diversion   (340 words)

 International trade - Wikipedia, the free encyclopedia
International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.
The theory argues that the pattern of international trade is determined by differences in factor endowments.
The regulation of international trade is done through the World Trade Organization at the global level, and through several other regional arrangements such as MERCOSUR in South America, NAFTA between the United States, Canada and Mexico, and the European Union between 25 independent states.
en.wikipedia.org /wiki/International_trade   (882 words)

 Trade Encyclopedia Article, Information, History and Biography @ LocalArtGallery.com   (Site not responding. Last check: 2007-10-03)
Trade in the East Indies was dominated by Portugal in the 16th century, the Netherlands in the 17th century, and the British in the 18th century.
The ascendancy of free trade was primarily based on national advantage in the mid 19th century.
Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea, which adopted a policy of export-oriented industrialization, and India, which historically had a more closed policy (although it has begun to open its economy, as of 2005).
www.localartgallery.com /encyclopedia/Trade   (2407 words)

 Trade   (Site not responding. Last check: 2007-10-03)
The most fundamental consideration relates to the danger that trade commitments made with respect to one policy instrument (such as tariffs) may be undermined by new protectionist measures grounded in unconstrained policy instruments.
Trade diversion can also occur because there is no reason to suppose that the lowest cost suppliers will always be first in line under the quota.
Finally, subsidies have somewhat less transparent effects on trade than tariffs perhaps, but as long as their magnitude is known to trading partners their impact may not be much harder to forecast than that of a tariff.
www.ksg.harvard.edu /cbg/Conferences/trade/sykes.htm   (9605 words)

 International Economics Glossary: T   (Site not responding. Last check: 2007-10-03)
Trade that occurs between members of a preferential trading arrangement that replaces what would have been production in the importing country were it not for the PTA.
In a diagram measuring quantites of exports and imports, a curve representing amounts of trade among which a freely trading country is indifferent, based on its community indifference curves and its transformation curve.
Refers to the budget deficit and trade deficit of a country (in spite of the fact that, although they are related, they are far from being the same).
www-personal.umich.edu /~alandear/glossary/t.html   (3707 words)

 TESDA - Technical Education and Skills Development Authority - Services - Info Series   (Site not responding. Last check: 2007-10-03)
Trade creation refers to the increase in trade between economies as a result of their common membership in a free trade area.
Trade diversion, on the other hand, refers to decreased imports from the more efficient non-member countries and increased sourcing from the less-efficient member countries.
Trade diversion leads to a decrease in welfare because the resources of member and non-member economies would be utilized less efficiently.
www.tesda.gov.ph /services1/IS_mar2003.asp   (1513 words)

 Trade Creation and Trade Diversion [ Biz/ed Virtual Developing Country ]
From the point of view of LDCs the existence of trading blocs depends rather on firstly whether the country is in the trading bloc and secondly which other countries are also members.
Forming a trade bloc with other LDCs may result in only a small trade creation effect as the share of world trade involving LDCs is so small, that the trade bloc has limited influence on the market price and quantity.
If the country joins a trade bloc with a MDC then there may be real advantages to the LDC as resources flow within the bloc to the countries where there are cost advantages and the potential market for exports is significantly expanded.
www.bized.ac.uk /virtual/dc/trade/theory/th3.htm   (531 words)

 Revision Guru
If free trade is economically the most efficient policy, it would seem to follow that any movement towards free trade should be beneficial in terms of economic efficiency.
Whether a preferential trade arrangement raises a country's welfare and raises economic efficiency depends on the extent to which the arrangement causes trade diversion versus trade creation.
Trade diversion occurs when a FTA shifts imports from a more efficient supplier to a less efficient supplier which by itself causes a reduction in national welfare.
www.revisionguru.co.uk /economics/creatdiver.htm   (1195 words)

 [No title]
When the trade barriers are eliminated among PTA members, differences in comparative costs will lead \par to shifts in trade, production and investment patterns, according to the law of comparative advantage, that favour the \par lower cost producers and improve economic efficiency within the PTA.
Trade is therefore diverted from the lowest cost producer to a more expensive \par producer due to the PTA.
However, it is possible for a PTA to reduce the welfare of non-member countries through trade \par diversion effects, and for these effects to be so large that they overwhelm the positive impacts on the member \par countries.
www.uky.edu /~wallyf/news/nafta.doc   (1901 words)

 Half a Loaf is Better than None: The Case for Regional Free Trade Agreements   (Site not responding. Last check: 2007-10-03)
Trade creation is the benefit accrued when a country lowers its trade barriers, such as a tariff, with the most efficient producer of a product as happened, for example when the North American Free Trade Agreement (NAFTA) allowed tomatoes from Mexico to enter the U.S. market.
Most significantly, the diversion argument also ignores the aggregate effects of liberalization: An FTA might result in some trade creation and some trade diversion, but the former is likely to substantially outweigh the latter.
Whatever trade diversion might exist would be suffered by the third country which is not participating in the agreement.
www.heritage.org /Research/TradeandForeignAid/EFP00-02.cfm   (4146 words)

 Trade diversion and declining tariffs: evidence from MERCOSUR
Specifically, external tariffs dropped in industries experiencing trade diversion, that is, industries in which imports from Brazil initially increased at the expense of imports from the rest of the world after the Mercosur agreement was signed.
When trade barriers were removed on trade between Mercosur countries but maintained between Mercosur and the rest of the world, the initial effect was for trade to be diverted from the rest of the world towards the less efficient industries in Mercosur countries.
Alternative models of the political economy of regional trade agreements could be tested, including several based on imperfectly competitive market structures and models concerned with the ability of industries to lobby government successfully.
www.eldis.org /static/DOC17020.htm   (305 words)

 International trade - Wikipedia, the free encyclopedia   (Site not responding. Last check: 2007-10-03)
In the nineteenth century, especially in Britain, a belief in free trade became paramount and this view has dominated thinking among western nations for most of the time since then.
The Netherlands and the United Kingdom were both strong advocates of free trade when they were on top, today the United States, the European Union and Japan are its greatest proponents.
The regulation of international trade is done through the World Trade Organization at the global level, and through several other regional arrangements such as MERCOSUR in South America, NAFTA between the United States, Canada and Mexico, and the European Union between twenty five independant states.
www.mywikipedia.us /International_trade   (562 words)

 Trade Diversion and Trade Creation
The analysis uses a partial equilibrium framework which means that we consider the effects of preferential trade liberalization with respect to a representative industry.
In general, trade diversion means that a free trade area diverts trade, away from a more efficient supplier outside the FTA, towards a less efficient supplier within the FTA.
The adjoining diagram depicts the case in which trade diversion is harmful to a country that joins a FTA.
www.internationalecon.com /v1.0/ch110/110c030.html   (2198 words)

 Federal Reserve Bank of Minneapolis - The Region - A Fork in the Free-Trade Road (September 2004)   (Site not responding. Last check: 2007-10-03)
Rather than continuing to swing for the fences of multilateral free trade, they are hitting singles by entering into so-called regional trade agreements* with individual countries.
GATT was designed to encourage free trade on a multilateral basis (that is, among all countries) by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes.
According to a November 2003 summary report from the WTO Secretariat, the push in trade agreements “which gathered pace in the 1990s continues unabated.” As of October 2003, all but one of the WTO members were participating in or already active in an RTA (Mongolia is the exception).
woodrow.mpls.frb.fed.us /pubs/region/04-09/wirtz.cfm?js=0   (4358 words)

The purpose of a trade diversion inquiry is to determine if any action (affecting imports of goods from China into the market of another World Trade Organization [WTO] country) has caused or is threatening to cause a significant diversion of trade into the domestic market in Canada.
The Tribunal may conduct a trade diversion inquiry following a complaint by a domestic producer or any person or association acting on behalf of the domestic producer.
This complaint concerns trade diversion of (product subject to this complaint) originating in or exported from China caused by an action taken by (name of the WTO member taking the action) on (date the action was taken).
www.citt.gc.ca /publicat/diversion_e.asp   (2359 words)

 NAFTA, Trade Diversion and Mexico’s Textiles and Apparel Boom and Bust - Southwest Economy, Sept/Oct 2006 - FRB ...
Trade diversion occurs when these preferential trade agreements encourage higher-cost imports of member countries to replace the lower-cost imports of nonmembers.
Where trade diversion exists, economic theory suggests that all good things must end—at least for those that have benefited from the trade preferences.
When the importing countries extend preferential trade benefits to more nations, the boom from the original diversion may be followed by a bust as new trading patterns emerge and the world’s low-cost producer regains its advantage.
dallasfed.org /research/swe/2006/swe0605c.html   (1734 words)

 [No title]   (Site not responding. Last check: 2007-10-03)
Introduction The analysis of regional trade arrangements is typically conducted in the framework of trade creation versus trade diversion, under which preferential tariff reduction is welfare inferior to non- preferential tariff reduction.
With low trade elasticities the revenue requirement for the VAT is much smaller, ranging from an increase between 17% and 26% in the three basic preferential trade arrangement scenarios presented in rows 1-3.
That is, although it is not true as a general proposition, the implementation of a preferential trade agreement in a country that starts with a dispersed tariff structure may result in a reduction in the dispersion of the tariff structure.
wdsbeta.worldbank.org /external/default/WDSContentServer/IW3P/IB/2001/08/10/000094946_01080204003340/Rendered/INDEX/multi0page.txt   (13508 words)

 Title page for ETD etd-01122006-152604
This study examines trade creation and trade diversion effects in the EUSAFTA using the standard gravity model of bilateral trade flows.
In order to ascertain the overall trade creation and trade diversion effects explanatory variables such as GDP, distance and dummy variables were incorporated into the estimation equation to explain bilateral trade flows and exports respectively.
Additionally, the overall effects of regional and preferential trade agreements are positive and significant indicating that trade agreements, induce and generate huge trade volume among member countries.
etd.lsu.edu /docs/available/etd-01122006-152604   (198 words)

 Trade Diversion: Trade litigation
Alan Beattie voices concern: WTO panels comprise three from a roster of part-time panellists that includes trade officials, diplomats and academics.
Some, oddly, are moonlighting from day jobs as national ambassadors to the WTO, meaning they are negotiating over trade deals one day and ruling on their meaning the next.
WTO panels comprise three from a roster of part-time panellists that includes trade officials, diplomats and academics.
www.tradediversion.net /archives/2007/03/trade_litigatio.html   (332 words)

 International Trade Theory and Policy Analysis - Course Syllabus 1   (Site not responding. Last check: 2007-10-03)
The trade policy tools section provides a way to begin discussion of some of ways in which governments regulate the flow of goods and services between countries.
The session presents the H-O theorem which predicts the pattern of trade, notes the redistributive welfare effects of trade because of the changes in factor prices, discusses the factor-price equalization theorem and notes the importance of the compensation principle.
Trade policy analysis is continued with a look at import quotas, VERs, export taxes and export subsidies.
www.internationalecon.com /v1.0/tradesyllabus1.html   (1304 words)

 Free Trade Agreements and Customs Unions, by Douglas A. Irwin: The Concise Encyclopedia of Economics: Library of ...
Free trade, usually defined as the absence of tariffs, quotas, or other governmental impediments to international trade, allows each country to specialize in the goods that it can produce cheaply and efficiently relative to other countries.
The gains from such trade liberalization are substantial: a major study by the World Bank shows that income grows more rapidly in countries open to international trade than in those more closed to trade.
Another concern is that greater reliance on a bilateral or regional approach to trade liberalization may undermine and supplant, instead of support and complement, the multilateral GATT approach.
www.econlib.org /library/Enc/FreeTradeAgreementsandCustomsUnions.html   (1782 words)

 Intranational Trade Diversion, the Canada—United States Free Trade Agreement, and the L Curve
We establish a striking empirical fact, the L curve, that characterizes the comparative evolution of intranational (interprovincial) and international trade shares to GDP between 1981 and 2000.
We also use a panel data model to evaluate the impact of changing trade costs induced by the CUSFTA on the intensity of international and interprovincial trade.
The analysis casts doubt on the intranational trade diversion hypothesis, common in trade models such as the structural gravity model of Anderson and van Wincoop (2003) that was used recently to revisit the Canada—U.S. border effect.
www.bepress.com /bejeap/topics/vol4/iss1/art16   (222 words)

 Regionalisation and world trade   (Site not responding. Last check: 2007-10-03)
However, the empirical evidence from an examination of the import trade data for four RTAs among OECD countries (EC, EFTA, Canada-United States FTA, and Australia-New Zealand CER) does not support the view that RTAs have led to a growing regionalisation of world trade.
There is some tendency for world trade to become more polarised as the share of intra-area imports has increased for the westem European and ASEAN regions but not for the North American region.
The paper surveys the literature on trade diversion/creation and other effects on non-member countries and considers the effects of RTAs on the multilateral trading system.
www.oecd.org /LongAbstract/0,2546,en_2649_34601_34250567_1_1_1_37451,00.html   (159 words)

 Trade Creation, Trade Diversion, and Endogenous Regionalism
Estimates of trade creation and diversion for each new trade agreement started between 1985 and 1994 are generated by comparing trade flows between country pairs at the 4-digit SITC industry level with a counterfactual prediction of trade flows that would have occurred in the absence of the preferential agreement.
I then estimate the determinants of trade creation and trade diversion (TD), which provides a test of the proposition that trade diversion is less severe among countries with significant bilateral trade prior to a preferential agreement.
Finally, the estimated determinants of trade creation and diversion can be used to predict what these values would be for country pairs that do not form preferential agreements.
ideas.repec.org /p/ecm/nasm04/289.html   (317 words)

 Trade Diversion
Lamy, who visited Washington last week, said his talks with leading members of the finance and agricultural committees in both houses of Congress, including Senator Charles Grassley, Republican of Iowa and chairman of the Senate Finance Committee, had made clear that those powers would not be extended.
Ben Muse thinks that we ought to reconsider the potential for regional and bilateral trade deals to be the engine of trade liberalization in light of the Doha round's stall.
The recently announced Korea-US PTA will cause significant trade diversion and is worth pursuing "only if agricultural reforms are an integral part of the deal," which are quite unpopular in Korea (pdf).
www.tradediversion.net   (863 words)

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